Hello, and welcome to Rent the Runway's Second Quarter 2023 Earnings Results Conference Call. At this time, all participants are in listen-only mode. A question- and- answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I'll now turn the call over to Rent the Runway General Counsel, Cara Schembri. Cara, please go ahead. Good morning, everyone, and thanks for joining us to discuss Rent the Runway's Second Quarter 2023 Results. Joining me today to discuss our results for the quarter ended July 31, 2023, are CEO and Co-founder, Jennifer Hyman, and CFO, Sid Thacker. During this call, we will make references to our Q2 2023 Earnings Presentation, which can be found in the Events & Presentations section of our Investor Relations website. Before we begin, we would like to remind you that this call will include forward-looking statements. These statements include our future expectations regarding financial results, guidance and targets, market opportunities, and our growth. These statements are subject to various risks, uncertainties and assumptions that could cause our actual results to differ materially. These risks, uncertainties and assumptions are detailed in today's press release, as well as our filings with the SEC, including our Form 10-Q that will be filed later today. We undertake no obligation to revise or update any forward-looking statements or information except as required by law. During this call, we will also reference certain non-GAAP financial information. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Reconciliation of GAAP to non-GAAP measures can be found in our press release, slide presentation posted on our investor website and in our SEC filings. With that, I'll turn it over to Jen. Thanks, Cara, and thank you everyone for joining. I want to start by talking about our progress in Q2, starting with our strong bottom line performance and momentum towards profitability. We're pleased that we exceeded our Q2 profitability guidance by remaining disciplined. Adjusted EBITDA margins hit a historic high at 10.2% in Q2, driven by fulfillment efficiencies, strong gross margins, and fixed cost control. Notably, today, we announced that we have accelerated our plan to be free cash flow breakeven before cash and interest expense to full year 2024. For some time now, we've been focused on taking decisive actions with the goal to bring Rent the Runway to profitability, and we believe now is the right time to accelerate our efforts. Our growth and improvement story starts with our cash, where we've made immense progress. We've transformed a business that consumed almost $100 million in cash in full year 2022, to a business that will consume around $50 million in cash in full year 2023, and will break even next year, less cash interest expense. We believe that a key part of getting to profitability is also making decisive choices that are prioritizing the medium and long-term health of the business over short-term revenue gains and lower margin customers. Next, Q2 was the fifth consecutive quarter of positive adjusted EBITDA. We've made significant improvements over the past several years, reducing both our, both our fixed and variable cost structure and growing our margins. Cost discipline continues to be firmly embedded into Rent the Runway's culture. Our 2022 restructuring was clearly an important step, and we've continued to make progress on optimizing costs during the first half of full year 2023. Our teams are continuing to examine our cost structure to assess additional steps we can take to remain agile, flexible, and able to achieve our profitability goals in a range of revenue scenarios. Going up to gross margins, we've continued to improve performance in our fulfillment operations and in how we acquire inventory, even as we changed our Subscription programs to offer customers 25% more value in every shipment in Q1. Our fulfillment costs have improved primarily by focusing on labor productivity and transportation efficiencies. The strength of our inventory expense is a reflection of the continued impact of product acquisition mix changes towards more efficient channels. Lastly, I want to acknowledge our Q2 miss on revenue. We had a slight revenue miss due to lower than expected active subscriber count, primarily driven by lower early-term subscriber retention, which we believe to be attributed to inventory depth levels that were too low. Reserve, our one-time event rental business, also declined year-over-year, which we believe was the result of greater focus on Subscription in our marketing efforts and on our site, as we discussed last quarter as well. Our goal is driving this business to free cash flow profitability, less cash interest expense next year. To do so, we are making deliberate choices that we anticipate will negatively impact short-term revenue and subscriber counts. We're planning to be less promotional and focus more on rebuilding our high-margin Reserve business. We also plan to pull back on marketing spend to prioritize inventory in-stock rates. Above all, we're empowering our leaders to make the right choices to drive profitability. We do not waver from our long-term belief in the enormous market opportunity for rental. As a result, we are focused on creating a sustainable business so that we can control our own destiny and capture as much of the large and growing market as possible over the upcoming years. Before I discuss the positive improvements we've made to the customer experience in the first half, I want to discuss what we believe are the two biggest challenges we had, lower inventory depth than needed and a softer Reserve business. We learned a lot in Q2 about the criticality of inventory depth to the customer experience. We started Q2 with a record number of subscribers and on the heels of our extra item plans launch in April. While we had enough inventory overall to serve our customer base during the quarter, we did not have enough depth in new styles, and as a result, our in-season in-stock rates were down 17% versus Q2 last year. We have data that indicates that an inventory depth issue was the primary driver of lower early-term subscriber retention and therefore lower active sub count. To take a step back, we fully transitioned from our unlimited swap program to fixed swap plans in 2021, and 2022 was our first year of operating these programs in a more normalized environment, where customers were going to offices and out to events again. In 2022, we revamped success metrics for inventory and fixed swap programs, shifted our go-forward strategy away from a breadth strategy to focus on a depth strategy, and established inventory availability as one of our key strategic pillars for 2023. The most important component of this strategy is greater investment in depth of styles and brands we know she wants, so we are in stock more of the time. Given the nature of a six-month fashion buying cycle, we were able to implement our learnings from 2022 and impact our Q3 and Q4 2023 buys with higher depth, which is now coming to life in our