Rent the Runway Q2 Revenue Hits Record $98 Million, Names New CEO

Rent the Runway released its second-quarter financial results and held its earnings call on Friday. Please read the full transcript below.

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Summary

Rent the Runway announced Paige Thomas as its new CEO, effective September 14, 2026, succeeding interim CEO Terry Barackwit.

The company reported second-quarter fiscal 2026 revenue of $98 million, up 21% year-over-year, setting a company record.

Strategic initiatives focus on total customer growth, margin expansion, and operational excellence, with an emphasis on enhancing customer experience and merchandise assortment.

Operational adjustments include pausing Marketplace and on-site advertising businesses to concentrate on rental and sales priorities.

The company's gross margin improved by 600 basis points, driven by efficiency gains in product and fulfillment costs.

Management reaffirmed its fiscal 2026 guidance for double-digit revenue growth and adjusted EBITDA of 4% to 7% of revenue.

The company plans to launch an investor-backed rights offering to raise $15 million to secure liquidity and support operational plans.

Features such as Outfit Generation and virtual try-on have been launched to enhance customer engagement and product discovery.

Full Transcript

Operator

Welcome to Rent the Runway's Second Quarter Fiscal 2026 Earnings Call. As a reminder, this call is being recorded. I will now turn the call over to Cara Schembri, Chief Legal and Administrative Officer of Rent the Runway. Thank you, Cara. You may begin.

Cara Schembri, Chief Legal and Administrative Officer

Hello everyone, and thank you for dialing in today. We would like to remind everyone that this call will contain forward-looking statements. These statements include guidance and underlying assumptions for the third quarter of fiscal 2026 and fiscal 2026, as well as statements regarding our business strategy and initiatives, inventory plans, target execution and progress, and leadership transition. These statements are subject to various risks, uncertainties, and assumptions that could cause our actual results to differ materially.

These risks, uncertainties, and assumptions are detailed in today's press release and our Form 10-Q. Except as required by law, we undertake no obligation to update any forward-looking statements or information. During this call, we will also reference certain non-GAAP financial information. The presentation of this non-GAAP financial information should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP.

Reconciliations of GAAP to non-GAAP measures can be found in our press release and SEC filings. With that, I will turn the call over to our interim CEO, Terry Barackwit.

Terry Barackwit, Interim CEO

Thank you, Cara, and thank you all for joining today. Before we get into the quarter's results, I want to share an important leadership update. This morning we announced that Paige Thomas has been appointed Chief Executive Officer, President, and a member of the Board of Directors of Rent the Runway, effective September 14. Paige brings 30 years of retail leadership experience with a proven track record of driving growth across both premium and off-price brands.

She joined Rent the Runway in June 2026 as Chief Commercial Officer, having previously served as Chief Merchandising and Product Innovation Officer at Signet Jewelers and as President and CEO of Saks Off Fifth Avenue. Earlier in her career, she spent more than a decade at Nordstrom, including five years leading Nordstrom Rack. We set a high and specific bar for this role: someone who understands the premium customer and the fashion brands she loves, someone with large-scale operational experience, and someone who can lead and accelerate the strategy this team is already executing.

Paige is that person. With Paige stepping in as our permanent CEO, I will transition to the role of non-executive Chair of the Board, also effective September 14. Paige and I will work closely together as we transition into our new roles to ensure the strategy and momentum we have built continue. I also want to thank Darren Fonteca for his contributions as Executive Chair during this transition. He has been a steadying partner for me and the Board, and the company is better for it.

Now on to the business. Amid all these changes, our foundation remains solid. It all starts with the customer and the core rental business she comes to us for. Over the past several months, we have listened to her feedback, analyzed the data, and evaluated how we work. As a result, we have refined how we serve her and have greater clarity on our strategy than ever before. Rent the Runway is a premium fashion platform. We exist to give her access to premium fashion, whether through rental or purchase, guided by styling intelligence that helps her find and wear what fits her life.

