Rent the Runway, Inc. (RENT) rents designer wear for women through its stores and online retail. The company also engages in software development and support activities.

Amid steep inflation rates, consumer sentiment improved month-over-month in September 2022 to 59.5. However, it’s still well below last year’s reading of 72.8. Consumers are highly uncertain about future price directions.

Economist Joanne Hsu said, “After the marked improvement in sentiment in August, consumers showed signs of uncertainty over the trajectory of the economy.”

Citing a palpable slowdown in consumer spending, RENT recently announced that the company would cut its corporate workforce by 24%. The company’s active subscriber count declined 8.1% sequentially in the second quarter.

Over the past month, RENT has lost 55.1% to close the last trading session at $2.36. It has lost 61.6% over the past six months and 71% year-to-date. Moreover, the stock hit its 52-week low of $2.26 in the last trading session.

Here is what could shape RENT’s performance in the near term:

Mixed Financials

For the second quarter ended July 31, 2022, RENT’s total revenue came in at $76.50 million, up 63.8% year-over-year.

However, its cash and cash equivalents came in at $192.30 million for the period ended July 31, 2022, compared to $247.60 million for the period ended January 31, 2022. Its restricted cash came in at $5.80 million, compared to $6.60 million for the same period. Moreover, its long-term debt came in at $269.80 million, compared to $260.80 million.

Poor Profit Margins

RENT’s trailing-12-month EBITDA and net income margins of negative 24.71% and 76.30% compare to the industry averages of 11.25% and 5.86%, respectively.

Moreover, RENT’s trailing-12-month ROTC and ROTA of negative 28.34% and 53.29% compare with the industry averages of 6.91% and 5.09%, respectively.

POWR Ratings Reflect Bleak Prospects

RENT has an overall rating of D, equating to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

RENT has an F grade for Quality, consistent with its lower-than-industry profit margins.

In addition, it has a C grade for Sentiment. This is justified as RENT’s revenue is estimated to increase 41.9% year-over-year to $288.55 million in 2023. However, its EPS is expected to remain negative in 2023 and 2024.

In the 46-stock Specialty Retailers industry, RENT is ranked #44. The industry is rated C.

Click here for the additional POWR Ratings for RENT (Growth, Value, Momentum, and Stability).

View all the top stocks in the Specialty Retailers industry here.

Bottom Line

RENT is witnessing a declining subscriber count. Also, it is trading below its 50-day moving average of $4.35 and 200-day moving average of $5.27. And given its declining cash balance and bleak profitability, I think RENT might be best avoided now.

How Does Rent the Runway, Inc. (RENT) Stack Up Against its Peers?

While RENT has an overall POWR Rating of D, one might consider investing in its industry peers, TravelCenters of America Inc. (TA), The ODP Corporation (ODP), and Murphy USA Inc. (MUSA), which have an overall A (Strong Buy) rating, and Canadian Tire Corporation, Limited (CDNAF), which has an overall B (Buy) rating.

RENT shares fell $0.01 (-0.42%) in after-hours trading Tuesday. Year-to-date, RENT has declined -70.80%, versus a -22.61% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...

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