Rent A Profit: Employee Firings Pave Runway For Apparel Rental As Analyst Points To 'Encouraging' Signs

Morgan Stanley analyst Lauren Schenk reiterated an Overweight rating on the shares of Rent The Runway Inc RENT and lowered the price target to $13 from $14.
The analyst said the company’s Q2 earnings had a weaker top-line but better profitability, driven primarily by cost reductions.
Q2 subscriber miss was driven by higher churn, higher pause rates, and lower customer acquisition.
Schenk expects Rent’s restructuring announcement with a 24% employee reduction could result in $25 million - $27 million savings in operating costs.
The analyst thinks that the market is clearly not giving RENT credit for its greater focus on profitability, but if subscriber growth reaccelerates and RENT can deliver consistent EBITDA profitability with reduced cash burn, the market could be willing to pay a higher multiple longer-term.
The analyst notes that FY22 EBITDA dollar forecasts move higher, and out-years remain largely unchanged but with more uncertainty. June/July slowdown was similar to what was heard from others, and the August/September rebound was encouraging.
Price Action: RENT shares are trading lower by 32.6% at $3.33 on the last check Tuesday.
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