Urban Outfitters' clothing rental service Nuuly has achieved profitability ahead of competitor Rent the Runway, marking a significant milestone for the brand. Nuuly posted an impressive $65.5 million in revenue and an operating profit of $300,000 during its fiscal third quarter ended on October 31. This marks the first time Nuuly has turned a profit since its launch in 2019.

The steady increase in subscribers and an 86% surge in revenue have contributed to Nuuly's success. With a monthly subscription fee of $98, offering six items of clothing, Nuuly has gained popularity among Gen Z and Millennial consumers, surpassing Rent the Runway in active subscriber count. While Nuuly reached 198,000 subscribers during the quarter, Rent the Runway stood at 137,566 as of July 31.

Achieving profitability in a challenging market demonstrates Nuuly's ability to operate a clothing rental business profitably. However, Rent the Runway, which has been in operation for nearly 15 years, continues to struggle to turn a profit. The company's CEO, Jenn Hyman, stated that Rent the Runway is close to achieving profitability and plans to release its third-quarter earnings on December 5.

Nuuly's success can be attributed in part to the support it receives from the larger Urban Outfitters business. As a result, Nuuly can operate efficiently, benefiting from Urban's inventories and lower costs, which has contributed to its operating profit. Rent the Runway responded by stating that its definition of profitability differs from Nuuly's and that their gross margins exceed Nuuly's by double.

Both Nuuly and Rent the Runway offer clothing rental services on a monthly basis, catering to various occasions. While Rent the Runway focuses on designer brands and higher-end products, Nuuly initially targeted casual clothing for everyday wear but has since expanded its assortment. The clothing rental market is growing, and offering a diverse range of options plays a critical role in attracting consumers who prefer renting over buying.

In addition to its clothing rental success, Urban Outfitters' broader business also performed better than expected. The retailer reported earnings per share of 88 cents, surpassing expectations of 82 cents, and sales of $1.28 billion, exceeding expectations of $1.26 billion. Anthropologie, known for its trendy and higher-end clothing and home goods, drove the quarter with $550 million in revenue, surpassing analysts' expectations. However, Urban Outfitters' namesake brand experienced a decline in sales and comparable sales, highlighting the need for improvement in that segment.

Looking ahead, Urban Outfitters did not provide guidance on its expectations for the holiday quarter and the overall fiscal year. The company acknowledged the need for further work, particularly within its namesake brand, and expressed determination to capitalize on the opportunity.

Overall, Nuuly's achievement of profitability has established its position as a strong competitor in the clothing rental market, surpassing Rent the Runway and showcasing Urban Outfitters' ability to adapt and thrive in the evolving retail landscape.