10-Q: Rent the Runway Q2: Recapitalization Aims to Boost Liquidity

Rent the Runway reports mixed Q2 2025 results with increased net loss, but announces a major recapitalization plan to reduce debt and extend maturities.

Summary

• Total revenue, net, for Q2 2025 was $80.9 million, an increase of 2.5% compared to $78.9 million in Q2 2024.
• Net loss for Q2 2025 increased to $(26.4) million from $(15.6) million in Q2 2024.
• Adjusted EBITDA for Q2 2025 was $3.6 million, down from $13.7 million in Q2 2024.
• For the six months ended July 31, 2025, total revenue, net, decreased by 2.2% to $150.5 million from $153.9 million in the prior year period.
• Net loss for the six months ended July 31, 2025, was $(52.5) million, compared to $(37.6) million in the prior year period.
• Adjusted EBITDA for the six months ended July 31, 2025, was $2.3 million, down from $20.2 million in the prior year period.
• Active Subscribers increased by 13.4% year-over-year to 146,373 as of July 31, 2025.
• The company announced Recapitalization Transactions on August 20, 2025, which are expected to significantly reduce total indebtedness, lower interest costs, and extend debt maturities.
• Material weaknesses in internal control over financial reporting remain unremediated as of July 31, 2025.

Sentiment

Score: 4

Explanation: While the company shows some growth in subscribers and revenue, profitability metrics (net loss, Adjusted EBITDA, gross margin) deteriorated significantly year-over-year. The announced recapitalization plan is critical for long-term viability by addressing substantial debt, but it comes with significant shareholder dilution and is subject to stockholder approval. Unremediated material weaknesses in internal controls add to the concern.

Positives

• Q2 2025 revenue increased by 2.5% year-over-year to $80.9 million, driven by higher Other revenue and Subscription and Reserve rental revenue.
• Active Subscribers grew by 13.4% year-over-year to 146,373 as of July 31, 2025, primarily due to higher subscriber acquisitions, increased promotional activity, and improved retention.
• Average Active Subscribers increased by 6.8% year-over-year to 146,765.
• Other revenue, primarily from product sales, increased by 12.5% year-over-year to $11.7 million in Q2 2025.
• The company is deploying a bold inventory strategy, having posted almost twice the inventory units compared to the prior year, with 323% more styles in May, 235% in June, and 253% in July.
• Customer engagement with new inventory overperformed last year, with share of views up 84% and hearts per style up 15% year-over-year in Q2 2025.
• Average subscription net promoter score was up 77% year-over-year in Q2 2025.
• Revenue share units from existing partners are up 40% year-over-year, and total revenue share units are up 119% year-over-year.
• Plans to add over 80 new brands in fiscal year 2025, with 56 already launched in the first half, and seven new exclusive brand collaborations.
• Organic social media engagement increased by approximately 800% year-over-year and views were up 175% year-over-year in Q2 2025.
• Enhanced the subscription experience by introducing a personalized home screen, a rewards program with tiered membership perks, and the ability to preview 'coming soon' styles.
• Implemented a price increase for subscription plans on August 1, 2025, with an average increase of $2 per item.
• The announced Recapitalization Transactions are expected to significantly reduce total indebtedness, lower interest costs, and provide financial flexibility.
• The minimum liquidity maintenance covenant was temporarily reduced from $30 million to $15 million until February 20, 2026 (with potential for extension).
• Fiscal year 2025 spend levels for rental product capital expenditures, fixed operating expenditures, and marketing expenditures were eliminated under the Fourteenth Amendment to the debt facility.
• A pre-litigation dispute settlement was agreed to in September 2025, with the full amount expected to be covered by insurance carriers, resulting in an immaterial impact.

