Welcome to Rent the Runway fourth quarter and fiscal year 2023 earnings results conference call. At this time all participants are in a 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. As a reminder, this conference is being recorded. I would now like to turn the call over to Rent the Runway's Chief Legal and Administrative Officer, Cara Schembri. Thank you. You may begin.

Good afternoon, everyone, and thanks for joining us today. During this call, we will make references to our Q4 fiscal year 2023 earnings presentation, which can be found in the Events and 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 this afternoon's press release as well as our filings with the SEC, including our Form 10-K that will be filed within the next few days. We have 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. Reconciliations 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. And with that, I'll turn it over to Jenn.

Hi, everyone. Thanks for joining us. We're pleased to share that we exceeded top and bottom line guidance for fiscal year 2023 and believe we are ending the year in a great position for both growth and profitability in fiscal year 2024. We believe 2024 will be a milestone year for Rent the Runway as we're committed to delivering free cash flow breakeven and showing the strength of our business model. Our results in Q4 '23 show the stability of our business and that we've turned the corner towards growth. We achieved historical high Q4 and full year adjusted EBITDA of $11.2 million and $26.9 million, respectively. Q4 adjusted EBITDA was strong, most notably because of record sales success from our try-before-you-buy business where our subscribers purchase items they already have at home, have already worn, and already love. We believe that try-before-you-buy's Q4 success was primarily due to investments we made into our pricing strategy and technology earlier in 2023, which drove significant increases in customer conversion. For the full year 2023, we grew our onsite inventory resell business by 36% by both significantly increasing the number of customers transacting and increasing the units purchased per subscriber. We view this as a strong continued revenue driver in 2024 and beyond. This business line drives strong margins to the business and enabled us to fund quicker inventory newness while also increasing customer loyalty as subscribers viewed try-before-you-buy to be a key value proposition of our subscription program. Throughout 2023, we made tangible improvements to our customer experience that are showing up in our metrics. Subscription net promoter score is at the highest consistent level it's been in several years and improved 20 points from a low in Q2 '23 to highs in Q4. Our continuing customer loyalty rate is also up 10% year-over-year. These are solid indicators to us that the positive virality of Rent the Runway is coming back and growth is ahead. The place where we've made the biggest strides in 2023 was around our inventory position. In late '22, we identified that we had to correct for low inventory depth and saw throughout Q1 and Q2 that lower in-stock rates were leading to higher rates of customer churn. We quickly acted against this and made tremendous improvements to the inventory experience by the back half of 2023. Depth on new styles has doubled, and our Q4 in-stock rate was nearly 50% higher than Q4 2022. The inventory churn rate, which represents churners who cite inventory as the primary reason for leaving the subscription, decreased by 35% in Q4 2023 relative to Q1 through Q3 2023. What we hope this conveys to current and potential investors is that we're nimble in running our business, can pivot due to our data-driven culture, and we have the focus and execution prowess to find solutions quickly. Not only did we make major strides in 2023 on inventory depth, we ensured that our selection continued to get more high-end and desirable with access to the most coveted designer brands in line with our core psychographic. In Q4 of 2023, we launched luxury special occasion wear into our assortment, which was received with great excitement from our customers. You can expect to see us continue to partner with the best designer brands in the industry to grow our businesses together with many exciting new designer launches on the platform planned for 2024. We believe Rent the Runway continues to hold the premium brand positioning in the market, appealing to a sophisticated customer who wants to use us for her busy life of work events, travel, and weekends. A powerful example of Rent the Runway continuing to elevate our premium positioning and premium service is the one-on-one texting concierge service we launched in beta in May '23 and now serves nearly 40% of our first 90-day customers. In 2023, we saw that one-on-one communication with customers improved early term retention by answering questions, styling customers, and helping them get the most out of their membership. We plan to continue to scale our concierge program as part of a new 360-degree lifecycle strategies we're implementing and view it as a compelling loyalty lever in 2024 for the various customer segments. Lastly, we've spent fiscal year 2023 taking action to achieve free cash flow breakeven in fiscal year 2024. First, we have focused on continued improvements to our margins. Fulfillment costs as a percentage of revenue were 29% of revenue in fiscal 2023 compared to 31% in fiscal 2022, driven by continued efficiencies in our warehouses and consolidation of our shipping needs at competitive rates. We have moved towards a more capital-light inventory model with a third of our inventory procured on consignment with little to no upfront payment and 28% of our inventory acquired in '23 from our exclusive designs program where Rent the Runway collaborates with some of the top designers in the world on exclusive collections at much lower cost than wholesale procurement. Our December debt restructuring eliminated cash interest through Q1 of 2025. Lastly, throughout fiscal year 2023, we executed various cost reductions, including the January 2024 restructuring to realign the business behind growth while cutting costs. All of these margin and cost improvements that we have already completed make us confident that we will achieve free cash flow breakeven in fiscal year 2024. Now I would like to turn to 2024. Our primary focus in 2024 is growth and our strategy to focus our resources and energy into two avenues: reigniting full-stack marketing of our brand to widen our