fall 2023 assortment. As we shared previously, we expected that the customer impact would begin to be felt on this timeline, which was key in informing our original back half weighted growth expectations for full year 2023. However, we believe that the lag between the time of the buy and live to site impacted the customer experience more than we expected in Q2, particularly for new customers, given the high growth we experienced in Q1. In a fashion rental business, availability changes moment to moment, and we have observed that new customers are more likely to be disappointed by lower in-stock rates because they expect to see the items they got excited about while browsing as a prospect. Retention of tenured customers continued to be strong because they understand that when they don't see something they've hearted one day, they're confident they'll be able to rent it soon. We believe that this issue is temporary in nature. Depths of our 2H 2023 buy are expected to be approximately 1.7x the depths of our 1H 2023 buys, which would increase our in-stock rate by 700-1,000 basis points. We've acquired even higher depth in our most popular brands and in key items we have confidence our customers will want this fall and winter. Functionally, we expect this will be felt by customers throughout the second half of Q3 as they're refreshing their fall wardrobes and through to Q4. We anticipate that this will result in a meaningfully better customer experience and improved retention in the near to midterm. While 2H depths will be a huge improvement over 1H, customer behavior in Q2 illuminated that we should go even further on our depth strategy. To that end, we have further expanded our depth plans for 2024. We expect that we will see continued improvement on in-stock in the first half of 2024 as a result of this. The nature of our business model dictates that any significant transition in inventory strategy must be done in multiple phases, given that we monetize inventory over multiple years and it stays in our rental ecosystem for multiple seasons. To be clear, while we have made significant improvements already, we expect the lion's share of the positive impact of our depth strategy and therefore the positive impact to revenue and subscriber growth, to be in 2024, once significantly more of our inventory tranches have appropriate depth. Our data thus far indicates that we should see loyalty gains from all customers, with the greatest gains coming from early-term customers. For Reserve, we believe we have great opportunity here. Our One Time Rental business is what we launched this business with 15 years ago. It's the easiest value proposition for customers to understand, as every woman finds herself having to buy outfits every year for events she rarely wears again. We've made three exciting changes to our Reserve business over the past quarter. Last month, we debuted a distinct product experience for Reserve, which separates the Reserve funnel from the Subscription funnel. This is intended to make it easier for customers to understand the Reserve value proposition of locking in a look in advance and getting the second size for free. It also clarifies how the pricing compares to Subscription. Second, we started acquiring distinct inventory for the Reserve business, mostly on consignment, focused on premier designers that elevate our Reserve assortment. Finally, we've shifted our org design to add new leadership focused on Reserve, intended to ensure we can grow both this business and Subscription side- by- side. We believe that the appetite for rental, writ large, is big enough that both of these offerings can grow, and we expect this change to the funnel to benefit both Reserve and Subscription from a conversion standpoint over time. Beyond our inventory depth strategies and focus on improving Reserve, the teams have continued their work across our other strategic pillars, the efficient and easy-to-use experience, and best-in-class product discovery, and have been successful in the first half of 2023 at markedly improving our overall customer experience. We believe we'll see more of the full retention impact of these changes to customer experience and discovery when in-stock rates are higher. Let me share a few of those initiatives here. Related to our pillar on efficient and easy-to-use experience, we've seen early success with our SMS-based Concierge Program that is leading to improvements in loyalty among those who sign up. Concierge has already accelerated our learnings from early term customers and priority areas to improve their experience. Given its success, we plan to continue to invest in Concierge in full year 2023 through expanding this program to more customers across more terms. Yesterday, we launched a new subscriber onboarding experience based on our learnings from Concierge, to help lead them to inventory they love quickly and pick their first shipment. This also includes the creation of an interactive customer styling profile and encourages sign up into our Concierge Program to aid with live one-on-one assistance. Finally, we continue to drive major improvements in site performance and reliability, improving Lighthouse Scores of key acquisition pages by 50% year-over-year. A Lighthouse Score is the rating Google gives to websites based on a combination of criteria, including performance, accessibility, SEO, and other best practices. Related to best-in-class product discovery, we introduced multiple improvements during the quarter, which have driven reductions in time to select shipments for our customers. We achieved this by, one, launching a fully redesigned app product detail page experience that features more detailed, larger product images, clearly displayed fit advice, and makes the availability of that item more obvious to the customer. Two, we're elevating the look and feel of our brand and site across all touch points, from photography to design and creative, which is intended to ensure that our premium positioning is clear to our customers and brand partners. Three, we created more visibility for editorial curation throughout our site and accelerated our schedules for refreshing them. We've seen high engagement with our editorial suggestions. Four, we improved filters, making it easier for customers to search with specificity. Finally, we rolled out our AI search beta to 20% of our customer base. We are using this beta to get user feedback and iterate on the best and quickest way to search our catalog. I firmly believe that we are making the right decisions for customers, and that our customers will reward our product improvements, additional items, and improved experience with inventory. I'm excited about our plans for the remainder of full year 2023 and into full year 2024. Most importantly, we are excited to drive this business to free cash flow profitability, excluding cash interest. With that, I'll hand it over to Sid. Thanks, Jen, and thanks again everyone for joining us. Prior to reviewing second quarter results, I would like to provide some perspective