A Rent the Runway IPO is coming to the Nasdaq. The company’s recent filing revealed the effects of the pandemic on its finances. Here’s what investors should know…

Rent the Runway: About the Sustainable Fashion Business

Jennifer Hyman and Jennifer Fleiss founded Rent the Runway in November 2009 after meeting at Harvard Business School. A friend of the duo splurged on a designer dress that sent her into credit card debt, which gave them an idea for a business in the fashion industry. The two pioneered the ‘Closet in the Cloud,’ a dream closet filled with over 18,000 styles of 750+ designer brands to rent, wear and return (or keep). Today, Jennifer Hyman serves as CEO.

Before Rent the Runway, wearing designer fashion wasn’t realistic for many people. Rent the Runway disrupted the fashion industry by democratizing high-end fashion. What began as a way for women to rent dresses for special events expanded to everyday wear through subscription services. Members can choose from different plans starting at $69 per month. Rent the Runway has served over 2.5 million lifetime customers across all of its offerings and had nearly 127,000 ending total subscribers (active and paused) as of July 31, 2021.

While fast fashion is criticized for unethical practices and environmental impact, Rent the Runway serves as a major industry disruptor. The company aims to reduce the environmental impact of the clothing industry by increasing the life and use of clothing. On the company website, Rent the Runway claims its business model has displaced the need for the production of 1.3 million new clothing items in the past decade, saving…

• 67 million gallons of water
• Enough electricity to power 12,657 households for a year
• C0² emissions equivalent to 47,737 roundtrip flights between Newark, NJ and Dallas, TX

The company’s commitment to a sustainable future presents an opportunity for investors. But the impacts of COVID have been damaging to the fashion industry.

Rent the Runway Impacted by Global Pandemic

Consumers are becoming more environmentally conscious, which has led to a growing demand for second-hand clothes. However, the pandemic turned away many customers as stay-at-home mandates took effect, and people were less inclined to dress up.

Customers fled as Americans found themselves dressed up with nowhere to go. Only 30% of subscribers remained in May 2020. Rent the Runway’s future looked bleak with demand collapsing. During this time, Hyman halted advertising, closed brick-and-mortar stores, pitched for venture capital funding, laid off 15% and furloughed 30% of the staff and instituted a three-month salary cut.

Jennifer Hyman used the pause in operations as an opportunity to make tech upgrades and strategic shifts. Old membership plans were replaced with more affordable options and fulfillment centers were updated and further automated. The new plans unlocked a new segment of customers. And as mandates lift and the world goes back to normal, new subscribers are joining at the same rate as they did before the pandemic. In a Forbes report, Jennifer Hyman said…

The recovery is happening much earlier and is much steeper than we ever imagined… Nobody wants to wear anything they wore in 2020… The programs have a broader diversity of price point, and we’re attracting a higher-diversity household income into Rent the Runway. We’re seeing more diversity of customers and seeing higher loyalty of our subscribers than we were if you compare to 2019… This was one example of making a change that’s going to be strategically better for us because it could attract a broader customer base. And also financially better for us because these are higher gross margin programs.

A lower customer churn rate and higher margins are encouraging for investors. But the company’s latest funding round landed Rent the Runway at a valuation of $750 million. After being valued at $1 billion in 2019, the company has lost its unicorn status due to pandemic struggles. Let’s see how the company’s finances have been impacted…

Rent the Runway: Financial Details

Detailed financial information is in the Rent the Runway IPO prospectus, allowing you to gain more insight into the company’s finances. If you’re in the market for RENT stock, let’s look at the details.

Rent the Runway highlights some key information for investors. The company’s statement of operations and balance sheet data are summarized as follows…

Total Revenue: The company recorded a sharp drop in total revenue due to the pandemic. Rent the Runway recorded $256.9 million in total revenue for the 2019 fiscal year. In 2020, Rent the Runway reported just $157.5 million for the year – representing a 39% drop. For the six months ended July 2021, Rent the Runway has reported $80.2 million in total revenue.

Gross Profit: Rent the Runway’s gross profit is rebounding from a recent drop. The company reported $53.6 million for the fiscal 2019 year. The figure dropped to $15.5 million in the 2020 fiscal year. But for the six months ended July 2021, the company has reported $26.3 million.

Net Income (Loss): Rent the Runway’s net losses have increased in recent years. For the 2019 fiscal year, the company recorded $153.9 million in net losses. Rent the Runway’s net losses increased to over $171.1 million in the 2020 year. For the six months ended July 2021, the company’s reported net loss is $84.7 million.

Cash: Rent the Runway’s cash flow has increased. The company recorded $41.9 million in cash for fiscal 2019. In fiscal 2020, cash more than doubled to $109.2 million. The company’s cash is on track to keep increasing with $115.5 million reported for the six months ended July 2021.

Long-Term Debt: Rent the Runway’s long-term debt has skyrocketed. The company recorded $171.1 million in debt as of January 2020. By January 2021, long-term debt rose to $355.1 million – representing a year-over-year increase of over 107%. The company’s long-term debt is $381.8 million as of July 31, 2021.

The company plans to use the proceeds from the offering to fund growth and pay debt. So how much money can the Rent the Runway IPO raise? Let’s look at the filing details…

Rent the Runway IPO: RENT Stock to List on Nasdaq

Rent the Runway confidentially filed for a listing July 16. The company has not set terms for the offering yet. Check out this step-by-step guide to going public to learn more about the initial public offering process.

Rent the Runway plans to list its common stock on the Nasdaq exchange under the ticker symbol RENT. The offering is worth an estimated $100 million.

The company has not made announcements for the number of shares or price range for the offering. Check back here for the latest updates.

Goldman Sachs, Morgan Stanley and Barclays are leading the offering.

The date for a Rent the Runway IPO isn’t publicly available. But an IPO would launch the company into a hot IPO market. Discord and Stripe are among some of the recent popular companies hitting the stock exchanges sometime soon.

For other fashion-related investing opportunities, check out these fashion stocks to consider for your portfolio. You can also check out these shoe stocks to consider investing in.

As always, make sure to research before you invest. IPOs can be volatile for the first few months and share prices are constantly changing. But if IPO investing interests you, check out our top recent IPOs and our IPO calendar. We update the calendar daily to give you the latest news on upcoming and filed IPOs.

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