funnel of potential customers and digital product innovation to increase customer conversion and loyalty. We think now is the perfect time to put our foot back on the gas pedal as it relates to marketing as our inventory is in a great position, and the customer experience is as premium as it's ever been. As we've shared before, for almost the entirety of Rent the Runway's existence, the business grew organically fueled by customers' deep love for our brand, service, and mission of female empowerment, which made them willing advocates of Rent the Runway with their friends. I still believe that the most powerful channel to build brands is authentic word of mouth, though today, more of that word of mouth can happen on social media in addition to in-real-life experiences. The good news is despite being relatively quiet on the marketing front for the past few years, we are working from a base of high brand awareness and a significant amount of latent brand love that we believe we have the ability to reactivate. Our first step was hiring an experienced Chief Marketing Officer on March 4. We welcome Natalie McGrath onto the team from Afterpay, where she was responsible for accelerating that brand's impressive growth. Natalie has 20 plus years of marketing experience at the intersection of fashion, retail, and tech, working for brands like Net-a-Porter, Alexander Wang, and Boohoo. Over the next few months, you can expect to see us focus on the following five buckets of marketing opportunity: 1. Building mid-funnel consideration marketing plans focused on driving customer reasons to believe and supporting incremental conversion; 2. Scaling new marketing channels with a social-first approach. This means diversifying away from a solely bottom-of-the-funnel Meta and Google landscape into many channels that drive new traffic to the site and widen our prospect funnel; 3. Rebuilding our lifecycle engine and customer marketing approach; 4. Refocusing on a creative strategy that supports customer key segments' needs for the discovery of new trends, saving time, and use-case-based shopping. Our creative strategy is centered around and supercharged by our approach to content; and 5. Reinvesting in our reserve rental business. While we expect it may take a few quarters for marketing to ramp up, our goal is to reactivate the dynamic beloved nature of the Rent the Runway brand, and we'll measure our performance through our organic growth and traffic. Throughout 2024, our customers will see and hear from us a lot more as we plan to activate in real life via partnerships, PR, influencers, celebrities, and most importantly, content that brings our own customers and mission of female empowerment back to the center of our brand stories. As a small example of what I mean, in March, we launched a campaign aligned with International Women's Month, encouraging women to show off their accomplishments or those of their peers on LinkedIn. The campaign went viral, receiving over 630 million impressions, I believe due to its authenticity. Over 310,000 people engaged with it on LinkedIn, and thousands of women used the platform to tell inspirational stories of female career success. We also relaunched the Real Runway, which uses our own aspirational customers, self-defined women who are leaders in their fields and avid users of Rent the Runway to inspire our community. These women create social-first content that showcases how Rent the Runway's subscription has been an unlock for them in their own lives. This month, we partnered with celebrity stylist Maeve Riley to create styling content that will inspire our customers on how to dress for work and all of their spring events. Maeve is joining us for a series of in-real-life events and top-ups in New York City, where we're inviting many of our highest LTV and VIP win-back customers. We're excited to bring the magic and growth back to our brand, and we'll be sure to update you on progress as we go. Our second area of focus this year will be continuing the digital product innovation we started in 2023 to drive increases in conversion and loyalty. In 2023, we made major strides on-site performance and speed across all of our surfaces, and we made it easier for users to find inventory they love. The enhanced discovery features like rental look, AI search, new filtering, and upgraded photography and styling this year focus on three main buckets: One, innovations in app and site merchandising to streamline product UX and design; Two, to simplify conversion flows; and Three, a focus on styling and customer review content that teaches our customers how to wear our items, giving her even more confidence to rent. If you go to our site or app today, you can already see some of this work in action. Earlier this quarter, we transformed our site merchandising to center around use-case-based shopping hubs that show her how to get dressed for work, parties, weddings, travel, and weekends. Within each hub, we focus on key trends, must-have items, and styling advice, visually inspiring potential customers that our limitless closet has everything they could possibly need. The insight is this: people don't come to our site to buy a subscription to fashion. They come to Rent the Runway because they need solutions. They're trying to solve functional problems, like how do I get dressed for work, special occasions, and vacation every day. And they're also trying to solve emotional problems, like how do I express myself through fashion and feel amazing. With these hubs and boutiques, we're delivering on the promise of actually helping her get dressed with a limitless closet and an expert fashion point of view. As the closing resale and rental market continues to expand, I feel confident in Rent the Runway's positioning as the premium offering in the marketplace and the most widely known solution. Our elevated customer experience is unparalleled with offerings like at-home pickup, speedy shipping, one-on-one styling, personalized curations, and the most flexible subscription programs. We're continuously iterating to improve the experience. We have strong momentum coming out of fiscal year 2023. Our margins and cost structure are in a great place. The team is fully aligned behind growth, and I'm excited for us to take advantage of this tremendous market, though there continues to be enormous market skepticism in our business. I'm fired up to prove this wrong once and for all. The way to do this will be to drive profitability and growth. With that, I'll turn it over to Sid.