We provide brands and partners access to a high-value, highly engaged customer. Our strategy is supported by three operational priorities: total customer growth, margin expansion, and operational excellence. First, total customer growth is built on being a fashion authority and delivering an experience she trusts. In practice, this means the best merchandise assortment, from everyday workwear to the aspirational brands she asks for by name, delivered through strong brand partnerships.

It also means a more seamless experience: availability, discovery, and access on her terms. She subscribes to expand her everyday wardrobe. She reserves for the most important moments in her life. And increasingly, she wants to buy from us. She experiences all of this as one relationship with one company, and we are building the business to match. Second, margin expansion is about bringing more discipline to how we drive profitable revenue.

This includes how we use pricing and promotions, and how we manage inventory to turn faster and get the most out of our biggest investment — the product itself. Third, operational excellence is about disciplined execution, delivering on the plans we set and the service promise she pays for. This is what separates retailers that endure from those that don't. It means every item arriving clean, on time, and in the condition she expects, every time.

Across the hundreds of thousands of items that flow through our operations, we hold ourselves to this standard on every single order. Now on to the quarter. Our customer's feedback has been consistent, and our goal has always been to deliver on the promise she comes to us for: the right merchandise, easy to find, available when she needs it, and in the condition she expects. We are therefore concentrating our resources on improving execution in rental and sales. This focus means we have paused pilot programs that do not directly serve these priorities today.

First, we have paused Marketplace, which we believe could be significant in the future once the experience is fully integrated. We have paused on-site advertising and monetization to prioritize the premium experience. We are also no longer seeking new B2B dry cleaning partnerships; we will continue to serve existing partners. These are choices about focus and sequencing, and by concentrating resources, we expect to improve execution and performance. In the second quarter, we delivered revenue of $98 million, exceeding the range we communicated in June.

We also delivered significant margin improvement, driven by our focus on operational efficiency and alternative inventory models. Dave will walk through the financials in more detail shortly. Total customer growth depends on fashion authority, brand trust, and a seamless customer experience. To strengthen our fashion authority during the quarter, we introduced new brands and went deeper into the categories she asks for most, delivering relevant summer merchandise.

For example, we expanded our brand partnerships for beach cover-ups from 12 to 25, and that category grew 75% year-over-year. She continues to respond positively to new product, with recent additions like La Ligne, Jenni Kayne, and updated prints from Marimekko all seeing above-average utilization. Looking to fall, she will experience a diversified assortment, including new brands and collaborations, with a greater emphasis on the brands and categories she asks for most versus last year.

Whether heading to the office, working from home, or preparing for a fall wedding, she has told us how important the Reserve experience is. This is where she comes to us for pivotal moments in her life. It has the highest satisfaction scores, and we are investing in it, including category expansion. We will share more results on this at our next call. The goal is simple: more of what she wants, with more newness throughout the season.

Earlier in 2026, we said we would launch features to improve her discovery experience, and we have been delivering on that promise. In May we piloted Outfit Generation, and by the end of June it was live for all customers. She no longer has to imagine what to wear. We show her complete looks together. The feature has achieved 35% engagement in our app, exceeding our expectations, and is changing how she interacts with us. During the pilot, customers with the outfit experience added to bag 12% more frequently than those without it, and 77% of the time she opened another item within the outfit.

In August, we launched avatars within the outfit experience, allowing her to see recommended looks on different body types, and we began highlighting virtual try-on, letting her see how a specific item looks on her before renting or buying. Over the past five months, we have launched personalized carousels, refreshed imagery, and rolled out outfit generation and virtual try-on. Together, these represent a true shift in how she discovers product. She can find an item, imagine herself in it, and see the complete look.

Looking ahead, we are now building our plans for 2027. Guided by transformation and focus, we have unprecedented clarity on our customer, the services and experiences she wants, and the value we provide to her and our brand partners. We firmly believe there is significant opportunity to grow revenue and profit by deepening relationships with our existing customers, growing new customers, and executing with discipline.

