Rent the Runway Q2 2026 Earnings: Revenue Rises as Margins Expand

Rent the Runway (NASDAQ: RENT) reported fiscal Q2 2026 revenue of $97.7 million, up 20.8% from $80.9 million a year earlier, while GAAP diluted loss per share narrowed to $0.38 from $6.23. Gross margin expanded by 609 basis points and adjusted EBITDA more than tripled, although first-half free cash flow remained negative and ending active subscribers declined. The company reaffirmed its full-year revenue growth and adjusted EBITDA margin guidance but expects a negative adjusted EBITDA margin in Q3.

Core Financial Results

Revenue growth, gross margin expansion and controlled operating expenses helped narrow the operating and net losses. Technology and marketing expenses were unchanged year over year, while general and administrative expense declined modestly.

The quarterly figures also show a substantial difference between GAAP net loss and adjusted EBITDA. Adjusted EBITDA excludes items including $14.7 million of rental product depreciation, a $6.1 million securities litigation expense and $1.8 million of executive transition costs.

The per-share comparison was affected by a large increase in weighted-average shares to 33.6 million from 4.2 million. The improvement in absolute net loss therefore provides a more direct year-over-year view of GAAP profitability.

Add-Ons Helped Revenue Outpace Subscriber Growth

Subscription and Reserve rental revenue increased by about 21.1% to $83.8 million, while other revenue rose by about 18.8% to $13.9 million. Both categories grew at broadly similar rates, but subscriber trends were mixed.

Average active subscribers increased 1.0% to 148,259, while ending active subscribers fell 3.8% to 140,826. Ending total subscribers, including paused memberships, increased 0.5% to 186,019. Revenue growth substantially outpaced these subscriber changes, indicating that engagement and spending within the existing subscriber base played an important role.

Add-on bookings increased 81% year over year, and 33% of subscribers used an add-on during the quarter, compared with 29% a year earlier. Management attributed the increase primarily to stronger engagement with the assortment and greater membership flexibility.

Profitability and Cash Flow Moved in Different Directions

Quarterly profitability improved as revenue grew faster than key operating costs. Fulfillment expense rose to $23.5 million from $22.5 million, rental product depreciation and revenue share increased to $38.9 million from $34.1 million, and technology and marketing expenses were unchanged. This cost pattern supported the gross margin expansion and narrower operating loss.

Cash flow data in the detailed statement covers the six months ended July 31 rather than the standalone second quarter. First-half operating cash use increased to $5.0 million from $2.2 million, but investing cash outflow declined to $16.6 million from $30.7 million. As a result, free cash flow improved to negative $21.6 million from negative $32.9 million.

The lower investing outflow primarily reflected rental product purchases declining to $27.7 million from $42.0 million. Cash and cash equivalents stood at $29.0 million on July 31, down from $50.4 million on January 31, while long-term debt was $157.5 million.

Core-Business Focus and Leadership Transition

Rent the Runway completed the rollout of AI-powered outfit generation to all customers by the end of June. Engagement with the feature was approximately 35%, and customers participating in the pilot added items to their bags about 12% more often than customers without the experience. The company also rolled out avatars in August and began testing virtual try-on tools.

At the same time, management narrowed the company’s operating focus. Rent the Runway paused its online marketplace pilot and on-site advertising initiative and stopped pursuing new business-to-business dry-cleaning opportunities, while continuing to serve its existing partner. Resources are being redirected toward the core rental and selling businesses, including Reserve.

Paige Thomas was appointed CEO and president effective September 14, 2026, succeeding interim CEO Teri Bariquit. Bariquit became non-executive board chair, while Dhiren Fonseca stepped down as executive chair and remained a director. The quarter included $1.8 million of costs related to the CEO and executive chair transitions.

Guidance

Rent the Runway reaffirmed its fiscal 2026 outlook for double-digit revenue growth and a 4%-7% adjusted EBITDA margin. However, the Q3 outlook calls for both lower revenue than Q2 and a return to a negative adjusted EBITDA margin; the release did not quantify the specific drivers of that expected quarterly reversal.

Rental product acquired measures the cost of inventory received and may differ from cash purchases because of payment timing. The company also cautioned that fuel surcharges, tariffs and other macroeconomic changes were not incorporated into its expectations and could materially affect actual results.

Recent Insider Transactions

The supplied insider data shows 170,129 shares purchased across two transactions and 34,516 shares sold in one transaction during the past six months, resulting in net purchases of 135,613 shares. The following are the recent transactions with complete, nonzero reported values; they should be viewed as factual disclosures rather than indications of insiders’ outlook.

Risks for Investors to Monitor

• Subscriber retention: Ending active subscribers declined 3.8%, creating a need to sustain revenue growth through subscriber engagement, add-ons and customer retention.
• Liquidity and leverage: First-half free cash flow remained negative, cash declined to $29.0 million, and long-term debt stood at $157.5 million.
• Q3 profitability: Management expects adjusted EBITDA margin to turn negative in Q3 after reaching 12.9% in Q2.
• Unincorporated external costs: Fuel surcharges, tariffs and other macroeconomic developments are not included in the current guidance assumptions.
• Execution during leadership and strategy changes: The new CEO must oversee the transition while concentrating resources on the core rental and selling businesses and continuing the rollout of AI-based discovery tools.

Summary

Rent the Runway’s fiscal Q2 2026 results showed faster revenue growth, wider gross margin and a materially narrower GAAP loss, supported by add-on engagement and operating expense control. The main counterweights were declining ending active subscribers, continued negative first-half free cash flow and a lower Q3 profitability outlook. Subscriber retention, liquidity and execution under the new leadership team are the principal issues to monitor as the company works toward its reaffirmed full-year targets.