on the significant acceleration in our timeline to free cash flow breakeven before cash interest expense. While the inventory depth issue that Jen just described is expected to affect revenue growth negatively this year, we continue on a steady path to providing more value and a better experience for our customers. We're confident that with a favorable market backdrop, these improvements will translate to stronger revenue growth. Importantly, slower revenue growth will not mean slower progress on profitability for Rent the Runway. In fact, as Jen outlined earlier, one reason for our reduction in revenue guidance for fiscal 2023 is our decision to prioritize more rapid progress on profitability by reducing promotions and therefore, subscriber acquisition. Over the past few quarters, we have made significant changes to our fixed cost structure, improved our variable cost structure by finding efficiencies across fulfillment and product costs, and fundamentally changed how we approach promotions and customer acquisition. On account of these changes, we now expect to be free cash flow breakeven before cash interest expense for fiscal year 2024. This relies on only modest levels of subscriber growth in fiscal 2024. We plan to provide more details later this fiscal year, but we expect these results at subscriber levels that are much lower than our previously communicated level of 185,000 subscribers. Free cash flow breakeven, before cash interest expense, is an important milestone for Rent the Runway, and one that we think will demonstrate the attractive underlying economics of the business, our focus on profitability, and the progress our teams have made on improving efficiency throughout our business. Let me now provide commentary on second quarter results and guidance for 2023. We ended Q2 with 137,566 ending active subscribers, up 10.8% year-over-year. Average active subscribers during the quarter were 141,393, versus 129,565 subscribers in the prior year, an increase of 9.1%. Ending active subscribers declined from 145,220 subscribers at the end of Q1 2023, which we believe is primarily due to inventory depth. Active subscriber levels were also affected by promotional experiments during the quarter. Total revenue for the quarter was $75.7 million, down 1% year-over-year. The shortfall versus guidance was primarily driven by lower than expected subscriber growth. Subscription and Reserve rental revenue was $68 million, versus $70 million last year, a decrease of 2.9%. Subscription and Reserve rental revenue was negatively impacted by a decline in our Reserve business versus last year. Revenue per average subscriber for the quarter was negatively impacted by lower add-on rates, changes in subscriber program mix, and promotional testing. During the quarter, we tested the effects of both increasing and reducing promotions. Our learnings from these tests have informed our go-forward promotional strategy and revenue guidance for the remainder of the year. Other revenue was $7.7 million, an increase of 18.5% versus $6.5 million last year. Other revenue represented 10.2% of revenue during the quarter versus 8.5% of revenue last year. Fulfillment costs were $22.5 million in Q2 2023 versus $23.4 million in Q2 2022. Fulfillment costs as a percentage of revenue improved to 29.7% of revenue in Q2 2023, from 30.6% of revenue in Q2 2022. Fulfillment costs as a percentage of sales, benefited from continued processing and transportation cost efficiencies. In August, we entered into a new transportation agreement with UPS to lock in competitive rates and consolidate the vast majority of our shipping needs, while continuing to serve our customers with premium delivery and return service. Gross margins were 43.9% in Q2 2023 versus 42.4% in Q2 2022. Q2 2023 gross margins reflect both the aforementioned fulfillment cost improvements, as well as lower rental product depreciation, due to our ongoing progress in procuring more consignment and exclusive designs inventory. As expected, gross margins improved sequentially due to seasonally lower product acquisition costs compared to Q1 2023. Operating expenses were about 12% lower year- over- year, primarily due to the favorable impact of our 2022 restructuring plan. Total operating expenses, including technology, marketing, G&A, and stock-based compensation, were about 62% of revenue versus approximately 70% of revenue last year. Adjusted EBITDA for the quarter was $7.7 million, or 10.2% of revenue, versus $1.8 million and 2.4% of revenue in the prior year. Adjusted EBITDA margins reflect improved operating and fixed cost efficiencies, along with lower promotions. Free cash flow for the six months ended July 31st, 2023, was negative $30 million versus negative $54 million for the same period in fiscal 2022. Let me now turn to Q3 and 2023 guidance. We are reducing revenue guidance for 2023, and now expect that 2023 revenue will be at least $296.4 million for our fiscal 2022 revenue. We expect Q3 revenue to be between $72 million and $74 million. We are not providing specific active subscriber guidance for Q3 or fiscal year 2023, as our general expectations are reflected within our revenue guidance. We no longer expect ending active subscriber growth of more than 25% for fiscal 2023. Let me outline the rationale and underlying assumptions behind our lower fiscal 2023 revenue guidance. First, after our experimentation with promotions in Q2, we expect to be significantly less promotional for the remainder of the year. While we believe a lower level of promotions will improve customer experience, retention, profitability over time, we expect lower subscriber acquisitions in the near term. Second, revenue guidance reflects the timing of inventory in-stock improvements that we believe will impact customer experience towards the end of Q3 and into fiscal 2024. Third, we are not reflecting all potential improvements from our strategic pillar initiatives to improve customer experience or from our increased focus, new leadership, and more optimal inventory for our reserve business. As we saw in Q2, inventory in-stock rates have to improve before we see the positive impact from these initiatives. Finally, we ended Q2 with lower than expected active subscribers. We believe our second half plans, despite the expected negative impact on short-term subscriber growth, are a key pillar to our path to positive free cash flow and strengthen the health of the business. Our guidance also provides business leaders with the flexibility needed to make the right decisions for the long-term health of our business. Despite lower revenue, we expect to maintain our adjusted EBITDA margin guidance of between 7%-8% of revenue for fiscal 2023. Note that due to significantly higher seasonal inventory acquisition costs in Q3, we expect higher adjusted EBITDA margins in Q4 versus Q3. We expect Q3 adjusted EBITDA margins to be between 3%-4%, primarily as a result of approximately 300 basis points of sales in higher revenue share payments in Q3 versus Q4. We expect continued operational