Urban Outfitters continues to struggle. Its clothing rental brand, Nuuly, is another story.

Four years after launching, Nuuly, the clothing rental company from URBN, has garnered 198,000 active subscribers and just booked its first profitable quarter, company officials announced on an earnings call on Thursday.

“Our model of a monthly rental subscription certainly seems to be resonating with our target customer,” said Dave Hayne, president of Nuuly, on the call.

The brand, which launched in 2019, provides customers with the option to rent six items for a $98 monthly rate. Customers can choose from over 17,000 styles and over 400 brands each month, according to the company.

But as Nuuly has reached its profitability and subscriber goal, Urban Outfitters, URBN’s flagship retail brand, continues to struggle, company officials said on Thursday. According to the latest earnings report, Urban Outfitters sales decreased about 12% year over year in the third quarter.

“We are, of course, acutely aware that our single largest opportunity to improve the bottom line rests with our ability to turn the Urban brand around,” said Richard Hayne, URBN CEO. (Dave Hayne is Richard’s son.)

Despite other clothing rental companies now on the market, Nuuly brought in $65.5 million in revenue last quarter — an 86% increase from last year, according to the company.

Rent the Runway, which pioneered the concept of renting clothes, launched in 2009, but has since experienced setbacks. After the company went public in 2021, the share price dropped, and over its years in business, Rent the Runway has yet to become profitable, according to CNBC.

Nuuly leaders say that the company has been able to bring in new customers who have never rented before; 65% of its customers are renting for the first time, according to a statement from the company. About 50% of Nuuly customers are still subscribers after a year, and after two years, that number is over 40%.

“We have curated what we believe is the most compelling rental clothing assortment on the market,” said Dave Hayne.

Nuuly launched with about 24,000 subscribers, according to the company. That number grew to around 150,000 in March of this year and is now just 2,000 subscribers shy of the 200,000 goal URBN had set for the year end.

As Nuuly proves itself profitable, the company is planning for its continued growth. URBN plans to open a new fulfillment center for the brand in the greater Kansas City region in early 2024. The company has invested $60 million into the facility, which will allow it to process up to 600,000 Nuuly subscribers.

Urban Outfitters had “weaker than expected” sales during this latest quarter, officials said on Thursday. The disappointing performance has led to more unsold inventory than the company would like, which will translate to higher markdowns during the holiday sales than were originally planned, said company officials.

The company is trying to turn the brand around by rebuilding relationships with Urban Outfitters customers.

“We know we got behind prior to the pandemic and missed the opportunity to follow our consumers when they changed their platform preferences,” said Sheila Harrington, Global CEO of Urban Outfitters and Free People Groups.

The company is focusing on bringing in more items that are attractive to Gen Z and engaging with customers on platforms they are already on, including TikTok and YouTube.

URBN is also looking to hire a president for the brand, and a possible announcement about this could come in the next few months, said a company official on the call.

As URBN looks ahead to the future, the company is excited for the possibilities of AI in the retail industry, said Richard Hayne.

“I believe we are witnessing the beginning of another watershed period in retail — much like the impact e-commerce had beginning in the early 2000s, and mobile commerce had the following decade,” said Richard Hayne. “Current advances in machine-learning technology hold the promise to transform the business of retail once again.”