Thanks, Jenn, and thank you, everyone, for joining us. We believe fiscal year 2024 will be transformational for Rent the Runway. First, we expect revenue growth for the year. Second, we expect the business to be free cash flow breakeven this year. Third, we expect significant progress in our strategy to improve capital efficiency with almost 50% of new rental product units to be sourced through our share buy RTR platform, requiring no or low upfront costs. Indeed, combined with our exclusive design platform, we expect that more than 70% of total new units will be sourced through cost-advantaged channels. We think this combination of revenue growth, along with operating and capital efficiency, reduces business and investment risk considerably. Our increasingly strategic position within the changing retail and apparel industry, combined with the growing market, is accelerating our progress towards a capital-light model. We found that brand owners are recognizing the customer visibility we provide them and are more likely to partner with us on a revenue share basis through share-buy RTR. The progress we have made validates our belief that for many brands, we are a significant source of new customers who discover these brands on Rent the Runway. Our anticipated lower upfront capital outlays for rental products in fiscal year 2024 reflect this trend. Before we turn to results for the year, I want to take a moment to discuss our balance sheet. Our recent debt amendment with zero interest for six quarters reflects our constructive relationship with our lending partner. Cash generation is a top priority for the company. We believe the actions we are taking in fiscal '24 position the Company well to not only grow revenue but to convert that growth into higher free cash flow as we enter fiscal '24. Our cost structure is leaner, our inventory strategy is increasingly capital-light, and our unit economics are sound. We also operate in a growing market, and the two-sided platform we have created delivers substantial value to both customers and our brand partners. The majority of the company's resources are focused on driving revenue growth in fiscal '24 and beyond. In addition to revenue growth, base cash generation, we are laying the foundation for the beginnings of both an advertising and resale business. Initially, advertising is largely comprised of a sampling business that makes the most of the millions of shipments we send to customers each year. However, there is more we think we can do here. Resale, as you can see by growth in other revenue, consists of building a sale and replenishment business. Here, too, we see further potential for sales to both subscribers and non-subscribers. It is too early to go into more detail, but we see considerable cash generation potential at Rent the Runway in these areas. We think that this potential, our strong relationship with our lending partner, and our strategic position in the industry will allow us to adequately manage our financial position in a timely manner. Let me now turn to our financial results and path to free cash flow breakeven. We ended Q4 '23 with 125,954 ending active subscribers, down 0.6% year-over-year. Average active subscribers during the quarter were 128,840 versus 130,476 subscribers in the prior year, a decrease of 1.3%. Ending active subscribers declined from 131,725 subscribers at the end of Q3 2023 due to expected seasonal trends. Total revenue for the quarter was $75.8 million, up $0.4 million or 0.5% year-over-year and up $3.3 million or 4.6% quarter-over-quarter. Subscription and reserve rental revenue decreased $3 million year-over-year in Q4 '23 due to a decline in the reserve business, along with slightly lower average active subscribers. Other revenue increased 48.6% or $3.4 million year-over-year due to increased focus on our resale business, which drove incremental cash flow and customer loyalty. Total revenue for the year was $298.2 million, up $1.8 million year-over-year or 0.6%. Fulfillment costs were $20.1 million in Q4 '23 versus $22.7 million in Q4 '22 and $21.5 million in Q3 '23. Fulfillment costs as a percentage of revenue were lower year-over-year and quarter-over-quarter at 26.5% of revenue in Q4 '23 compared to 30.1% of revenue in Q4 '22 and 29.7% of revenue in Q3 '23. Fulfillment costs benefited from a new transportation contract with UPS and continued warehouse efficiencies. Gross margins were 39.4% in Q4 '23 versus 44.2% in Q4 '22. Q4 '23 gross margins reflect higher rental product costs due to increased investment in rental product year-over-year and higher sales through our resale channel. Increased