Urban Outfitters’ clothing rental venture, Nuuly, has marked a significant milestone by achieving profitability, setting itself ahead of its competitor, Rent the Runway, in the clothing rental domain.

Since its launch in 2019, Nuuly has targeted profitability, focusing on building a sustainable clothing rental business. The recent fiscal third quarter, ending Oct. 31, reported a significant achievement, with Nuuly posting an operating profit of $300,000, a remarkable shift from the $3 million operating loss a year prior. Nuuly’s success stems from an 86% revenue surge, reaching $65.5 million compared to the year-ago period’s $35.3 million.

Nuuly’s affiliation with Urban Outfitters, Inc., which also owns the Free People, Anthropologie, and Urban Outfitters brands, plays a pivotal role in its success. Leveraging Urban’s logistical advantages, Nuuly efficiently sources its inventory, reducing costs, bolstering operational capacity, and enhancing its operational capacity compared to its counterparts.

The brand, offering a $98 monthly subscription for six clothing items, experienced a considerable increase in revenue, reaching $65.5 million during its fiscal third quarter that ended on Oct. 31. This remarkable growth represents an 86% surge compared to the $35.3 million in revenue reported in the year-ago period. Notably, Urban Outfitters, Inc’s Nuuly posted an operating profit of $300,000, marking its first profitable quarter since its inception in 2019.

Nuuly’s profitability aligns with the initial vision of the company, aimed at proving the viability of running a profitable clothing rental business. While the demand for clothing rental services, especially among younger consumers, remains high, the logistical challenges have posed significant hurdles to profitability within the industry.

David Hayne, Nuuly’s president and Urban’s chief technology officer, emphasized the company’s goal to build a sizable and profitable business. “We set out with a plan to build a business that we thought could be quite big and we set out with a plan to build a business that had the potential to be profitable,” Hayne mentioned in an interview with CNBC. “And that’s what we’ve been able to accomplish.”

Nuuly’s success reflects its robust growth among Gen Z and Millennial consumers, surpassing Rent the Runway in active subscriber count, reaching 198,000 during the quarter compared to Rent the Runway’s count of 137,566 as of July 31. This subscriber surge, coupled with revenue growth, demonstrates Nuuly’s growing influence in the competitive clothing rental market.

The brand’s strategic approach involves offering a diverse assortment of clothing, initially focusing on casual wear and expanding to include formal options. By catering to various fashion needs, Nuuly aims to provide subscribers with a comprehensive range of choices, whether for office attire, leisurewear, or special events.

Per the CBNC report, Rent the Runway, while boasting stronger unit economics and higher sales, faces a profitability challenge. Responding to Nuuly’s milestone, Rent the Runway clarified that their definitions of profitability differ and aren’t directly comparable. The company highlighted its stronger unit economics and double gross margins compared to Nuuly.

Urban Outfitters, Inc., yesterday also posted record sales of $1.28 billion, surpassing expectations, and witnessed a 120% increase in earnings per share. Despite a decline in sales for its namesake brand, Urban Outfitters, the company remains optimistic about its performance, focusing on driving growth amid shifting consumer trends.

INSIDER TAKE:

The clothing rental market continues to evolve, Nuuly’s profitability serves as a significant achievement within this burgeoning industry. As consumer preferences shift towards sustainability and flexible options, Nuuly’s success underscores the company’s adaptability and customer-centric strategies in the clothing subscription space.

Urban Outfitters’ commitment to Nuuly’s expansion, with plans for a $60 million fulfillment center outside Kansas City, also underscores its confidence in Nuuly’s continued growth. As the clothing rental market evolves, Nuuly’s success stands as a testament to the potential profitability within the sector.