and fixed cost efficiencies, along with lower promotions in the back half of 2023. Note that our expectations for adjusted EBITDA margins reflect lower gross margins in the second half of 2023 compared to fiscal 2022, on account of higher rental product depreciation and revenue share costs as a percentage of sales. We now expect fiscal year 2023 rental product purchases to be between $74 million and $77 million, as we expect to shift dollars between marketing and rental product acquisition to further improve in-stock levels. As a result, we expect cash consumption for the year to be approximately $2 million-$3 million higher, or in the range of $50 million-$53 million. While Q2 was challenging, we have transformed, we are confident we continue to make the right decisions for our customers. Financially, we have transformed a business that consumed almost $100 million in cash in fiscal 2022 to a business that we expect will be free cash flow breakeven before cash interest expense in fiscal year 2024. We will now take your questions. Thank you. We'll now be conducting a question- and- answer session. We ask you, please ask one question and one follow-up. If you'd like to be placed in the question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star one. And as a reminder, please ask one question and one follow-up, then return to the queue. Our first question today is coming from Rick Patel from Raymond James. Your line is now live. Thank you. Good morning, everyone. Can you talk about the assumptions underpinning the third quarter revenue guidance? As you reduce promotions and marketing, you know, what's the right way to think about the subscriber count in the quarter? I know you're planning for it to be lower, but just any guardrails there as we think about modeling. And if you can debate trends, that would be great. Sure. So if you look at our subscriber guidance for, if you look at our revenue guidance, we're obviously not providing subscriber guidance for Q3 specifically. But if you look at our $72 million-$74 million revenue guidance, that is obviously down from Q2 levels, and that would, you know, you can run your math, but that will imply, you know, a subscriber count that, that you can determine. Now, what I want to do is try and give you a sense of the changes we're making and why we're issuing the guidance that we, that we are. So we're making a lot of changes to promotions for the year. And just to give you a sense of the magnitude of what, we have decided to do, historically, our promotions have been two months long. The current level of promotions that we're running, essentially only one month. So we have made very significant changes in promotions, and importantly, these promotional changes form a very key part of our progress to profitability in fiscal 2024. We're changing, you know, a significant amount as it has to do with the Reserve funnel. And so our guidance encompasses a whole range of scenarios, and we want to be prudent and not really factor in all of the benefits of improved in-stock, the Reserve funnel, and so that's the underlying, you know, premise behind the guidance, which is we want to be prudent. We want to make sure that we factor in all possible scenarios, and we also want to be mindful that it's going to take a little while for in-stock levels to improve and to be felt by our customers. And some of the initiatives that we have may not be quite felt until in-stock improves. So it's just a matter of encompassing all possible scenarios and being prudent. And can you also touch on marketing? I believe you talked about, pulling back a little bit on the near term, but then you also talked about shifting some of that focus to Reserve revenue. Just some, additional color there would be great. Yeah, we really learned in Q2, just this criticality of inventory depth to the customer experience, especially amongst early term customers. So because we learned that while depth is up in second half, 1.7x what the depth was in first half, we learned we should have gone even further than 1.7x. So we thought that it was a smart decision to take some dollars away from marketing, put it towards reorders in the back half of this year. That could further accelerate in-stock rates. Another way to think about this is we don't want to market or promotionalize into an experience with inappropriate levels of in-stock rates, because early term subscribers are the ones who are affected the most by not seeing the inventory that they wanted when they were a prospect. This is really in favor of the top priority, which is getting the in-stock rates higher, which we know really positively affect retention of early term subs. Thanks very much. Thank you. Next question is coming from Ike Boruchow, from Wells Fargo. Your line is now live. Hey, hey, good morning. Sid, a couple questions around the longer-term commentary you provided. So, the free cash flow break even before interest expense in fiscal 2024. Can you just give just a reminder, like, what is the expectation for cash interest expense? What is that going to be in fiscal 2024? And then is there any help you can give us around what is the revenue number that is associated with that assumption that you guys have next year? Thanks. Sure. So let me answer the first part of your question, which is about $12 million in cash. We expect about $12 million in cash interest expense in fiscal 2024. But the next part of your question, let me just address what gives us confidence that we'll get the free cash flow breakeven in fiscal 2024, right? So there are a few key pillars here. The first is we expect. And let me just bridge effectively where we'll end up in fiscal 2023 to where we expect to end up in fiscal 2024. So the first thing we expect is we. And we'll provide a lot more detail later this year on all of this. But first, we expect to realize fulfillment efficiencies versus fiscal 2023. Secondly, we expect lower fixed costs versus fiscal 2023 and fiscal 2024. Third, and this is where the promotions and all of the customer acquisition work we're doing plays in, that we expect rental product spending in fiscal 2024 to benefit both from provisioning for much more modest levels of revenue growth, as well as continued increases in mix towards more non-wholesale channels. So I think it's important to realize that when we promote and we get customers, not only do we acquire a bunch of customers that, you know, stay with us for shorter periods of time because they're less qualified, but we also go out and buy inventory and provision inventory for those customers. So in some ways, a s we attract and really focus on higher qualified customers, we really do accelerate our progress towards free cash flow, and that's going to be reflected in rental product spending in fiscal 2024 versus 2023. Fourth, obviously, the promotional changes do result in improved profitability per subscriber. And then finally, we expect the modest subscriber and revenue growth we have in fiscal 2024, or we expect in fiscal 2024, to contribute to profitability and