Rent the Runway Inc. said demand for workwear has been surging as more subscribers are going to the office more regularly, underpinning stronger-than-expected revenue growth in the most recent quarter.
The shares slipped in late trading Wednesday, however, as the company forecast lower-than-expected second-quarter revenue as it reduces discounting.
Demand for workwear started to outpace the company’s supply of rental clothing in the quarter that ended in January and has remained robust, Chief Executive Officer Jennifer Hyman said in an interview Wednesday. She attributed the increase to more people returning to the office and also potential skittishness among workers about the labor-market outlook.
“In a market where potentially people feel less security around their job, they’re dressing up even more to go to the office,” Hyman said. “They’re showing up looking even more professional.” Some more formal looks — such as blazers — have also become increasingly fashionable outside of the office, further fueling demand for more formal clothes.
Rent the Runway plans to increase its purchase of workwear by 50% this year versus last, Hyman said.
The company is also experimenting with curbing the discounts it has been offering to draw in subscribers, such as promotions for the first and second months for new fashion rental subscription plans.
The change is aimed at bringing in subscribers who will stay on even after the discounts end, Hyman said. But it’s also leading the company to forecast revenue growth for the current quarter that’s lower than what analysts are expecting.
Less Promotional
Despite beating analysts’ estimates in the first quarter, the company warned on Wednesday that it expects revenue in its second fiscal quarter of $77 million to $79 million. Analysts were expecting $81 million.
“We’re testing being less promotional,” Hyman said. “We think this is the right time of the year to do it.” The company wants to have its discount strategy sorted out ahead of the crucial back-to-school season that starts in the autumn.
Rent the Runway’s forecast for the margin on adjusted earnings before interest, taxes, depreciation and amortization was in line analysts’ estimate, according to a Bloomberg survey. The company also reiterated its outlook from April for the remainder of the year. That forecast was significantly below what analysts had been expecting and sent shares plummeting by as much as 14% at the time.
Rent the Runway shares fell 6.8% at 4:24 p.m. in after-hours trading in New York. The stock is down 8.2% this year through Wednesday’s close, compared with an 11% rise for the S&P 500 Index.