investment in rental product reflects the depth adjustments to increase inventory in-stock rates in fiscal '23. Q4 '23 gross margins increased quarter-over-quarter to 39.4% from 34.8% in Q3 '23 due to better fulfillment margins and seasonally lower revenue share expenses associated with new receipts. Operating expenses were about 7% lower year-over-year, primarily due to the favorable impact of our cost reduction efforts. In January of 2024, we announced a restructuring plan that will reduce our workforce by approximately 10% by the end of Q2 2024. We believe these reductions will support our path to free cash flow profitability, which I will outline shortly. Total operating expenses, which includes technology, marketing, and G&A, were 55.8% of revenue in Q4 '23 versus 60.2% of revenue in Q4 '22 and 60.1% in Q3 '23. Adjusted EBITDA for the quarter was $11.2 million or 14.8% of revenue versus $7.1 million and 9.4% of revenue in the prior year. Adjusted EBITDA for the year was $26.9 million or 9% of revenue versus $6.7 million or 2.3% of revenue in the prior year. Adjusted EBITDA year-over-year reflects the significant progress we have made in reducing fixed costs as well as fulfillment-related efficiencies. Free cash flow for fiscal year 2023 was negative $70.3 million versus negative $92 million in fiscal year 2022. I will now discuss guidance for fiscal year 2024. Let me start with a bridge to cash flow breakeven for fiscal year '24. Our debt restructuring in December eliminated all cash interest in fiscal '24, which equates to approximately $5 million in savings on a year-over-year basis on rental product. Our fiscal '24 plan is to acquire between $48 million and $50 million in capital expenditures, which excludes any impact of timing of payments as found in the supplemental cash flow statement and comply with our debt covenants, which we expect to drive approximately $28 million in rental products CapEx savings year-over-year. While a decrease of approximately $28 million or 37% in rental product CapEx may seem drastic, this reduction largely reflects two things. First, a shift towards procuring more inventory via share-buy RTR, which is paid upon performance and not capitalized, and second, the depth adjustment costs incurred in fiscal '23 to increase rental product in-stock rates. On the fixed cost side, we announced the restructuring plan in January, which included a 10% reduction in our corporate headcount by Q2 '24. The restructuring plan, in addition to fixed cost actions we took earlier in fiscal '23, is expected to result in approximately $11 million of cash savings year-over-year. In fiscal '23, we incurred one-time costs related to the restructuring and debt refinancing. These one-time costs, combined with other miscellaneous items such as tax credits, deferred revenue, and improved working capital, are expected to contribute approximately $10 million in year-over-year free cash flow savings. The outlined savings imply approximately $54 million in year-over-year savings, starting with fiscal '23 cash consumption of negative $70 million. These savings reduce cash consumption to negative $16 million. We expect improvements in variable costs and higher revenue to bridge this gap consistent with 2023 weeks. We continue to expect improvements in fulfillment costs as a percentage of sales. Importantly, we believe the strength of our resale business provides a key lever to drive free cash flow breakeven even in scenarios with minimal subscription and reserve revenue growth. Let me now outline specific guidance for fiscal year 2024, starting with full-year guidance. As outlined in the press release, we expect to grow revenue for the year between 1% and 6% versus fiscal 2023 revenue. We also expect fiscal 2024 adjusted EBITDA margin to be between 15% and 16% of revenue. Finally, as we just discussed, we expect free cash flow breakeven for fiscal 2024. Turning to Q1 '24, we expect revenue to be between $73 million and $75 million. We also expect adjusted EBITDA margins for the quarter to be between 7% and 8% of revenue. As we typically expect, Q1 will see higher upfront revenue share expenses as well as seasonally higher marketing costs. Finally, note that Q1 is also expected to be a quarter with seasonally high rental product receipts driving higher rental product capital expenditures versus the quarterly average run rate. Let me conclude by reiterating that we expect to grow revenue in fiscal '24 and reach free cash flow breakeven for the full year. We expect Rent the Runway in fiscal '24 to be a stronger and sustainable business. We will now take your questions.

