Urban Outfitters’ Nuuly Clothing Rental Service Reaches Profitability

Urban outfitters Clothing rental service Nuuly has made its first profit thanks to a steady flow of new subscribers and a whopping 86% increase in revenue, hitting the benchmark ahead of its competitor. Rent the trackwhich has yet to generate profits almost 15 years into its history.

The brand, which offers a monthly subscription service of $98 for six garments, reported revenue of $65.5 million and operating profit of $300,000 in its fiscal third quarter. October 31. Over the last year, Nuuly reported revenue of $35.3 million. and an operating loss of $3 million.

This is the first time Nuuly has made money since its launch in 2019, a goal of the company all along as it sought to prove it could run a clothing rental business profitably. Although there is high demand for clothing rental services, particularly among younger consumers, the logistics of rental make it difficult to make money, threatening the viability of the platforms.

“We started with a plan to build a business that we thought could be large enough and we launched a plan to build a business that had the potential to be profitable,” said David Hayne, Nuuly president and chief operating officer. Urban technology. CNBC in an interview. “And that’s what we were able to accomplish.”

The brand’s meteoric rise as one of the go-to clothing rental services among Gen Z and millennial consumers comes as competitor Rent the Runway has struggled to turn a profit for nearly 15 years of existence.

Nuuly’s active subscriber count, which reached 198,000 during the quarter, also eclipses Rent the Runway’s, which stood at 137,566 as of July 31. In April, CEO Jenn Hyman told CNBC that the company needed to reach 185,000 subscribers to have enough free cash flow to cover all of its fixed costs, variable costs and the cost of its inventory. She said the rent was “two steps away” from profitability. The company is expected to report its third-quarter results on December 5.

Nuuly made an operating profit in part because it is backed by the larger company Urban, which supplies many of the clothing items available to tenants and covers part of its costs. Given Urban’s size and its inventories, Nuuly can be efficient in ways that Rent cannot.

In response, Rent told CNBC that its definition of profitability differs from Nuuly’s and is not comparable. The company added that it had stronger unit profitability than Nuuly and that its sales regularly exceeded those of the newcomer. Additionally, Rent said its gross margins were double those of Nuuly.

Nuuly and Rent’s services are similar in that they both offer clothing to rent on a monthly basis for all kinds of occasions. Rent has long differentiated itself by focusing on designer brands and consumers looking for premium products, while Nuuly started out by offering a more casual selection of clothing for everyday wear. These days, both companies offer a range of casual and formal options, although Rent still focuses more on designer brands.

The clothing rental market is still a nascent industry. As brands seek to convince consumers to rent rather than buy, offering a wide assortment is essential.

“We wanted to give her, the subscriber, the ability to rent something she could wear to the office, something she could just wear while lounging around the house, or that dress she wants to wear at a wedding,” Hayne said. , the son of Urban founder and CEO Richard Hayne. “We wanted to create an assortment that was large and varied enough that she could have options to meet all of her needs for the next month, whether or not she was going to a wedding or any event.”

Across the Urban business, the retailer performed better than expected, both in terms of revenue and bottom line.

It posted earnings per share of 88 cents, compared with expectations of 82 cents, according to LSEG, formerly known as Refinitiv.

Sales amounted to $1.28 billion, compared to $1.26 billion expected, according to LSEG.

Same-store sales rose 5.6% in the quarter, more than the 4.9% rise analysts expected, according to StreetAccount.

Anthropologie, which sells trendy, high-end clothing and home goods, led the quarter with revenue of $550 million. Comparable sales rose 13.2% in the quarter, well above the 9.5% increase analysts expected, according to StreetAccount.

However, Urban’s namesake brand, known for its quirky assortment and sprawling mall stores, saw sales fall about 12 percent, to $324 million. Comparable sales also fell 14.2%, which was worse than the 12% drop analysts expected, according to StreetAccount.

Frank Conforti, Urban’s co-president and chief operating officer, said in a statement to CNBC that the company had “more work to do” for its namesake brand and was “focused on this opportunity.”

In his statement, Urban gave no indication of what he expects for his holiday quarter and for the fiscal year as a whole.