As a reminder, last fall we recapitalized the business in a transaction led by Story3 Capital Partners, Nexus Capital Management, and Randa Principal Strategies. These investors continue to have confidence in our strategy and growth plans, and we are actively working with them on funding support. Today, we announced plans to launch a rights offering to holders of our Class A common stock, backstopped by these investors for $15 million, to support the company's operating plans and liquidity.

This is the plan Paige is stepping in to lead. The strategy is set, the team is in place, and the work is underway. I am proud of the work done to date and excited about the work ahead. We have made real progress in securing more of the assortment she wants, building discovery experiences that help her see herself in our products, and improving the consistency of her overall experience. We will continue to push forward on all three. It has been a true privilege to serve as interim CEO and President, and I have great confidence in our strategy, this team, and Paige as the leader to take it forward.

With that, I will turn the call over to Dave. This is Dave's first earnings call with us, and in his three months here, he has brought real rigor to this business, which I deeply value.

Dave Loretta, Interim Chief Financial Officer and Treasurer

Thank you, Terry. First, I want to say how pleased I am to be on today's call. When I joined Rent the Runway as interim CFO three months ago, I held a firm belief in the potential of the Rent the Runway brand, the significant opportunity to drive margin improvement, and our commitment to building a stronger financial foundation in today's dynamic environment. I believe this company is well positioned to reassert its authority in the fashion industry while strengthening operational discipline to deliver improved financial results.

Turning to results, in the second quarter we delivered net revenue of $98 million, a record in company history. Revenue grew 21% versus the second quarter of last year and 9% sequentially from the first quarter. Our revenue growth reflects healthy sequential growth in revenue per subscriber, as well as continued growth in ancillary revenue — the result of new ways we have invested in providing flexibility and choice within our monthly subscription service. The subscription price increase effective August 1 of last year contributed to revenue growth and flowed through to better margin performance.

Our other revenue grew 19% versus the second quarter of last year, and we believe this represents a significant growth opportunity for the business. Tapping into the large and growing demand for resale apparel, our data indicates that both subscribers and new visitors see tremendous value in our assortment, and when we price resale items, we aim to make room for more newness in the supply and drive higher gross margins.

On margin expansion, the second quarter improved approximately 600 basis points. We leveraged product costs and fulfillment costs to support margin expansion in the second quarter. While controlling G&A costs, we maintained similar investment levels in key technology initiatives and marketing versus last year, delivering approximately 1,000 basis points of leverage in the second quarter and resulting in significant year-over-year improvement in operating profitability.

Consistent with what we mentioned on our first-quarter call, year-over-year growth in ending active subscribers in the second quarter moderated, primarily due to heavier promotional activity last year and higher pause rates this year. As we continue to measure the efficiency of our growth investments, we are focusing on the mix of marketing spend and promotions, with the goal of attracting profitable customers to our platform. Overall, we remain confident in our outlook for full-year revenue growth and profitability, as reflected in our reaffirmation of full-year net revenue and adjusted EBITDA guidance.

Additionally, we continue to expect free cash flow improvement in 2026 versus last year. Our liquidity position has been strengthened with a $10 million term loan, detailed in the third amendment to our credit agreement with the same investor group that led our 2025 refinancing. This provides both operational flexibility and investment reserves. Furthermore, through the backstopped rights offering we announced today, we plan to launch a $15 million equity raise to further enhance our liquidity position and support continued growth.

The investor group's vote of confidence sends a positive signal and underpins our three-pronged operational approach: first, expanding our customer base; second, improving profitability; and third, executing with discipline. As Terry said, we believe the key to success lies in refocusing on these fundamentals. I will now review second-quarter results and then provide an update on third-quarter and full-year guidance. At the end of the second quarter, we had 140,826 active subscribers, down 3.8% year-over-year.