Negatives

• Net loss for Q2 2025 increased to $(26.4) million from $(15.6) million in Q2 2024.
• Adjusted EBITDA for Q2 2025 decreased significantly to $3.6 million from $13.7 million in Q2 2024.
• Gross Profit for Q2 2025 was $24.3 million, down from $32.4 million in Q2 2024, with Gross Margin falling from 41.1% to 30.0%.
• Total revenue for the six months ended July 31, 2025, decreased by 2.2% year-over-year to $150.5 million.
• Net loss for the six months ended July 31, 2025, increased to $(52.5) million from $(37.6) million in the prior year period.
• Adjusted EBITDA for the six months ended July 31, 2025, decreased to $2.3 million from $20.2 million in the prior year period.
• Cash and cash equivalents declined from $77.4 million at January 31, 2025, to $43.6 million at July 31, 2025.
• Net cash used in operating activities was $(2.2) million for the six months ended July 31, 2025, compared to $6.8 million provided in the prior year period.
• Net cash used in investing activities increased to $(30.7) million for the six months ended July 31, 2025, from $(12.7) million in the prior year period, indicating higher cash consumption.
• Total costs and expenses increased by 14.1% in Q2 2025, primarily due to higher Rental Product Depreciation and Revenue Share costs, Fulfillment costs, and Technology costs.
• Fulfillment expenses increased as a percentage of revenue (27.8% in Q2 2025 vs. 26.1% in Q2 2024) due to higher transportation and warehouse processing costs.
• Technology expenses increased as a percentage of revenue (12.1% in Q2 2025 vs. 11.0% in Q2 2024) due to higher technology-related employee costs.
• General and administrative expenses increased by 10.8% in Q2 2025, primarily driven by expenses relating to the Recapitalization Transactions.
• Rental Product Depreciation and Revenue Share increased by 31.7% in Q2 2025, primarily due to higher Share by RTR units acquired, and increased as a percentage of revenue (42.2% vs. 32.8%).
• Interest expense, net, increased by 15.0% in Q2 2025 due to higher interest from the 2025 Amended Facility.
• Long-term debt of $343.9 million will be classified as a current liability as of October 29, 2025, if the Recapitalization Transactions do not close by that date.
• The company has incurred significant recurring net losses since inception and has an accumulated deficit of $(1,175.5) million as of July 31, 2025.
• Material weaknesses in internal control over financial reporting remain unremediated as of July 31, 2025.
• Stockholders will experience immediate and substantial dilution upon consummation of the Recapitalization Transactions due to the issuance of Exchange Stock and shares under the Rights Offering Backstop Agreement.
• The dual class structure of common stock and stockholders agreement concentrate voting control with pre-IPO stockholders and their affiliates, limiting the ability of other investors to influence corporate matters.

Risks

• Stockholders' failure to approve required proposals for Recapitalization Transactions could lead to termination of the Exchange Agreement, inability to enter the New Credit Agreement, and default on the 2025 Amended Facility, potentially forcing bankruptcy.
• Immediate and substantial dilution to stockholders will occur if the Required Proposals are approved, due to the issuance of Exchange Stock and shares under the Rights Offering Backstop Agreement.
• The New Credit Agreement, if entered, includes covenants that could restrict operations or growth strategies, and failure to comply could materially adversely affect the business.
• Inability to drive future growth or manage growth effectively could harm the brand, company culture, and financial performance.
• The global fashion industry is highly competitive and rapidly changing, and the company may not be able to compete effectively.
• Reliance on consumer discretionary spending makes the company vulnerable to economic downturns, macroeconomic conditions, global trade policies, and tariffs.
• Continued growth depends on the ability to attract new and retain existing customers; failure to cost-effectively grow the customer base would harm the business.
• Failure to retain customers would harm the business, financial condition, and results of operations.
• Inability to acquire and manage products effectively and plan for future expenses could adversely affect operating results.
• Risks arising from the restructuring of operations, including potential negative impacts on financial condition, results of operations, cash flows, or business reputation.
• Heavy reliance on the effective operation of proprietary technology systems and software, as well as third-party vendors, for business operations and safeguarding confidential information, with risks of disruption, errors, or cybersecurity incidents.
• Shipping and logistics are critical; any changes or interruptions in operations could adversely affect operating results.
• Unremediated material weaknesses in internal control over financial reporting could result in material misstatements or failure to meet periodic reporting obligations, impairing access to capital markets.
• The business is subject to numerous evolving U.S. and non-U.S. laws and regulations; failure to comply could lead to significant expenses, fines, or sanctions.
• Compliance with U.S. and foreign export/import controls, sanctions, embargoes, anti-corruption, and anti-money laundering laws could impair competitiveness and lead to criminal liability.
• Reliance on the experience and expertise of the Co-Founder and CEO, senior management team, key technical and strategic employees, and hourly personnel; loss or inability to attract/retain could harm the business.
• Failure to adequately obtain, maintain, protect, and enforce intellectual property and proprietary rights could harm the brand and competitiveness.
• Subject to rapidly changing and stringent data privacy, data security, data protection, and consumer protection laws; non-compliance could impair growth and incur liabilities.
• Risks associated with brand and manufacturing partners, including potential discontinuation, less favorable terms, or supply chain disruptions.
• Reliance on third parties for payment processing infrastructure; unavailability or unfavorable terms could adversely affect the business.
• Dependence on search engines, social media platforms, mobile application stores, and online advertising to attract consumers; third-party interference or rising costs could harm the business.
• Failure by the company, its brand partners, or third-party manufacturers to comply with vendor code of conduct, product safety, labor, or other laws, or to provide safe factory conditions, may damage reputation and brand.
• Potential for significant losses from various types of fraud.
• Insufficient insurance coverage or inability of insurance providers to meet their obligations could prevent mitigation of business risks.
• Reliance on third-party cloud infrastructures; any disruption or interference could adversely affect the business.
• The effects of climate change and related regulatory, customer, and investor responses may adversely impact the business.

