Rent the Runway stock: I’d avoid RENT ahead of earnings

Rent the Runway (NASDAQ: RENT) stock price has staged a strong comeback this year, helped by the ongoing meme stock craze. It has jumped by more than 136% in 2024, beating the S&P 500 and Nasdaq 100 indices. It has also beaten other fashion-related companies like Lululemon, Allbirds, and StitchFix.

The fall from grace

While the Rent the Runway stock price has rebounded this year, it remains significantly lower than its all-time high of $385. It has moved from being a technology unicorn into a small company valued at about $88 million. There are concerns about whether the company will survive in the long term.

Rent the Runway’s business has come under pressure in the past few years as the growth it experienced during the Covid-19 pandemic waned. Its revenue growth has waned and the company is still burning cash.

Its revenue in the last financial year stood at $264.9 million, down from the $268 million it made in the previous year. The company also reported a $113 million net loss, signaling that its business was still incinerating cash.

Rent the Runway’s active subscribers dropped by 1% in the fourth quarter of 2023 to 126k while its net loss rose to $24.8 million. At its peak, the company had over 145k active customers in the United States.

The next key catalyst for the RENT stock price will be its financial results on Thursday. In its last financial results, the company guided to revenue of between $73 million and $75 million, representing a 2% drop from the same period in 2023. For the year, the company expects that its revenue will be between $301 million and $316 million, a figure that will be higher than the $264 million it made in 2023.

There are two main concerns about Rent the Runway. First, it is unclear whether there is strong demand for its products, especially its subscription business which starts at $89 per month. I believe that it will be difficult to maintain customers in the long term. 

Second, the company may need to raise cash to boost its balance sheet. It ended the last quarter with $84 million in cash and equivalents against $306 million in debt. Altogether, it had a stockholder equity deficit of over $122 million. 

Further, history suggests that online luxury companies struggle in the long term. A good example of this is Yoox Net-a-Porter, which has dragged Richemont for years.

Rent the Runway stock price analysis

RENT chart by TradingView

Turning to the daily chart, we see that the RENT share price has rebounded sharply in the past few months. It has soared from April’s low of $4.60 to a high of $41.83. This short squeeze happened as most heavily shorted companies soared. 

Recently, however, the stock has tumbled to about $25, moving below the key support at $28.9, its highest swing on April 12th. Therefore, I suspect that the stock will show heightened volatiity after earnings. My base case is that it could rise since the bad news has likely been priced in. If this happens, the stock could retest the resistance at $30. 

The alternative scenario is where the stock drops and retests the key support at $18.45, its highest swing in December last year.