On Monday, Rent the Runway filed for an initial public offering (IPO) in the hopes that it can capitalize on the return of social occasions as COVID-19 restrictions are lifted. In its filing, the fashion-rental firm listed the size of the offering at $100 million, but this is expected to change once the share sale’s terms are set.
As millions of people around the world stayed in their pajamas for the majority of the last year and a half, high-end fashion has taken a backseat. Rent the Runway relies on people going to formal occasions and needing fashionable clothes to wear, so when most events were canceled during the pandemic, the business struggled.
What is Rent the Runway?
Founded in 2009 by Jennifer Hyman and Jenny Fleiss, the business was established to offer people the opportunity to rent dresses for special events. This model worked as it allowed people, who might not have been able to afford to buy designer clothing, the chance to wear something from the fashionable runways, even if it was for one night only.
Alternatively, the company is also used by those who want to be more sustainable with their choices. Instead of buying new clothes for every occasion, Rent the Runway reduces wastage by ensuring pieces are given a longer life.
Since then, the New York City-based company, which boasts actor Gywneth Paltrow as a board member, has grown to include everyday wear through its subscription model.
When is Rent the Runway going public?
Rent the Runway has not given an exact date for its IPO yet but it will trade on the Nasdaq under the ticker ‘RENT.’
What price are Rent the Runway shares going public at?
Rent the Runway has not given an exact amount on how much its shares are going to cost.
Rent the Runway’s financials
During the pandemic, the sustainable company saw its valuation dip to $750 million, after being valued at $1 billion prior to the health emergency. To survive, the business had to let go of a lot of its staff and close some of its retail stores.
In the first six months of this year, the fashion-forward firm posted a net loss of $85 million on $80 million in sales. These figures were compared with the loss of $88 million on $88.5 million in revenue in the same period a year ago, which was also during the pandemic.
Despite not bringing in as many sales and persisting losses, Rent the Runway did see growth in its subscribers in the first half of the year. Rent the Runway had 126,841 subscribers in the six months, compared with 108,752 year-over-year. In Q2, its revenue also rose 62% compared to the year-ago period.
Rent the Runway’s growth potential
In its filing, the company put down the pandemic as a major risk to the business even though many believe the worst of it is over. Rent the Runway stated:
“The global macroeconomic effects of the pandemic may persist for an indefinite period of time, even after the pandemic has subsided.”
While it does have challenges, the sustainable business model is very on-trend at the moment. Based in New York, the company is also in one of the fashion capitals of the world so it is very aware of emerging trends and fashions.
Despite these positives, the retail industry is crowded and very competitive. It is competing with fast fashion, e-commerce giants like Amazon whose clothing sales have risen sharply, and newcomers like Stitch Fix, whose technology has been praised for revolutionizing the fashion industry. All in all, this definitely doesn’t look like the safest retail play for investors but it will be interesting to see if fans flurry to the stock on IPO day.
Is Rent the Runway a good investment?
While the brand does seem very popular, we always recommend investors wait until a company has released two earnings reports as a publicly-traded stock before investing. Given that the company’s losses are still mounting as it struggles to come back from the effects of the pandemic, it will be even more important to wait this one out.
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Financial Writer at MyWallSt
Nicole's favorite stock is Etsy because she loves its original and handmade items. She believes people are going to stop buying mass-produced items and start purchasing ‘one of a kind’ fashions and furnishings. In a world of sameness, Etsy has the advantage.