Future Outlook

The company expects revenue to increase in fiscal year 2025 due to higher expected subscription prices, growth in its customer base, improved customer experience, and a continued focus on resale revenue. It anticipates an increase in its year-over-year revenue growth rate for fiscal year 2025. The company plans to significantly increase the quantity and desirability of rental product purchases in fiscal year 2025, aiming to approximately double the new rental product added to its site. While the total percentage of units acquired through capital-efficient channels (Share by RTR and Exclusive Designs) is expected to be largely unchanged in fiscal year 2025 compared to 2024, there will be an increase in Share by RTR units, with a long-term goal to further decrease Wholesale units. The company expects higher purchases of rental product in fiscal year 2025 relative to fiscal year 2024. Fulfillment and technology expenses are projected to decrease as a percentage of total revenue in fiscal year 2025 due to anticipated higher revenue per order and improved operating leverage, respectively. Marketing expenses are also expected to decrease in dollars and as a percentage of total revenue. However, General and Administrative expenses are expected to increase in the next several fiscal quarters due to costs related to the Recapitalization Transactions. The company aims to achieve profitability over time but anticipates increased net losses year-over-year in fiscal year 2025 due to significant investment in rental product. Management believes existing cash and cash equivalents, along with cash generated from operations, will be sufficient to sustain business operations, satisfy debt service obligations, and comply with debt covenants for at least the next twelve months, contingent on the successful closing of the Recapitalization Transactions.

Management Comments

• We plan to reduce fixed and variable costs accordingly and have established plans to preserve existing cash liquidity, which includes additional reductions to labor, operating expenses, and/or capital expenditures.
• We believe the value proposition of our offering and business model may be strengthened in an inflationary environment where the cost of purchasing clothing and accessories increases.
• We continue to take actions to adjust to the changing business environment and related inflationary pressure. For example, we implemented a price increase for our subscription plans in August 2025 and we remain focused on investing in our customer and delivering even more value to her, and emphasizing the value proposition of our offering in our marketing materials.
• We expect to continue to be impacted by rising labor costs in the future.
• Although we continue to face a challenging and unpredictable environment, we plan to invest in our customers, manage our staffing and further leverage our transportation partners to help to drive growth and efficiencies in our business.
• Our goal is to be a profitable company over time; however, we cannot be certain when or if our operations will generate sufficient cash to fully fund our ongoing operations or the growth of our business.
• We expect fiscal year 2025 to be a year of investment as we plan to significantly increase the amount of new rental product we acquire and, therefore, expect to increase our net losses year-over-year.

Industry Context

The global fashion industry is highly competitive and rapidly changing, with the company competing against both traditional and online retail/resale fashion companies. The company aims to normalize clothing subscription, rental, and resale, shifting traditional consumer buying habits from an ownership to an access model. The macroeconomic and consumer environment remains highly uncertain due to inflationary pressures, global trade policies, higher interest rates, potential recession risks, ongoing supply chain issues, and financial system instability. These factors are impacting consumer discretionary spending, price sensitivity, wage rates, transportation costs, and rental product costs. The company notes increased volumes for shipping vendors, which could lead to decreased service levels or increased prices, and anticipates continued rising labor costs. There is also an increased focus on Environmental, Social, and Governance (ESG) matters by stakeholders and a continued regulatory focus on automatically renewing subscription offerings. The industry is also experiencing rapidly changing technology, including advancements in artificial intelligence, augmented reality, machine learning, and robotics, which the company must adapt to.

Management Changes

Corporate Governance

Legal Proceedings

• Rajat Sharma v. Rent the Runway, Inc., et al.: A putative class action lawsuit filed on November 14, 2022, alleging violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 due to allegedly materially misleading statements regarding growth prospects and fulfillment costs. A motion to dismiss was partially granted on September 25, 2024, dismissing claims on growth prospects but allowing others to proceed. Defendants moved for reconsideration on October 9, 2024, and an initial discovery plan was approved on June 3, 2025. The company intends to vigorously defend itself.
• Bandyopadhyay v. Hyman, et al.: A putative stockholder derivative lawsuit filed on October 18, 2024, against certain officers and directors, largely based on the same alleged facts as the Securities Action. Claims include breach of fiduciary duty, aiding and abetting, unjust enrichment, waste, and contribution/indemnification. The lawsuit is currently stayed until the resolution of summary judgment motions or a settlement in the Securities Action. Defendants intend to vigorously defend themselves.
• Pre-litigation Dispute Settlement: The company agreed to settle a pre-litigation dispute in September 2025. The full settlement amount is expected to be paid directly by the company's insurance carriers, subject to an immaterial standard deductible, with an overall immaterial impact on the financial statements.

