Rent the Runway Plunges on Soft Guidance and Big Job Cuts, Analyst Cuts to Neutral

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By Senad Karaahmetovic 

Shares of Rent the Runway (NASDAQ:RENT) are down about 23% in early Tuesday trading after the company offered weak guidance.

RENT reported a loss per share of $0.53 on revenue of $76.5 million to beat the consensus that was looking for a loss per share of $0.65 on $73.57 million revenues.

"We achieved two significant milestones in Q2, with both record quarterly revenue and positive Adjusted EBITDA, ahead of the timeline we had outlined, and despite an uncertain environment," said Jennifer Hyman, CEO and Co-Founder of Rent the Runway.

For this quarter, RENT sees revenue between $72 million and $74 million to miss the consensus of $79.7 million. On a full-year basis, the midpoint of the offered outlook comes in at $287.5 million, again lower than the $303.84 million guidance.

Moreover, RENT announced a restructuring plan to reduce $25-$27 million in annual operating costs. The company plans to cut about 24% of its workforce, a process that should be completed by the end of Q4.

"As a result, we are raising our annual Adjusted EBITDA margin outlook and accelerating our timeline to self-fund. Over the medium-term, we believe we can generate 15% profitability on Adjusted EBITDA after product depreciation," the company added.

A Credit Suisse analyst cut the rating to Neutral from Outperform with a $4 per share price target from $7.

"We don’t think RENT‘s valuation will re-rate higher until it can prove that active customer growth trends can re-accelerate sustainably, and reducing corporate staff by 24% weighs on our confidence that improving trends in Aug/Sept will be sustainable. We prefer to move to the sidelines ahead of better evidence that the consumer sees apparel rental as a strong enough value to trade away from the more controllable costs associated with a traditional apparel ownership model," the analyst explained in a note.

A Barclays analyst cut the price target to $6 from $7 and said the updated plan “means RENT can achieve self-funding on its existing base of subscribers, but would tap additional cash for future growth (rental assortment).”