Average active subscribers for the quarter were 148,259, up 1% year-over-year. The decline in ending active subscribers was primarily due to higher pause rates year-over-year and lower subscriber additions in the quarter compared to last year, driven by heavier promotions in 2025 — we have reduced promotional activity this year. Revenue for the quarter was $97.7 million, up 20.8% year-over-year and up 8.7% sequentially.

Our rental revenue increased $14.6 million, or 21%, year-over-year, primarily driven by higher average revenue per subscriber from the subscription price increase effective August 1 of last year, as well as higher add-on bookings. This was partially offset by lower Reserve revenue versus the second quarter of last year. Other revenue increased $2.2 million, or 18.8%, year-over-year, primarily driven by significant growth in resale revenue. Turning to the cost structure, second-quarter fulfillment costs were $23.5 million versus $22.5 million in the prior-year period, representing 24.1% of revenue versus 27.8% in the prior-year period.

The decrease in fulfillment costs as a percentage of revenue was primarily driven by higher revenue per order, partially offset by higher shipping and warehouse handling costs. Second-quarter gross margin was 36.1% versus 30% in the prior-year period, an improvement of 609 basis points. This was primarily driven by rental product depreciation and revenue share costs decreasing 240 basis points as a percentage of revenue versus last year, and fulfillment expenses decreasing 370 basis points versus last year.

Second-quarter operating expenses decreased 2% year-over-year, driven by lower G&A expenses. Total operating expenses, including technology, marketing, and G&A, represented 42% of revenue for the quarter versus 51.7% in the prior-year period. Second-quarter adjusted EBITDA was $12.6 million, or 12.9% of revenue, versus $3.6 million, or 4.4% of revenue, in the second quarter of last year. Free cash flow for the first half of 2026 was negative $21.6 million versus negative $32.9 million in the same period of 2025.

The improvement versus the prior-year period was primarily driven by lower inventory-related capital expenditures and higher operating income, partially offset by lower working capital benefits. Regarding 2026 guidance, we are reaffirming our fiscal 2026 full-year double-digit revenue growth guidance and reaffirming our fiscal 2026 adjusted EBITDA guidance of 4% to 7% of revenue. We now expect fiscal 2026 rental product investment of $53 million to $55 million, below the $75 million in fiscal 2025 but above our prior guidance of $45 million to $50 million.

This change in investment reflects our plan to remain flexible and dynamic in our rental inventory purchasing while ensuring stronger stock levels for key fall events and newness launches in the second half. For the third quarter of 2026, we expect revenue of $87 million to $90 million, flat to up 3% versus the third quarter of 2025. As previously noted, our subscription price increase took effect at the beginning of the third quarter of 2025, and we are now lapping its impact in net revenue.

Please note that our guidance reflects our expectation that active subscribers will be roughly flat in the second half of 2026, and that resale revenue will continue to grow in the second half. We also expect Reserve orders to grow, supported by increased inventory investment. We expect third-quarter adjusted EBITDA of negative 3% to negative 6% of revenue, primarily driven by normal seasonality with higher subscriber pause activation rates in the third quarter, as well as product cost impacts from receiving more revenue share inventory in the third quarter versus other quarters.

In closing, our second-quarter results reflect significant financial progress. We delivered record revenue, gross margin expansion, and improved year-to-date free cash flow versus the prior-year period. With this progress, I believe we are well positioned for the second half of 2026, and I expect our refocused approach to core fundamentals will underpin long-term value creation for Rent the Runway. Before I close, I want to thank Terry for her leadership during this transition.

It has been a pleasure working with her, and I believe the operational discipline we have built together is reflected in these results. I look forward to working with Paige as she assumes the CEO role and to continuing the progress we have shared today. Finally, thank you all for joining the call today.

Operator

That concludes today's conference call. You may now disconnect. Thank you for participating, and have a wonderful day.

Disclaimer: This transcript is for informational purposes only. While we strive for accuracy, errors or omissions may exist in automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Statements by company participants and analysts reflect their views as of the date of this call and are subject to change without notice.