Our first question comes from Andrew Boone with JMP Securities. Please go ahead with your question.

Thanks, much for taking my questions. I wanted to start off with the 2024 guide. Can you just help us understand the acceleration that's implied in guidance in 2024? I understood you called out marketing, but is there anything else you can help us bridge the acceleration that you guys are implying?

Sure. I think the most important thing to point out here is, and the one factor that gives us a very significant amount of confidence in the guidance we've outlined. Obviously, number one, you've seen an improved trajectory from Q3 to Q4. So we are starting to see the benefits of many of the strategies we put in place. The second thing that's important to point out is we do, as Jenn pointed out, have seen a 10% improvement year-over-year in churn. That is a very direct impact on the growth and retention that we forecast for the year. Third, I think we have started to make both brand and paid marketing improvements in the business that we expect to bear fruit in the coming years. So I think everything that we're seeing so far in the business gives us some confidence that we're very much on track to meet these numbers.

I think that what you see as well is you see that we have developed key levers to drive revenue growth. The reason why we spoke about our retail business and the success that we saw in 2023 as we really built that out as a lever is because we were able to drive not only more customers interacting with buying things they have at home, but they're also buying more units from us, which is high margin. It's a significant ROI on top of the rental revenue we already made from those units. We've seen really nice momentum in retention, and we are starting to see nice momentum in acquisition across both our subscription business as well as reserve. So we have a lot of confidence in our growth going into this year. Most importantly, when we conducted our restructuring, it was not just about cost-cutting. It was about a realignment of the resources of this company aligned with growth. Everyone here is focused on marketing or digital product innovation. Because we're putting all of our resources into these areas, we're already seeing that momentum. That's what really gives us confidence in the guide.

And I would say another thing to keep in mind, which I just mentioned but I think is important to highlight again, is we did face throughout fiscal '23 a fairly considerable set of headwinds from a few different decisions we made. One was we faced a decline in the reserve business, as we pointed out for several quarters now, and that business is on a much better trajectory relative to the growth rates of declines in growth that we've seen over the last few quarters. So that's one contributor. The second thing is we obviously embarked on a number of promotional changes throughout fiscal 2023 that we have been transparent about. We'll obviously have anniversaried those, and I think we're seeing nice behavior among repeat customers, which gives us confidence that we're on a good trajectory there.

Thanks. And then I wanted to ask about the advertising business that you mentioned in the prepared remarks. What are the key hurdles that you guys need to knock down operationally for that to begin to scale and for you guys to grow that business into something more meaningful? Thanks so much, guys.

