Rent the Runway NASDAQ: RENT executives used the company’s fiscal fourth-quarter 2025 earnings call to highlight a return to subscriber growth following what CEO Jennifer Hyman described as the company’s “biggest inventory investment” in its history, alongside a balance sheet recapitalization and a new slate of initiatives aimed at improving product discovery and diversifying revenue.
Inventory investment drives subscriber growth and engagement
Hyman said the company made a “calculated bet” that increasing inventory would be the strongest lever to unlock customer growth, and she reported that the strategy “has been successful.” Rent the Runway ended fiscal 2025 with 144,000 subscribers, representing 20% active subscriber growth for the year, according to Hyman.
She attributed the growth “primarily” to the inventory strategy and a renewed focus on customer experience and marketing, designed to make the service “easier to use, more personalized, and more centered around our community.” Hyman said customers responded with “record levels of enthusiasm,” citing a subscription Net Promoter Score that increased 39% versus last year and has “more than tripled since 2022.”
Hyman also pointed to metrics indicating improved customer engagement and fewer cancellations tied to limited selection. She said “inventory-related cancellations dropped 7.6% year-over-year in Q4,” and average subscribers now visit the app 15 times per month, “an almost 50% increase over 2024 levels.”
Recapitalization reduces debt and shifts focus to equity value
Hyman said the company “improved the health of the Rent the Runway model” by completing a strategic recapitalization that reduced total debt from approximately $319 million to $120 million. She characterized the change as strengthening the balance sheet and bringing in investors “focused on equity value creation.”
CFO Siddharth Thacker echoed that fiscal 2025 marked a turning point, combining “strong ending active subscriber and revenue growth by Q4” with a “significantly improved” balance sheet. Thacker added that the company added “almost double the new receipts” in fiscal 2025 compared to fiscal 2024, and units of inventory per subscriber increased over the year.
Q4 results: revenue up 20% with higher margins and lower fulfillment costs as a percentage of sales
Thacker reported that Rent the Runway ended Q4 2025 with 143,796 ending active subscribers, up 20.1% year-over-year. Average active subscribers during the quarter were 146,356, up 16% from the prior year. He said subscriber growth was driven by a higher starting base from Q3, higher acquisitions tied to “higher marketing and promotional activity,” and improved retention versus Q4 2024. Ending subscribers fell 3.4% sequentially from Q3, which he attributed “primarily” to seasonal factors.
Total revenue in the quarter was $91.7 million, up 20% year-over-year and up 4.7% sequentially. Subscription and Reserve rental revenue increased 20.4% year-over-year to reflect higher average subscribers and higher average revenue per subscriber from the subscription price increase effective Aug. 1, partially offset by lower Reserve revenue versus Q4 2024. Other revenue rose 17.8% year-over-year.
On costs and profitability, fulfillment costs were $21.6 million, compared with $20.2 million a year earlier and $24.0 million in Q3. Fulfillment costs were 23.6% of revenue versus 26.4% in Q4 2024, which Thacker attributed primarily to higher revenue per order driven by the August price increase, partially offset by higher transportation and warehouse processing costs.
Gross margin was 38.6% versus 37.7% a year earlier, reflecting lower fulfillment and rental product depreciation and write-off costs as a percentage of revenue, partially offset by higher revenue share costs tied to greater Share by RTR inventory. Thacker said Q4 gross margin also improved substantially from 29.6% in Q3 due to a combination of seasonally lower Share by RTR receipts, higher revenue per order affecting fulfillment expenses, and a full quarter of the price increase.
Operating expenses increased 3.6% year-over-year, “due primarily to higher technology expenses.” However, total operating expenses fell to 37.9% of revenue from 44% in Q4 2024. Adjusted EBITDA was $18.3 million, or 20% of revenue, compared with $17.4 million, or 22.8% of revenue, a year earlier. Thacker noted Q4 2025 adjusted EBITDA margins were positively impacted by 2.1% due to the reversal of incentive compensation accruals during the quarter.
Cash flow reflects front-loaded inventory purchases; management expects improvement in 2026
Thacker said the company’s fiscal 2025 accomplishments came with “higher cash consumption,” with free cash flow declining to negative $46 million in fiscal 2025 from negative $7.2 million in fiscal 2024. He said the primary driver was the decision to “front-load inventory investments” in fiscal 2025 to improve customer experience and “ignite growth,” with the expectation that inventory is monetized over several years.
