Urban Outfitters’ clothing rental service Nuuly reaches profitability

urban providers Clothing rental service Nuuly made its first profits thanks to a steady stream of new subscribers and a whopping 86% increase in revenue, hitting the benchmark before its competitor. Rent the trackwhich has not yet made a profit in almost 15 years of history.

The brand, which offers a $98 monthly subscription service for six items of clothing, posted $65.5 million in revenue and an operating profit of $300,000 during its fiscal third quarter ended Oct. 31. In the same period a year earlier, Nuuly posted $35.3 million in revenue. and an operating loss of $3 million.

This milestone marks the first time Nuuly has made money since launching in 2019, a goal for the company from the beginning as it sought to prove it could run a clothing rental business profitably. While there is high demand for clothing rental services, especially among younger consumers, the logistics of rental have made it difficult to earn income, threatening the viability of the platforms.

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

The brand’s meteoric rise as a preferred clothing rental service among Gen Z and Millennial consumers comes as competitor Rent the Runway struggles to turn a profit nearly 15 years into its history.

Nuuly’s active subscriber count, which reached 198,000 during the quarter, also eclipses that of Rent the Runway, which stood at 137,566 as of July 31. In April, CEO Jenn Hyman told CNBC that the company needs 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 rental is “a stone’s throw” away from profitability. The company is due to report its third-quarter earnings on December 5.

Nuuly made an operating profit in part because it is driven by the larger Urban business, which supplies much of the clothing available to tenants and covers some of its costs. Given Urban’s size and its inventories, Nuuly can be efficient in a way 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 has stronger unit economics than Nuuly and that its sales routinely exceed those of the newcomer. Additionally, Rent said its gross margins are double those of Nuuly.

Nuuly and Rent’s services are similar in that they both offer clothing rentals on a monthly basis for all types of occasions. Rent has long differentiated itself by focusing on designer brands and consumers looking for high-end products, while Nuuly began by offering a more casual selection of clothing for everyday wear. Today, both companies offer a variety of casual and formal options, although Rent still focuses more on designer brands.

The clothing rental market is still a nascent industry. As brands look to convince consumers to rent instead of buy, offering a wide variety has been essential.

“We wanted to give her, the subscriber, the opportunity to rent something she could wear to the office, something she could wear when she’s relaxing at home, or that dress she wants to wear to a wedding,” Hayne said. , son of Urban founder and CEO Richard Hayne. “We wanted to create an assortment that was wide and varied enough that she could have options for whatever her need was for the next month, whether or not she’s going to a wedding or having an event, whatever it may be.”

Across the urban business, the retailer performed better than expected on both top and bottom lines.

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

Sales totaled $1.28 billion, compared to expectations of $1.26 billion, according to LSEG.

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

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

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

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

In its statement, Urban did not share any guidance on what it expects for its Christmas quarter and overall fiscal year.