Related Party Transactions

• CHS (US) Management LLC (administrative agent) and CHS US Investments LLC (lender) are entities under common control with Temasek Holdings (Private) Limited, and are central to the 2025 Amended Facility and the proposed Recapitalization Transactions.
• The Recapitalization Transactions involve CHS US Investments LLC (Lender) and the Investor Group (CHS US Investments LLC, Gateway Runway, LLC (Nexus), and S3 RR Aggregator, LLC (Story3)) as key parties in debt exchange, new money term loans, and equity issuance.
• Ms. Jennifer Y. Hyman, Co-Founder, Chair, Chief Executive Officer, and President, is a party to the Investor Rights Agreement and her employment agreement was amended as part of the Recapitalization Transactions.
• The Transaction Bonus Plan was amended on August 20, 2025, which affects key executives, including Ms. Hyman, by modifying bonus payment terms and vesting schedules.

Stakeholder Impact

• Shareholders will experience significant immediate and substantial dilution from the issuance of Exchange Stock (86% of outstanding common stock) and shares under the Rights Offering Backstop Agreement as part of the Recapitalization Transactions.
• The dual class common stock structure and the Investor Rights Agreement will concentrate voting control with pre-IPO stockholders and the Investor Group, limiting the influence of other shareholders on corporate matters.
• Employees, particularly corporate staff, have been impacted by prior restructuring plans (e.g., 10% workforce reduction in January 2024), and future cost-cutting measures may lead to further reductions.
• Employee morale and retention may be affected by stock price volatility and ongoing efforts to optimize the cost structure, despite incentive programs like the amended Transaction Bonus Plan.
• Customers will see an approximately doubled rental product selection in fiscal year 2025 and enhanced subscription features, but also face a price increase of $2 per item implemented on August 1, 2025.
• Lenders, specifically CHS US Investments LLC and the Investor Group, will convert a significant portion of existing debt into new term loans and equity, gaining substantial ownership and control over the company.
• Creditors will benefit from the Recapitalization Transactions, which aim to significantly reduce total indebtedness and extend debt maturities, improving the company's financial stability.

Next Steps

• Stockholder approval of the required proposals for the Recapitalization Transactions, including the issuance of Exchange Stock, shares under the Rights Offering Backstop Agreement, and the Amended and Restated Charter.
• Closing of the Recapitalization Transactions, which is expected by December 31, 2025.
• Entry into the New Credit Agreement upon the closing of the Recapitalization Transactions.
• Preparation and filing of a shelf registration statement on Form S-1 with the SEC in connection with the $12,500,000 Rights Offering.
• Preparation and filing with the SEC of a shelf registration statement registering the resale of Class A common stock held by Ms. Hyman and the Investor Group within 20 days following the Closing.
• Granting of an award from the Management Incentive Plan (MIP) Pool to Ms. Hyman (5% at target, 7.5% at maximum performance) within 30 days following the Closing.
• Continued implementation of measures designed to remediate identified material weaknesses in internal control over financial reporting.
• Continued investment in customers, management of staffing, and leveraging transportation partners to drive growth and efficiencies in the business.
• Ongoing evaluation of the impact of the Recapitalization Transactions on the company's consolidated financial statements.
• Mutually agreeing with the Agent on Inventory CapEx, Fixed Operating Expenditures, and Marketing Spend levels for subsequent fiscal years (after January 31, 2025).

Key Dates

Recommendation

The company faces significant financial challenges, including increasing net losses and declining Adjusted EBITDA, alongside unremediated material weaknesses in internal controls. The proposed Recapitalization Transactions are a critical step to address the substantial debt burden and extend maturities, which is positive for long-term viability. However, the immediate and substantial dilution for existing shareholders, coupled with the concentration of voting power with the Investor Group, presents considerable risks. The future success hinges on the execution of the recapitalization, effective management of growth initiatives, and remediation of internal control issues, all of which carry high uncertainty. Given the mixed signals and high execution risk, a 'Hold' recommendation is appropriate for existing investors to observe the outcome of the recapitalization and subsequent operational performance. New investors should exercise extreme caution due to the high risk profile and potential for further volatility.

Keywords

Rent the Runway, Recapitalization, Debt Restructuring, Credit Agreement, Subscription Service, Fashion Rental, E-commerce, Active Subscribers, Net Loss, Adjusted EBITDA, Inventory Strategy, Corporate Governance, Risk Factors, Internal Controls, Share Dilution, Nasdaq Listing, Consumer Spending, Supply Chain, Intellectual Property, Data Privacy, Q2 2025 Earnings