Free cash flow for Q4 2025 was $0.5 million, down from $2.1 million in Q4 2024, which Thacker said was primarily due to higher purchases of rental products tied to the inventory strategy.
Looking ahead, Thacker said the company does not anticipate “significant increases” in new inventory receipts in fiscal 2026 following the step change in fiscal 2025, and expects improved free cash flow trends. He said lower capital expenditures for rental products, a higher subscriber base, and the remaining impact of the August 2025 price increase are expected to support improved free cash flow in fiscal 2026, even as revenue share payments increase with a larger revenue share inventory base.
2026 priorities: AI-driven discovery, community-led marketing, and revenue diversification
Hyman framed fiscal 2026 as a shift from “inventory acquisition” to “discovery,” with plans to move beyond “the traditional e-commerce grid” and use AI to help customers find complete outfits and styling ideas. She outlined planned customer-facing improvements, including:
- Outfit grouping to help customers discover “complete looks in curated aesthetics,” which Hyman likened to having “a stylist in your pocket at all times.”
- More robust product detail pages with additional visuals, different models and sizes, “images in motion,” and AI-driven styling and fit advice.
- Conversational search aimed at enabling use-case queries, such as what to wear to a destination wedding.
On the operational side, Hyman said the company plans to use machine learning to improve quality control through computer vision, move toward more efficient dynamic pricing, and increase team productivity, including AI-assisted coding to speed feature development.
Hyman also said Rent the Runway is reallocating “a significant portion” of its paid marketing budget to expand community-led channels after pilots in fiscal 2025. She highlighted the Muse program, which generated more than 13 million impressions in Q4 alone, and a City Ambassador program launched in October 2025 that scaled to over 1,000 participants.
In addition, Hyman described efforts to increase revenue per customer through “membership flexibility,” citing momentum in subscription add-ons. She said add-on revenue in Q4 2025 increased 67% from the prior year, supported by back-in-stock notifications launched in Q1, pricing transparency, and “instant gratification one-off shipments” introduced in Q3.
For revenue diversification, Hyman said the company launched a pilot online marketplace in March for a small subset of loyal subscribers, offering curated items such as shoes, shapewear, basics, and beauty products to complement rentals. She said 86% of surveyed members expressed interest in purchasing these items. She also said the company expects its advertising and media business to grow, citing brand partnerships “like Air France,” and announced steps to monetize logistics infrastructure through B2B dry cleaning services launched with one partner in March.
In guidance, Thacker said the company expects Q1 2026 revenue of $85 million to $87 million, representing 22% to 25% growth versus Q1 2025, with the sequential decline from Q4 primarily due to lower resale revenue following the holiday season. The company expects Q1 adjusted EBITDA margins of negative 5% to negative 7%, compared with negative 1.9% in Q1 2025, driven primarily by higher revenue share expenses.
For fiscal 2026, Thacker said management expects double-digit revenue growth versus fiscal 2025 and adjusted EBITDA of 4% to 7% of revenue, compared with 7.5% in fiscal 2025, with margin pressure tied to a higher mix of revenue share inventory. The company guided Rental Product Acquired to $45 million to $50 million in fiscal 2026, down from $74.9 million in fiscal 2025.
Both Hyman and Thacker emphasized that macroeconomic and geopolitical uncertainty could affect costs and consumer confidence. Thacker said guidance is based on current conditions and does not assume “material deterioration or volatility” in factors like transportation costs and fuel surcharges.
About Rent the Runway NASDAQ: RENT
Rent the Runway NASDAQ: RENT operates an online marketplace and subscription service that provides designer apparel and accessory rentals to consumers. The company offers both one-time rentals and tiered subscription plans, enabling members to borrow items on a recurring basis rather than purchasing them outright. Rent the Runway's inventory spans a wide range of brands and styles, including evening gowns, everyday wear, handbags and jewelry, positioning the company within the broader sharing-economy and circular-fashion movements.
Founded in 2009 by Jennifer Hyman and Jennifer Fleiss, Rent the Runway was built on the premise of making high-end fashion more accessible and sustainable.
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