cash flow. I think the last thing I would point out is that a substantial portion of the improvement, so if you think about lower fixed costs, the fulfillment cost efficiencies, the plans we have on rental product, the promotional changes we've made, we've already made those decisions and those improvements we have, you know, a lot of confidence in. As the last part of it is that we're relying only on relatively modest levels of growth in fiscal 2024. So we have, you know, high confidence that we can get to these numbers in fiscal 2024. Great, thanks a lot. Thank you. Next question is coming from Andrew Boone, from JMP Securities. Your line is now live. Good morning, and thanks for taking my questions. Jen, you guys made a number of improvements to the products. Can you just talk about getting customers past that 90-day threshold? Are you seeing any improvement there? How do we think about just new customers and your ability to turn them into long-term customers? Yeah. So we saw in Q2 that fundamentally, the other improvements that we were making to the customer experience were not going to be felt as deeply until the in-stock rates were higher. So for early-term subscribers, they come in, they expect to see the inventory that they signed up for. If they don't see that inventory, they have a much higher probability of churn. And these were the lowest, y ou know, you can ask, "Well, why didn't we know this before?" I think the confluence of the highest subscriber count we had ever had coming into Q1, I mean, coming at the end of Q1, coupled with the launch of our extra item plan and the fact that we already knew the depth would be a problem, we just didn't realize how big of a problem it was. We saw that in-stock rates were 17% lower year-over-year. And so while the retention of the longer-term customers continued to remain strong, they responded very well to the customer experience improvements we were making. We essentially saw, like, in-stock has to go up and has to be at a better level before these improvements will start to impact those early-term customers. So we still have a lot of confidence that we're making the right changes for early-term customers. As an example, we mentioned that amongst those people who sign up for our Concierge Program, they have higher loyalty rates than those that don't sign up, and those are T0 customers. But the in-stock rates now, we're really those improvements are in flight. Depths are going to be up 1.7x in the second half, where they were in the first half. We're going even deeper for 2024, and we think that the full extent of all of the changes we're making on customer experience will be felt by those early-term subs once the in-stock rate is higher and they're getting the inventory that they really signed up to get. Then as we get further away from the launch of the Era of Extra, can you talk about just top-of-funnel trends? What are you guys seeing now versus, say, last year? How does top of funnel relate, and then how are you thinking about top of funnel now that you're pulling back marketing for the back half of this year and, and potentially into 2024? Thanks so much. Yeah, I mean, top of funnel continues to be strong. We continue to see very high interest for Subscription, for our Reserve offering. We feel that the market is growing, and that's why it's so critical for us to have and offer an experience that continues to improve. Now, of course, over 80% of our acquisitions come in via word of mouth, and so it's even more important for us to have that positive flywheel coming out of those early-term customers. So the focus on improving in-stock rate, which improves the experience of early-term customers, we think will help to accelerate the organic growth of the business. Taking away some marketing dollars, marketing dollars, you know, traditionally have been kind of a small percentage of how we acquire customers. We also feel that right now is not the time to promote people into an experience where the in-stock rate really isn't there yet. So we feel good about top of funnel. We think that the market continues to be there, it continues to grow, and that we're making the right changes for the medium and long-term health of this business to drive it to profitability. Yeah, I think it's useful to just lay some context, right? Obviously, we're changing our promotional strategy. We talked about the marketing changes we're making, and it's helpful to reiterate how we're thinking about this business. One way to grow this business and get this business to free cash flow would be acquire lots and lots of customers. Yes, you'd have, we'd report, you know, very high subscriber growth, we'd report high revenue growth, but we'd also have to provision significant amounts of inventory. And a portion of those customers that we acquire are less qualified, and we're provisioning all this inventory. It's just a less efficient way to grow. In some ways, what we have now is, we recognize that we have limited resources, we recognize that we want to get to free cash flow breakeven as quickly as possible, and for us, that means in fiscal 2024. So we're taking the actions that we need to fundamentally not only improve the quality of acquisitions coming in, being more efficient about product acquisition for those qualified customers, and then making sure that we can actually deliver the best experience possible for those customers. If we do all of those things right, that feedback loop, given that 80% of our customers come to us organically, will end up driving additional organic acquisitions in a more efficient way. I mean, you know, I spent many years in the investment business, and I saw lots of situations where companies ranging from McDonald's to, you know, others, that were very focused on growth at points in time, that actually went and thought about their business critically, thought about what really mattered, and actually fundamentally stopped growth or slowed growth down to improve the quality of the business, and those businesses came out significantly stronger. And for us, this is an opportunity to break even before cash interest in 2024, create a very solid foundation, and create the best experience for our customers. And if we do that well, we're pretty confident, given the market opportunity that we have, that we can grow, you know, significantly well into the future. I just want to add one thing to what Sid said, which is that the nature of our business model is we have one pool of inventory, right? So if we promotionalize a lower-margin customer to come in to Rent the Runway, not only are we provisioning extra inventory for them, but they may very well take the best inventory, and they may take the best inventory away from some of our more loyal, higher-margin customers. So it's really about thinking that we are prioritizing the higher-margin customers, we're prioritizing the overall customer experience, and we don't want to kind of either market into or promotionalize into lower-margin customers coming in and grabbing the very inventory