Thanks to a consistent influx of new customers and an astounding 86% increase in revenue, Urban Outfitters’ clothing rental service Nuuly managed to turn a profit for the first time. This achievement came before rival Rent the Runway, which has not turned a profit in almost 15 years of operation.
During its fiscal third quarter, which ended on October 31, the brand, which charges $98 per month for a subscription service that includes six pieces of clothing, brought in $65.5 million in revenue and $300,000 in operating profit. Nuuly reported $35.3 million in revenue and a $3 million operating loss for the same time last year.
This accomplishment signifies the first time Nuuly has turned a profit since its founding in 2019. This was always the company’s intention as it set out to demonstrate that it could successfully operate a clothes rental business. Although there is a large market for clothing rental services, especially among younger consumers, the platforms’ sustainability is at risk due to the challenging rental logistics.
David Hayne, the president of Nuuly and chief technology officer of Urban, said in an interview, “We set out with a plan to build a business that we thought could be quite big and we set out with a plan to build a business that had the potential to be profitable.” “And we’ve been successful in doing that.”
The brand’s explosive ascent to prominence as one of Gen Z and Millennial consumers’ preferred apparel rental options coincides with rival Rent the Runway’s struggles to turn a profit after almost 15 years in business.
Rent the Runway’s active subscriber count, which was 137,566 as of July 31, is surpassed by Nuuly’s, which reached 198,000 during the quarter. CEO Jenn Hyman stated in April that in order for the business to generate enough free cash flow to pay for all of its fixed expenses, variable costs, and inventory costs, it must acquire 185,000 subscribers. Rent is a “stone’s throw away” from profitability, according to her. On December 5, the company is expected to release its third-quarter earnings.
Due in part to the support of the larger Urban company, which provides many of the clothes available for renters and pays for a portion of its expenses, Nuuly was able to turn an operating profit. Rent is not as efficient as Nuuly, considering the scale of Urban and its inventory.
Rent responded by telling that their definition of profitability is not the same as Nuuly’s and is not comparable. The business went on to say that its sales consistently outpace those of the newcomer and that it has better unit economics than Nuuly. Rent added that its gross margins are twice as high as Nuuly’s.
The services provided by Rent and Nuuly are comparable in that they both rent out clothing for various occasions on a monthly basis. Whereas Nuuly began by providing a more casual assortment of everyday wearables, Rent has long set itself apart by emphasizing designer labels and customers looking for higher-end goods. Both businesses now provide a selection of formal and casual options, though Rent continues to emphasize designer labels more.
The market for renting out clothes is still in its infancy. A broad selection has shown to be essential as brands try to persuade customers to rent rather than buy.
Hayne, the son of Urban’s founder and CEO Richard Hayne, stated, “We wanted to give her, the subscriber, a chance to rent for something she could wear to the office, something she could just wear when she’s lounging around at home, or that dress that she wants to wear to a wedding.” “Our goal was to create a collection that would be both wide and diverse enough to meet her needs for any occasion she might have next month, be it attending a wedding or another event.”
Urban beats both topically and financially
The retailer outperformed expectations in terms of both top and bottom line performance throughout the Urban business.
LSEG, formerly Refinitiv, reports that it reported earnings per share of 88 cents, versus estimates of 82 cents.
LSEG reports that sales were $1.28 billion as opposed to $1.26 billion as anticipated.
According to Street Account, same-store sales increased 5.6% during the quarter, surpassing the analyst’s projected increase of 4.9%.
With $550 million in sales, trendy, upscale clothing and home goods retailer Anthropologie led the quarter. Street Account reports that comparable sales increased by 13.2% during the quarter, significantly exceeding the 9.5% increase that analysts had predicted.
But sales of Urban’s namesake brand, which is well-known for its peculiar selection and expansive mall stores, fell by roughly 12% to $324 million. Additionally, comparable sales decreased by 14.2%, which is more than the 12% drop that Street Account’s analysts had predicted.
Urban’s co-president and chief operating officer, Frank Conforti, told in a statement that the business is “laser focused on that opportunity” and that there is “more work to be done” at its namesake brand.
Urban provided no guidance regarding its expectations for the holiday quarter or the full fiscal year in its release.