Sure. Look, I think it's early days, so I'm not going to get into too much detail as I mentioned. The first thing, we send several million shipments to our customers. I think historically what we have done is put relatively little effort into trying to maximize the value we can get from a sampling program. What we need to do is make sure that we have an organized outreach program for brands. We highlight the benefits that our customers can provide those brands. I think we have got the staff now to start doing some of that. It's a process that we need to follow, but I'm optimistic about this opportunity. Frankly, we're at the beginning stages of taking advantage of that opportunity.

And I think if you think more broadly, we just shared that nearly 50% of the inventory that we are acquiring in 2024 is going to come via revenue share, meaning we don't really pay for it upfront, or we pay very little amounts upfront. We revenue share with our brand partners, hundreds of them based on the performance of this inventory. The only reason why any brand would interact with us in this way is because they see us as a powerful marketing channel on behalf of their brand. They know that when our psychographic of women, which is highly desirable, interacts with their brand, that brand affinity is built and those experiences drive additional purchases for those brands. So we've seen that this platform that we've created is this Retail 2.0 platform. We've brought essentially all the benefits of a retail store into someone's home into their real life where they get to know brands and develop an affinity and become customers. Now we are bringing that same prowess of what we've built with fashion brands into other industries to enable that level of creative new customer acquisition. We see this as being a really big opportunity for the business.

Our next question comes from the line of Alexandra Steiger with Goldman Sachs. Please proceed with your question.

Two questions, if I can. So first on marketing, you mentioned that you wanted to incrementally invest in marketing going forward post a few quarters of marketing spending being down. So how should we think about the cadence of marketing investments through the year and the potential impact as we think about customer growth versus driving retention among your existing customers?

So retention at Rent the Runway is focused and retention is driven by our experience. We shared last year that retention drops in the first half of the year because of problems that we had with inventory depth. We fixed that problem very quickly, and we saw that not only did retention rebound, but it improved significantly year-over-year, by 10%. When you look at Q4 versus Q4, that's not just related to inventory depth. It's related to many improvements we've made to the totality of the customer experience. Of course, there are other things that we're driving within marketing to drive additional retention across all of our customer segments. That's really a 360-degree lifecycle segment strategy that the marketing team is developing, where we're focusing on our customer segments and coming up with various communication plans and strategies to service those customer segments differently. The other elements of the marketing plan that we are focused on and what Natalie will be focused on is not only lifecycle but increasing traffic, so opening up the funnel of new customers who are considering us. You'll see us interact with a more diverse set of marketing channels to drive more traffic to the site. Number one. Number two is reigniting the brand marketing. Our business has grown and continues to be very strong as it relates to the organic traffic coming to the site; people come to Rent the Runway directly. Investing in our brand activities in authentic ways, rebuilding our relationships with customers so that customer virality continues to be a huge source of our acquisition. That's where you'll see us focusing now. So much of the underpinning of this is our content and the new creative strategy, a content strategy at this point, fuels organic growth in your lifecycle strategies, it infuses acquisition, because the content strategy informs the efficacy of paid advertising, so you'll see us innovate our creative strategy and our content strategy, which will help all channels.

And I would say on the timing of marketing expenditures, I would use fiscal '23 and the timing of the quarterly expenditures as a good guide for what we might expect in fiscal '24. As you know, our Q1 and Q3 tend to be heavy subscriber acquisition quarters for us and that's when we typically deploy a lot of the marketing expenditure that we have. But fiscal '23 is a good guide for timing.

Got it. Very helpful. Thank you. And then one follow-up, if I can, that you didn't mention the broader consumer environment and some macro volatility in your prepared remarks versus obviously some e-commerce companies and also brands calling out continued consumer weakness or spending weakness. So just wondering what you're seeing across your customer base since the beginning of the year?

We're not seeing any macro impacts on the business. We feel strong momentum and feel very good about the guidance that we provided to grow this year.

Thank you.

Thinking coming back, we're seeing in many ways the opposite in the sense that our customer loyalty is up. Customers are willing to buy more items from us. The retail business is growing significantly. So we have not seen negative impacts in our business right now.

Our Net Promoter Score is up 20 points. I mean, people are having a better experience that drives an increasingly high customer flywheel for us and higher customer virality. So we're not seeing negative impacts from the macro at all.