that is critical for the customer experience of the better customers. Thank you. Thank you. Next question today is coming from Ross Sandler from Barclays. Your line is now live. Hey, guys, just one for Jen and one for Sid. Jen, so on this, new customer retention, is there, like, a precedent, looking back at, at different times in the past when you had better, you know, depth of inventory for in-season, around, like, how far off is the retention rate today versus back then? And then, you know, subsequently, like, how quickly you expect that to kind of pick back up to a normal level? Is that a matter of a couple of quarters, or is it going to take longer than that? And then, Sid, you talked about reducing fixed costs and, and also some variable costs in fulfillment. Can you just elaborate on both of those? Like, is it the UPS deal that's allowing better fulfillment leverage or can you, you know, walk us through those assumptions for 2024? Thanks a lot. Sure. So let's start with fulfillment expenses. So it's twofold, right? The first, there is an impact from the UPS contract that will be felt into the back half of this year and into next year. That's one. The second thing is, if you look at what we've done historically, and this is not just true for fiscal 2023, but it's true for a number of years now, which is we have fundamentally improved our ability to process units with the same labor pool continually, right? So I think we can, w e have continued to make you know progress on efficiencies there, and we expect to continue on that path in. And we have some specific initiatives that we're working on now that will, we think will impact fiscal 2024. So that's fulfillment. On the fixed cost side, you know, our teams have reviewed. We're reviewing our cost structure. We want to make sure that we get the free cash flow breakeven in fiscal 2024 under a variety of sales scenarios, and we're going to take the right actions to make sure that that happens. So on the in-stock rate, first of all, the in-stock rate already is going up between 700 and 1,000 basis points in the second half of the year. In terms of tactically, when that's going to be felt by customers, we think it's going to be felt towards the end of Q3 and into Q4, when all of that inventory is really in our warehouse and kind of circulating amongst the customer base. We're making even more improvements in this first half but we're making for 2024 to get in-stock rate up even further than that 700-1,000 basis points. We think that the combination of the changes that we're making for second half and first half of 2024 will have marked improvements on customer experience year-over-year, and that these are fundamentally, you know, the right levels of in-stock. Now, when we look historically, the reason I kind of brought up in the earnings script, kind of this transition away from unlimited plans, is because the unlimited plan business actually had pretty equivalent to lower in-stock rates than we had in the first half of this year. But it wasn't something that was negatively impacting customer experience. Now, why? If you're in a program where you can swap an unlimited times per month and you're an early-term customer, you come in, you might not see the inventory you want today, but you feel like, "Well, I could swap again tomorrow. I could swap the next day. I could swap the day after that." So you're less precious about each individual shipment that you're making. In-stock is something that is essentially a new metric that we started to study in 2022. We knew the importance of in-stock, and therefore, we made plans at the end of 2022 to increase our depth coming in the second half of this year by 1.7x, but it's critical to a fixed swap program. So we've now done an enormous amount of data analysis on essentially the relationship between churn and in-stock rate. We have a plan to significantly reduce churn by in-stock rate alone. And I want to mention that buying inventory in deeper depth, so switching from a breadth strategy to a depth strategy, is not the only lever that we are deploying. There's a lot of levers that we're deploying to increase the in-stock rate. So other things that we're doing right now, we're consolidating styles into single warehouses, so there's more units of those styles in single warehouses. What inventory we merchandise on the site to what customer makes a huge difference to in-stock rate. So there's a lot that we're doing that is boosting up this in-stock rate. And really, Q2 was tremendous learnings for us on the criticality of this metric, especially for those first 90 days subs. Thank you. Next question today is coming from Lauren Schenk from Morgan Stanley. Your line is now live. Hey, good morning, everyone. This is Nathan Feather on for Lauren. So first off, just thinking about increasing depth in the platform, to what extent does that impact your ability to shift away from wholesale, either, either faster or slower? Sorry, I didn't hear the second half of the question, Nathan. Yeah, just the- Can you repeat? Y eah, increasing depth in the platform and your ability to shift away from wholesale, and whether those are connected. Oh, I mean, increasing depth is something that is fantastic for us from a inventory acquisition standpoint, whether it's via wholesale, via consignment, or via exclusive design. So when you buy things in higher depth, you get higher discounts, whether you're manufacturing those items, whether you're buying them from a brand, whether you're getting them on consignment, because there's essentially it's easier for the designer to produce those items. So a depth strategy actually is way more financially beneficial for us than a breadth strategy. So we see no difficulties in getting there. The challenge is, of course, that our inventory is one that we monetize over multiple years. Making a change over one half is only one tranche of inventory, which is why we're saying that more impact is going to be felt in 2024, when more of our tranches of inventory have really transitioned over to a higher depth strategy. And I also want to note that we're not changing the total dollar amount spent on inventory. We're just spending those dollars differently. We're buying fewer styles at higher depths. Okay, great. That's helpful. And then for the changes in marketing, is that just a temporary pullback until in-stock rates improve, or should we expect lower marketing over the medium term? And, and just how to think about those updates to the long-term strategy on the marketing side? Thanks. Yes. At this moment, the only decisions we expect to make are the decisions we've announced for the back half of fiscal 2023. We have not made specific plans and not sharing specific plans on fiscal 2024. But I think I'll point you back to the underlying philosophy of what we're trying to do, and hopefully that will provide some context in terms of how we think about growth and promotions and marketing in 2024. I mean, I think the, you know, l ook, I think the one thing that I'll add to this is, we