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| Statement |
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| And in so doing, really show the market the strength of this business model |
| Today, we are announcing significant modifications to our debt terms that we believe provide meaningful flexibility and will allow the company the opportunity to generate significant free cash flow before the debt’s maturity date |
| With transparency and convey that we believe that we have reached a positive, important turning point where our business can hopefully start to be evaluated on its strong business model and the vast opportunity ahead of us, as opposed to our challenged balance sheet |
| As of Q3, in-stock rate was 1,400 basis points higher than Q2 and 1,200 basis points higher than Q3 last year, contributing to increased customer satisfaction and retention rates |
| We think that it gives the business opportunity to break-even, to become a profitable business, to prove out this model to the market |
| We are excited about this constructive relationship we have with our lender about our debt restructuring |
| While the quantum of debt still needs to be addressed, we believe that these modifications provide significant breathing room while we are laser-focused on significant free cash flow generation and proving the strength of our business model to the market |
| We are also making further improvements to our fixed cost structure during the third quarter |
| In great news, the actions we have already taken to fix our assortment and greatly improve inventory depth in the second half of 2023 have already made marked improvement on our customer experience |
| We are seeing positive green shoots and momentum in the most important input and output metrics of the company, including subscription Net Promoter Scores that are both the highest we’ve seen since pre-COVID and that continue to climb weekly |
| We are pleased with the strides we have made across the Rent the Runway ecosystem and are offering a high touch luxury style experience that we believe our customers are noticing |
| As a result, we’re highly confident that we’re on the right track |
| Now, we’ve seen that across all cohorts, loyalty rates have improved markedly, and in particular, they’ve improved significantly amongst folks that have been with us for 90-day plus, and we showed that as of the end of Q3, those -- that loyalty rate is kind of 15% better than last year, which is really a significant increase for the segment that’s the majority of our customer base -- of our subscriber base kind of thus far |
| Our in-product onboarding is also seeing encouraging results |
| Our inventory strategy has yielded results and customer retention has improved |
| While we believe there will be many winners, we have generated the highest revenue of any fashion rental platform and we believe this is due to our positioning as the premium service for the more premium professional customer with the premium brand relationship |
| And we are excited to deliver a break-even business in 2024 and are really encouraged by the fact that the growth flatness that we’ve experienced this year, that we were able to identify the problem, that we were able to start to make significant corrections to that problem in terms of our debt strategy in the second half and that we’re really seeing green shoots in the data that give us confidence going into next year |
| So we are really beating the goals that we set out in basically the most important category -- the most important expense bucket of the business |
| So we feel really good about the continuation of this strategy leading to even higher rates of loyalty |
| Now, the fact that loyalty rates are up across all of our cohorts, meaning that LTV is up and our margins are improving, it means that we have also more room to play around with promotions at different points during the year |
| With higher NPS and higher loyalty, we believe that our positive customer growth flywheel can be re-engaged |
| But even more so, we feel that the business is poised to really step on the gas pedal as it relates to marketing and growth and acquisition, that this is a customer experience based on improved Net Promoter Scores that are some of the highest Net Promoter Scores we’ve seen since pre-COVID that we feel excited about bringing new customers into |
| We were really happy to have the opportunity to really transparently address what we think are the real elephants in the room as it relates to our business |
| We’re also seeing that we’ve continued to see nice impact to improve the retention, we continue to see good acquisition despite the macro environment and the fact that we’ve significantly decreased both our marketing spend and our promotions over the last few quarters, because we didn’t want to intentionally bring people into an experience where the inventory depth was not there and we feel that -- we feel very encouraged by the results that we’re seeing thus far |
| And what we have found is a fairly encouraging response in terms of our ability to attract customers at price points that don’t involve giving away three months or four months worth of pricing for new customers |
| And then the third thing is you’ve got to remember all of this, this year has been about making sure that the inventory experience for our customers and the in-stock rate is in good shape |
| So just by nature of positioning this as a value set of the program is also another benefit |
| I think a couple of other encouraging signs that we’ve seen that give us some confidence that the health of our customer is strong |
| We are also seeing that paid add-on rates have gone up as in-stock rates have improved and are at the highest level since before we launched our extra item plans |
| Due to the near-term gross margin impact of right-sizing our inventory debt, it’s easy to overlook that our year-to-date gross margins of approximately 40%, including both product and fulfillment costs, point to strong underlying unit economics |
| Statement |
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| While we met our third quarter guidance, as Jen mentioned, we’re disappointed with revenue that will essentially be flat this year in a growing fashion rental market |
| Subscription and reserve revenue was $64.7 million versus $68.8 million last year, a decrease of 6%, driven by continued weakness in our reserve business and lower average revenue per subscriber |
| The market has lacked confidence in our growth opportunity because the business is expected to be more or less flat this year at around $300 million in revenue |
| Gross margins were negatively affected by approximately 400 basis points versus Q2 2023 due to seasonally higher revenue share expenses attributable to new receipts |
| I want to be clear that we believe our lack of growth in 2023 is a temporary problem primarily driven by the inventory depth issue that we explained in detail last quarter |
| Total revenue for the quarter was $72.5 million, down $4.9 million, a 6.3% year-over-year |
| Lack of depth in the style customers wanted to rent led to elevated rates of churn, and as a result, we enacted strategies to pull back acquisitions while we solved this problem |
| The gross margin decline this quarter really reflects a much higher level of inventory spend over the last couple of quarters and certainly relative to last year |
| We shared with you last quarter that we plan to make deliberate choices that we anticipated would negatively impact short-term revenue and subscriber count to drive profitability |
| The gross margin was down a little bit from the rental depreciation uptick |
| The lower average revenue per subscriber was primarily driven by fewer full-price subscribers from the promotional testing previously discussed, along with expected declines in add-on revenues year-over-year |
| Our lower Q3 ending subscribers primarily reflected these promotional tests ending in Q2 and lower ongoing new customer promotions during the third quarter |
| After COVID hit in mid-March 2020, we needed to move very quickly to refinance to secure the business and address the fact that our inventory was now being appraised at a small fraction of its pre-COVID value and we faced serious consequences under the term of our ABL |
| Because of our balance sheet, we believe that the market lacks confidence in our viability |
| Adjusted EBITDA was $4.2 million lower in Q3 2023 versus Q2 2023, largely due to seasonally higher revenue share receipts, which peak in Q1 and Q3 |
| Free cash flow for the nine months ending October 31, 2023 was negative $47.3 million versus negative $69.9 million for the same period in fiscal year 2022 |
| We ended Q3 with 131,725 ending active subscribers, down 1.9% year-over-year |
| This pressure, alongside our precipitously declining revenue due to COVID lockdowns, meant that we had to take on a higher quantum of debt at high PIKs to save the company and repay our ABL |
| We have over-delivered against our plan |
| As of October, inventory as a reason for churn has gone down by 40% over the past six months |
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