Rent the Runway Posts Record Revenue and Margin Gains

Rent the Runway (NASDAQ: RENT) delivered its highest-ever quarterly revenue in the second quarter, generating $97.7 million. This figure represents a 20.8% year-over-year increase and an 8.7% sequential rise, marking a significant milestone for the fashion rental platform. Interim CFO Dave Loretta attributed the record performance to higher revenue per subscriber, increased add-on bookings, and the impact of subscription price adjustments implemented in August 2025.

Profitability improved substantially during the period, with adjusted EBITDA climbing to $12.6 million from $3.6 million in the same quarter last year. The company’s gross margin expanded to 36.1%, up from 30.0% a year earlier. According to the earnings call reported by GN markets/earnings (en-US), this margin expansion was driven by lower rental product depreciation, reduced revenue-share costs, and better leverage on fulfillment expenses relative to total revenue.

Margin expansion driven by cost leverage

The company achieved a 609-basis-point improvement in gross profit margin, primarily through operational efficiencies. Fulfillment costs remained relatively stable at $23.5 million, up slightly from $22.5 million in the prior-year period. However, because revenue grew significantly, fulfillment costs decreased to 24.1% of revenue from 27.8% a year ago. This structural improvement allowed the company to capture more profit from each rental transaction without requiring proportional increases in operating spend.

Operating expenses fell 2% year-over-year, driven largely by lower general and administrative costs. Total operating expenses now represent 42% of revenue, down from 51.7% in the comparable quarter of 2025. This efficiency contributed to the stronger adjusted EBITDA margin of 12.9%, up from 4.4% in the previous year. The company also reported year-to-date free cash flow of negative $21.6 million, an improvement from negative $32.9 million in the same period last year, reflecting lower inventory-related capital expenditures and higher operating income.

Subscriber base shrinks despite engagement gains

Despite the revenue record, the company ended the quarter with 140,826 active subscribers, a decline of 3.8% from the prior year. Management cited increased subscription pauses and a reduction in promotional activities as primary drivers for the drop in subscriber count. However, engagement metrics showed positive trends, with outfit-generation tools achieving 35% app engagement during testing periods. These tools were noted to boost bag additions, suggesting that while the total number of subscribers decreased, the value derived from remaining customers increased.

Rental revenue, the core of the business, increased by $14.6 million, or 21%, year-over-year. This growth was fueled by higher average revenue per subscriber and greater volume of add-on bookings, partially offset by lower Reserve revenue compared to the previous year. Other revenue, which includes the resale segment, rose by $2.2 million, or 18.8%. Management identified resale as a substantial growth opportunity, noting that it helps create room for new inventory while simultaneously improving overall gross margins.

Strategic focus and leadership transition

To concentrate resources on core operations, Rent the Runway paused its marketplace, advertising monetization, and new dry-cleaning initiatives. The company secured $15 million through a rights offering and a $10 million term loan to support its financial position. Looking ahead, the company reaffirmed its fiscal 2026 guidance, though it expects third-quarter revenue to be flat to up 3% year-over-year. This cautious forward outlook reflects the company’s prioritization of profitability and operational discipline over aggressive top-line expansion.

A leadership change will take effect on September 14, with Paige Thomas becoming chief executive officer, president, and a board member. Thomas joined the company in June 2026 as chief commercial officer and brings experience from Signet Jewelers, Saks OFF 5TH, and Nordstrom. Interim CEO Teri Bariquit will transition to the role of non-executive chair of the board. The company stated that the strategy is set, the team is in place, and the work is underway, signaling a period of stability after the recent leadership transition.