haven't really seen any changes in terms of the effectiveness of our marketing or the efficiency of our marketing. We believe our marketing is strong. We have high LTV to CAC. I mean, there is no issue in terms of marketing itself, but there are two ways to grow our business. One is we can certainly acquire more customers and bring them in. The other way is we can improve the experience of our customers and actually affect retention more positively, and we want to test and see how that works out. Thank you. Next question is coming from Edward Yruma from Piper Sandler. Your line is now live. Hey, guys. Thanks for taking the questions today. I guess first, just, you know, given the materiality of the, of the shortfall, I just maybe get a little more comfortable on why exactly you think it was, it was inventory depth that was the primary culprit, you know, and why this isn't just a macro issue. And then maybe more of a follow-up on, on Ross's question. So, you know, like, and maybe this is not a great analog, but when, when someone churns off because of inventory availability, like, what, what do you have to do to get them to turn back on again? Or kind of what's your experience been there, and kind of when would we expect you to run that play, as those inventory levels normalize? Thank you. So one of the things that was really important when we analyzed what happened in Q2 was that we saw very different outcomes amongst early term subscribers and amongst subscribers who had been with us post 90 days. So the impact of in-stock rate was fundamentally different. As I mentioned, we continued to see, you know, strong retention amongst those more loyal customers. We saw that the in-stock rate decline really affected the churn rates of the early term subs, and that those churn rates had increased year-over-year. So had it been a full macro issue, all customer cohorts would be experiencing decline. Had it been a macro issue, we'd be experiencing more, we would be experiencing top-line issues, which is not the issue that we are facing. Our issue that we isolated in Q2 was really about early term churn. You want to answer the second half of this question? Sorry, what was it? Can you just repeat your second question, please? Yeah, just, just trying to understand. So I, I think there was a moment in time where, like, Reserve had low inventory, maybe when everyone was doing special events, and you saw a high churn because there wasn't availability, there wasn't enough inventory depth. I guess, when you, when you think about the forward situation, kind of what do you have to do? Like, what, what does it take to reactivate somebody that churned off because of lower inventory depth? And kind of what would the timing of that be? Yeah, look, I, I think the, w e're obviously acquiring customers every single month, right? And those customers are going to choose to stay with us based on whether they had a great experience or not, whether they're able to find the inventory they love, and whether that inventory is in stock. And so the way we can start affecting this positively is actually providing the customers who stay with us, who come to us, with a much more positive experience. And, you know, that is then going to funnel into word of mouth and, you know, the organic kind of flywheel that we always expect. Now, it's important to realize that we actually do get a relative, we have a relatively strong track record of reactivating customers, and customers come back to us, you know, who, who are former customers and so on. So that's an ongoing process. I think customers have recognized that, we provide a really valuable service. You know, there are moments and times when they can be disappointed because we don't quite have the in-stock that is right for them, and we're making those fundamental changes to make sure that they have a much better experience. I mean, one of the strongest parts of our experience for years has been the strong reactivation of former customers. Now, why is that? Number one, it's that customers see that our experience is continuously improving. Number two, this is a business that benefits from word of mouth. So you start to make a positive change, and that word of mouth benefits your rejoin rate even more than it benefits your, necessarily, your new acquisition rate. Because people are saying, "Hey, they brought in new inventory. They have a better experience. They're doing home pickup now." And so those people come back. And we feel very confident that this issue of in-stock was one that was temporary. It's one that we are already in flight on a lot of the improvements that we're making. Those improvements are significant. A 700-1, 000-basis point change in in-stock rate between the first half of the year and the second half of the year is highly significant, and we think that it will have huge benefit to rejoin rate. So we certainly do not exist in a business where if someone churns, they don't come back. We exist in a business where when you improve your experience, you have a high probability of people coming back and giving this another try. The other thing I'll say is that we are the only ones who do what we do in terms of offering the level of premiumness of the experience, this, you know, Subscription to the type of Closet in the Cloud that we have, which are the top brands and the top designers in the world, the premiumness of, of the actual experience, how quickly you receive the inventory, how easy it is for you to return the inventory. So it's a very high-end experience that our customers crave, and we feel that making these in-stock changes will then have halo effects on this rejoin rate that we should expect to benefit from. Great. Thank you. Thank you. Next question is coming from Ashley Helgans from Jefferies. Your line is now live. Hi, good morning. It's Blake on for Ashley. Most of our questions have been answered. Wanted to ask on just a couple of clarifying questions. On the lower subs expectation this year versus prior, seems like the two big buckets there are the lower promos you've discussed and then lower inventory availability. Just wanted to make sure those are kind of the two big items, we're not missing any others. And then could you rank or just discuss the magnitude of each of those impacts? Yes, you have the two big items here. We're not disclosing the exact magnitude of these impacts. I mean, some of them are. You know, we think both are really important, and, you know, we expect to make significant progress, obviously, on the inventory in-stock rate into Q3 and Q4 and into 2024, where just our guidance and subscriber expectations are just reflecting the possibility that those take a while to build, and we're gonna be prudent about that. Got it. And then in terms of the impact to subs from lower promotions, I would guess that's mainly impacting the acquisition of new customers. Wondering about that impact to the acquisition of new customers versus churn from existing. I mean, promotions don't really have an impact at all on churn from existing, because