(Bloomberg) -- Rent the Runway Inc. shares fell sharply in after-hours trading after the company said it’s curbing the discounts it had been using to draw in subscribers.
The promotions have been offered during the initial months of new fashion-rental subscription plans. Reducing them will attract subscribers who will stay on even after the discounts end, Chief Executive Officer Jennifer Hyman said in an interview Wednesday. But the change also caused the company to forecast revenue growth for the current quarter that’s lower than analysts’ estimates.
Rent the Runway shares fell 13% at 18:49 p.m. in after-hours trading in New York. The stock is down 8.2% this year through Wednesday’s close, compared with an 11% rise for the S&P 500 Index.
Less Promotional
The company expects revenue in its second fiscal quarter of $77 million to $79 million. Analysts were expecting $81 million.
“We’re testing being less promotional,” Hyman said. “We think this is the right time of the year to do it.” The company wants to have its discount strategy sorted out ahead of the crucial back-to-school season that starts in the autumn.
Rent the Runway’s forecast for the margin on adjusted earnings before interest, taxes, depreciation and amortization was in line analysts’ estimate. The company also reiterated its outlook from April for the remainder of the year. That forecast was significantly below what analysts had been expecting at the time and sent shares plummeting by as much as 14%.
While the company’s margin was positive in the period, “management’s 2Q view for just a low-single-digit gain was a surprise and may suggest weaker May trends given tough comparisons from last year,” Bloomberg Intelligence analyst Poonam Goyal wrote in a research note.
Return to Office
Hyman said demand for workwear has been surging as more subscribers are going to the office more regularly, underpinning stronger-than-expected revenue growth in the most recent quarter.
Demand for workwear started to outpace the company’s supply of rental clothing in the quarter that ended in January and has remained robust, Hyman said. She attributed the increase to more people returning to the office and also potential skittishness among workers about the labor-market outlook.
“In a market where potentially people feel less security around their job, they’re dressing up even more to go to the office,” Hyman said. “They’re showing up looking even more professional.” Some more formal looks — such as blazers — have also become increasingly fashionable outside of the office, further fueling demand for more formal clothes.
Rent the Runway plans to increase its purchase of workwear by 50% this year versus last, Hyman said.
(Recasts throughout and adds analyst comment; updates shares)
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