[Management View]
Rent the Runway reported a record high in quarter-end active subscribers, despite a decline in average active subscribers and total revenue. The company is focusing on expanding inventory, enhancing customer experience, and maintaining double-digit subscriber growth for FY2025.

[Outlook]
The company projects Q2 FY2025 revenue between $76 million and $80 million, with an adjusted EBITDA margin of negative 22%. Full-year cash consumption is expected to be between negative $30 million and negative $40 million, with potential investments beyond this range if deemed prudent.

[Financial Performance]
- Gross margins decreased to 31.5% in Q1 FY2025 from 37.9% a year earlier.
- Adjusted EBITDA was negative $1.3 million, down from $6.5 million a year ago.
- Free cash flow was negative $6.4 million, compared to negative $1.4 million a year ago.
- Total revenue was $69.6 million, a decrease of 7.2% YoY and 8.9% QoQ.

[Q&A Highlights]
Question 1: What drove the decline in gross margins this quarter?
Answer: The decline in gross margins to 31.5% was primarily due to higher revenue share costs and increased fulfillment costs. The shift to maintaining more inventory for subscribers and higher transportation costs contributed to this increase.

Question 2: Can you elaborate on the inventory strategy and its expected impact?
Answer: The inventory strategy involves a 24% increase in inventory volume YoY, with 36 new brands and over 1,000 new styles launched. This is expected to enhance customer engagement and retention, as evidenced by a 23% higher share of use and a 14% higher love rate for the spring 2025 inventory.

Question 3: How is the company addressing customer retention and churn?
Answer: Initiatives like back-in-stock notifications, personalized styling support, and RTR Concierge have been introduced, resulting in significant reductions in churn rates. The company achieved the strongest quarterly retention in four years.

Question 4: What are the key risks and concerns for the upcoming quarters?
Answer: The main risks include potential impacts from tariffs and uncertainties in customer behavior. The company plans to operate prudently and continue investing in customer experience improvements.

[Sentiment Analysis]
The tone of the management was optimistic, focusing on strategic growth and customer engagement. Analysts showed concern over margin pressures but acknowledged the positive subscriber growth and retention improvements.

[Quarterly Comparison]
| Metric | Q1 FY2025 | Q1 FY2024 | Q4 FY2024 |
|-------------------------|-----------|-----------|-----------|
| Gross Margin | 31.5% | 37.9% | 37.7% |
| Adjusted EBITDA | -$1.3M | $6.5M | N/A |
| Free Cash Flow | -$6.4M | -$1.4M | N/A |
| Total Revenue | $69.6M | N/A | N/A |

[Risks and Concerns]
Key risks include the impact of higher fulfillment and revenue share costs on margins, potential tariff impacts, and uncertainties in consumer behavior. The company is prepared to adjust its strategy to mitigate these risks.

[Final Takeaway]
Rent the Runway is navigating through margin pressures with a strategic focus on subscriber growth and inventory expansion. The company's efforts in enhancing customer experience and retention are showing positive results, with a record number of active subscribers. While financial challenges persist, the management remains committed to prudent investments and strategic growth, positioning the company for long-term success.