And I would say that this goes back to some of the things we've talked about in the past, which is we do offer both brands and customers significantly more value at a time when they might be price conscious, but no signs in our business right now.

I think it also brings up a very important point that we made last year, but it's worth repeating that we had a relatively flat year last year from a revenue standpoint. The reason for that was our own issue; we came into the year with lower inventory depth and needed to address that. We recognize that as a problem, and we solved it. We exited the year in a great position related to our inventory. We see that in all of our metrics. The flatness of our year was self-inflicted, but we now have spent 2023 dramatically improving the inventory position and many other aspects of the customer experience. This really sets us up for a strong 2024.

Our next question comes from the line of Ashley Helgans with Jefferies. Please proceed with your question.

Hi, it's Blake. Thanks for taking our question and nice job on all the progress. I wanted to first ask about subscriber growth. I believe you mentioned you are going to widen the funnel of potential customers. Was just wondering if you could elaborate on that. Has there been any update in your target customer you could talk about given some of the high-end luxury editions and the pullback in promotions? How would you, if we look back over the last year or three-plus years, talk about your total addressable market (TAM) and target customer now versus maybe a few years ago?

Well, I think that by opening up the funnel, one of the primary ways we're going to do that is by diversifying our marketing channels. So really just expanding the channels through which we reach customers. We, like some other businesses, had spent too much of our paid marketing dollars concentrated into the Meta platform and the Google platform. You'll see us dramatically diversify our channel mix to drive additional traffic to the site. The other thing that we're focused again on is content, and a lot of that content is social-first. So really driving the organic nature of our business in social channels, which is where brands are being built. As it relates to the psychographic of our customer, which is extremely wide, there are 16-year-olds who use Rent the Runway and there are 76-year-olds who use Rent the Runway. It's about a woman who appreciates designer brands and who also has this busy life, trying to optimize her time. We do see our customers using us for work, special events, traveling, and weekends. With the TAM, it has never been a problem for us, and so you'll see us focus on this psychographic, which is a more sophisticated customer and leveraging more channels, especially social-first content to draw this customer in. That's really how you want to if you want a specific example, Blake, you know, yes, we know that many of our customers have many engagements and careers. We just this week launched a workwear hub on our site of merchandise content for them for different office environments. We're styling them for everything from a creative office to a bank to a tech firm differently. We're speaking to the exact customer we have, who is someone who wants a solution. She doesn't have time to spend shopping. We're able to cater to her via our content. You'll see us not only activate what we're doing on the site but also follow this up with in-real-life pop-ups that are focused on styling for our customers. We are inviting them into a retail environment where we partnered with celebrity stylists to help style our customers around workwear. You've seen 360-degree activations across many different channels to address this really unique psychographic that we cater to.

And that's interesting about the workwear segments you're offering. Would you say that fits under your initiative of improving the search tools? Because I know that was a big focus.

Exactly. So we have started a significant focus in 2023 on product discovery, which is really: how do we help people figure out what those 10 items per month that they get from their subscription are? Our customers want advice for the specific use cases that they have going on in their lives. In April, they might be going on spring break, and they're going to want to know how to pack for that. So now they can go to the use-case-based hub that we have on the site that provides real feedback: 'okay for their travel that they're taking to some sunny destination, here are the key trends and here are the key items they need.' They can go into the workwear hub and get styling advice and suggestions in that way. We're taking the discovery work we did in 2023 and really taking it to the next level in 2024 based on the learnings we had in '23.

That sounds great. And then the last one was, I know you've given Q1 guide, but any color you can talk about on how the months progressed in Q4 and what you're seeing so far quarter to date?

I would just say we're encouraged with the business. The reason we provided this guidance is because we obviously feel good about where the business is, and the trends that we're seeing are consistent with the guidance we provided. But there’s no color on kind of the monthly trends that we're sharing at this point.

There are no further questions at this time. I would now like to turn the call back over to management for any closing comments.

Thank you, everyone. I just wanted to reiterate that we do expect fiscal '24 to be a really important year for Rent the Runway. We're making significant progress on revenue, on free cash flow, and on becoming a significantly capital-light company. We'll see you next cycle.

Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.