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01/11 18:01
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call reveals mixed signals: moderate revenue growth, increased subscriber numbers, and a significant debt reduction plan are positives. However, declining gross margins, increased fulfillment costs, and negative free cash flow raise concerns. The Q&A section lacked clarity, providing no additional positive insights. The company's guidance is mixed, with expected revenue growth but negative adjusted EBITDA margins and cash flow. Given these factors, the stock is likely to remain neutral in the short term, with potential volatility due to economic uncertainties and execution risks of the recapitalization plan.
Ending Active Subscribers 146,400, a 13.4% year-over-year increase. This growth was driven by higher subscription acquisitions, higher promotional activity, and improved subscriber retention.
Average Active Subscribers 146,765, a 6.8% year-over-year increase. This was primarily due to higher subscription acquisitions and improved retention.
Total Revenue $80.9 million, up $2 million or 2.5% year-over-year. The increase was driven by higher average subscribers, offset partially by lower average revenue per subscriber.
Subscription and Reserve Rental Revenue Up $0.7 million or 1% year-over-year, primarily due to higher average subscribers, offset partially by lower average revenue per subscriber.
Other Revenue Increased $1.3 million or 12.5% year-over-year.
Fulfillment Costs $22.5 million, up from $20.6 million in Q2 2024. This increase was due to higher transportation costs and higher warehouse processing costs.
Gross Margins 30% in Q2 2025, down from 41.1% in Q2 2024. The decline was due to higher revenue share costs and higher fulfillment costs as a percentage of revenue.
Operating Expenses 8% higher year-over-year, primarily due to transaction-related expenses.
Adjusted EBITDA $3.6 million or 4.4% of revenue, down from $13.7 million or 17.4% of revenue in Q2 2024. The decrease was primarily due to higher revenue share expenses.
Free Cash Flow Negative $26.5 million, down from negative $4.5 million in Q2 2024. The decline was due to lower adjusted EBITDA and higher purchases of rental product.
New Inventory Strategy: Significant increase in inventory with 2,200 new styles and 56 new brands added year-to-date. Engagement with new inventory overperformed last year across key metrics, including share of views (up 84%), heart per style (up 15%), and new units at home (up 57%).
Product Innovation: Launched personalized home screen, rewards program with tiered membership perks, and features like previewing upcoming styles. Future improvements include AI-driven recommendations and fit improvements.
Subscriber Growth: Active Subscribers grew 13.4% year-over-year to 146,400 in Q2 2025. Retention rates also improved, and acquisitions from organic channels had the best performance in years.
Brand Collaborations: Added 80+ new brands in 2025, with 56 launched in the first half. Revenue share units from existing partners increased 40% year-over-year, and total revenue share units grew 119%.
Recapitalization Plan: Reduced total debt from $340 million to $120 million, extended debt maturity to 2029, and secured new capital from private equity firms. This provides financial flexibility for growth.
Cost Adjustments: Implemented a subscription price increase of $2 per item to address inflationary pressures and tariffs.
Shift to Organic Marketing: Engagement with social media channels increased 796%, and views rose 175% year-over-year. Hosted 12 subscriber events with high demand, and launched 11 new social media series.
Focus on Customer Experience: Improved app and website experience, added exclusive events, and enhanced inventory availability to boost customer satisfaction.
Debt burden and recapitalization risks: The company is undergoing a recapitalization plan to reduce its debt from $340 million to $120 million. While this is a positive step, the reliance on external private equity firms and the conversion of debt into equity could dilute existing shareholders' value. Additionally, the success of this plan is contingent on meeting all closing conditions by December 31, 2025.
Fulfillment and transportation costs: Fulfillment costs have increased due to higher transportation costs from carrier rate hikes and higher warehouse processing costs. These rising costs are impacting gross margins and overall profitability.
Gross margin decline: Gross margins have decreased significantly from 41.1% in Q2 2024 to 30% in Q2 2025, primarily due to higher revenue share costs and fulfillment expenses. This decline could affect the company's ability to generate sustainable profits.
Free cash flow challenges: Free cash flow for Q2 2025 was negative $26.5 million, a significant decline from negative $4.5 million in Q2 2024. This is attributed to lower adjusted EBITDA and higher purchases of rental products, raising concerns about liquidity and financial sustainability.
Price sensitivity and inflationary pressures: The company increased subscription prices by 14% to account for inflationary pressures and tariffs in the fashion industry. While the impact has been in line with expectations so far, there is a risk of customer attrition if price increases are not well-received in the long term.
Inventory strategy risks: The company is heavily investing in inventory to drive subscriber growth and improve customer experience. However, this strategy has led to higher costs and negative free cash flow, and its long-term success remains uncertain.
Revenue Expectations for Q3 2025: Revenue is expected to be between $82 million and $84 million.
Adjusted EBITDA Margin for Q3 2025: Expected to be between negative 2% and 2% of revenue.
Fiscal Year 2025 Subscriber Growth: Double-digit growth in Ending Active Subscribers is anticipated.
Free Cash Flow for Fiscal Year 2025: Expected to be lower than negative $40 million, primarily due to costs associated with recapitalization transactions.
Inventory Strategy Impact: Continued investment in inventory is expected to drive sustainable revenue growth and free cash flow generation.
Debt Maturity Extension: Debt maturity extended to 2029, providing financial flexibility for future growth.
The selected topic was not discussed during the call.
The earnings report shows mixed signals: positive revenue growth, subscriber increase, and debt reduction contrast with declining margins and cash flow challenges. Despite optimistic guidance, the significant debt load and economic uncertainties pose risks. The lack of clear management responses in the Q&A section leaves some concerns unaddressed. Overall, these factors suggest a neutral stock price movement, as positive aspects are balanced by financial and operational challenges.
The earnings call reveals mixed signals: moderate revenue growth, increased subscriber numbers, and a significant debt reduction plan are positives. However, declining gross margins, increased fulfillment costs, and negative free cash flow raise concerns. The Q&A section lacked clarity, providing no additional positive insights. The company's guidance is mixed, with expected revenue growth but negative adjusted EBITDA margins and cash flow. Given these factors, the stock is likely to remain neutral in the short term, with potential volatility due to economic uncertainties and execution risks of the recapitalization plan.
Despite positive developments like subscriber growth and debt reduction, the company faces significant challenges. The decline in gross margins, negative cash flow, and increased operating expenses indicate financial strain. Additionally, the forecasted negative EBITDA margin and reduced cash flow guidance suggest ongoing struggles. While the debt recapitalization plan offers potential relief, its success is uncertain. The market may react negatively to these financial pressures and uncertainties, outweighing the positive aspects of subscriber growth and debt maturity extension.
The earnings call presents a mixed outlook. Positive aspects include a strategic plan for growth, improved cash flow, and a new subscription plan. However, the company missed EPS expectations, faces cash flow timing issues, and subscriber numbers declined. Despite optimistic guidance, uncertainties around tariffs and economic conditions pose significant risks. The doubling of inventory investment, while potentially beneficial long-term, may strain finances in the short term. The Q&A reveals management's uncertainty about economic impacts. Overall, the negatives outweigh the positives, predicting a stock price decline in the short term.
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