promotions are given to new customers to join. I mean, we do think that there is a benefit as we acquire more qualified customers. Obviously, those customers are likely to stay with us longer, so we should see improvements in churn as, you know, we attract those customers. So yes, I think ongoing, there will be a benefit on retention, too. Okay. So maybe when a customer renews, you're not seeing them, I guess the impact from a renewal isn't as big right now. If they're renewing at a lower promotion rate, would that impact, like, a renewal customer? Are you talking about a rejoiner, essentially? I mean, you know, we're acquiring all of our customers, whether it's a new customer or rejoining customer, essentially on a very similar set of promotions. So, you know, it's affecting the entirety of the subscriber acquisitions that we have. Okay, that makes sense. Thanks so much. Thank you. Our next question today is coming from Dana Telsey, from Telsey Advisory Group. Your line is now live. Hi. Good morning, everyone. Given the in-stock position and the improvement that's expected in the back half of the year, particularly in the fourth quarter, what are you seeing from your existing customers, the cohort of your best customers, and how are they impacted by this? And have you seen any update on churn? And lastly, as you think about the categories, what categories are performing, and is the in-stock shortage across all categories? Thank you. Yeah, so we continue to see strong loyalty rates among our, you know, more tenured subscribers. We, across the board, don't think the depths were high enough in any category, and we're being really, I think, smart about how we increase our depth strategy, where it's not a one-size-fits-all strategy. We do think across the board, we should have less breadth and more depth, but we're also taking into account the most important brands that provide the most value to our customers, the most important categories that provide the most value to our customers, and we're going even deeper there. So in terms of something that we are excited about in terms of a category, we're seeing an increase in return to work. Workwear is now currently as strong as it was in 2019, which is a great thing for our business, because it's obviously something that people do, you know, five days a week. Just following up with the in-stock position, why was it more a macro situation with the brands? Was it more your planning? What led to the shortage of the in-stock position? I think that 2022 was the first year that we had these fixed swap programs in a, quote-unquote, more normalized environment, where people were leaving their homes, right? That's when we started to kind of really have a new set of inventory metrics that we were using to evaluate our business, and in-stock became very important. That's why we set inventory availability as one of our most important strategic pillars for this year. So we had already implemented an in-stock strategy at the end of 2022, but given the six-month fashion buying cycle, it wasn't gonna take effect until the buys that we're now receiving in Q3 and Q4. So we knew that in-stock was critically important. We increased depth 1.7x in the second half of the year versus the first half. We made those decisions in 2022 to do that. So we knew that it was going to be really important to get that in-stock rate up based on all of the work and all of the analysis that we had done in 2022. What we learned in Q2 was that we should have gone even further, and we could go even further, and that's what we're doing for 2024. So we think that we're gonna see even more, we're gonna start to see positive impact, you know, as it relates to the end of Q3 and Q4, but we're gonna see the lion's share of that positive impact into 2024. Thank you. Thank you. Next question is coming from Eric Sheridan from Goldman Sachs. Your line is now live. Thanks. Maybe just one. As you move from this inventory strategy from breadth to depth, how should we think about product segmentation or product messaging to make sure that the idea of inventory depth results in the subscriber acquisition you're looking for on the other side of the inventory issues? So, sort of incoming users understand that maybe the inventory level is lined up with expectations coming in. Could that result in new product iteration, product segmentation? Or is it really just an element of executing on the inventory depth and then turning on the subscriber acquisition dynamic again, and then getting back to more normalized levels of growth? Thanks so much. So, the having styles that are more in-depth really is the biggest impact is on whether customers, in early terms, stay with you, as opposed to whether they come in the first place. So why? When you're a prospect to Rent the Runway, you're signing up for Subscription, you're looking at the full catalog of everything that we have in inventory. Then you sign up for a Subscription, and you're seeing what is available today, and you don't understand that that availability is changing on a day-to-day basis. So the higher our depths are, the more likely you're gonna be to see those styles that you fell in love with when you were a prospect, to see that they're available today after you've signed up. So we have data that shows that it's gonna have a, you know, quite positive impact on our early term subscribers, and that's what we believe. We're being, I think, prudent around when it's gonna start to take effect based on when we're receiving the inventory and when it's gonna be, you know, more felt in our inventory base. So it's not related to acquisition, it's something that is related to retention. I think ultimately, what we've always said and what we always know about our business, is that 80% of customers come organically, 60% of customers come because somebody else that was, is a current customer tells them about us. So I think the single most important thing we can do to improve and turn on effectively the acquisition side, is to focus very clearly on providing those customers with a great experience, because then they will go out and become our best advocates and bring new customers in. So I think, you know, improving the experience is just always been very fundamental, to, to how we grow. And yes, I mean, of course, you know, we also are doing, in addition to buying additional depth and so on, between consolidating low-depth items, between reorders, merchandising packages, there's a lot of other things that we're doing to improve in-stock. But I think clearly the result of that in-stock will itself drive, you know, what we think, will be significant awareness, of the better experience that we're providing on the acquisition side. Thank you. Thank you. We've reached the end of our question- and- answer session. I'd like to turn the floor back over for any further closing comments. Thanks for joining us today, and looking forward to chatting more in the weeks to come. Thank you. Thank you. That does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.