Stitch Fix Inc

Previous wording

For the three and six months ended January 27, 2024, we reported $330.4 million and $695.2 million in net revenue, representing a year-over-year decline of 17.5% and 17.7%, respectively, compared to the three and six months ended January 28, 2023. As of January 27, 2024 and January 28, 2023, we had 2,805,000 and 3,377,000 active clients, respectively, representing a year-over-year decline of 16.9%.

Current wording

For the three and nine months ended April 27, 2024, we reported $322.7 million and $1,017.9 million in net revenue, representing a year-over-year decline of 15.8% and 17.1%, respectively, compared to the three and nine months ended April 29, 2023. As of April 27, 2024 and April 29, 2023, we had 2,633,000 and 3,288,000 active clients, respectively, representing a year-over-year decline of 19.9%.

Previous wording

During the three and six months ended January 27, 2024, we experienced a decline in net revenue year-over-year primarily due to our challenges in acquiring and retaining clients. We expect these challenges in acquiring and retaining active clients to continue having a negative compounding effect on net revenue throughout the remainder of fiscal 2024. We remain focused on retaining current clients, improving the conversion of new clients, and enhancing our overall client experience for new and existing clients.

Current wording

During the three and nine months ended April 27, 2024, we experienced a decline in net revenue year-over-year primarily due to our challenges in acquiring and retaining clients. We expect these challenges in acquiring and retaining active clients to continue having a negative compounding effect on net revenue throughout the remainder of fiscal 2024 and into fiscal 2025.

Previous wording

Net loss from continuing operations for the three and six months ended January 27, 2024 was $35.0 million and $61.1 million, compared to a net loss from continuing operations of $63.4 million and $111.6 million for the three and six months ended January 28, 2023.

Current wording

Net loss from continuing operations for the three and nine months ended April 27, 2024 was $22.0 million and $83.1 million, compared to a net loss from continuing operations of $18.4 million and $130.0 million for the three and nine months ended April 29, 2023.

Previous wording

For more information on the components of net loss from continuing operations for the three and six months ended January 27, 2024, refer to the section titled “Results of Operations” below.

Current wording

For more information on the components of net loss from continuing operations for the three and nine months ended April 27, 2024, refer to the section titled “Results of Operations” below.

Previous wording

During the three and six months ended January 27, 2024, in furtherance of and as an expansion of the restructuring plan announced in June 2022 (the “2022 Restructuring Plan”), we recorded $8.4 million and $16.3 million of additional restructuring charges. Related to the 2022 Restructuring Plan and stylist compensation restructuring, we estimate we will incur between$4 million and$5 millionof additional cash restructuring charges in thenext three fiscal quarters, with substantially all of the cash payments to be completed by the end of the first quarter of fiscal 2025.

Current wording

During the three and nine months ended April 27, 2024, in furtherance of and as an expansion of the restructuring plan announced in June 2022 (the “2022 Restructuring Plan”), we recorded $4.8 million and $21.2 million of additional restructuring charges. Related to the 2022 Restructuring Plan and stylist compensation restructuring, we estimate we will incur between$1.0 million and$1.5 millionof additional cash restructuring charges in thenext two fiscal quarters, with substantially all of the cash payments to be completed by the end of the first quarter of fiscal 2025.

Previous wording

(1) For the three and six months ended January 27, 2024, depreciation and amortization excluded $3.4 million and $7.6 million reflected in “Restructuring and other one-time costs.” For the three and six months ended January 28, 2023, depreciation and amortization excluded $1.8 million reflected in “Restructuring and other one-time costs.”

Current wording

(1) For the three and nine months ended April 27, 2024, depreciation and amortization excluded $1.6 million and $9.2 million reflected in “Restructuring and other one-time costs.” For the nine months ended April 29, 2023, depreciation and amortization excluded $1.8 million reflected in “Restructuring and other one-time costs.”

Previous wording

(2) For the three and six months ended January 27, 2024, restructuring charges were $8.4 million and $16.3 million described in Note 11, “Restructuring” in the Notes to the Condensed Consolidated Financial Statements in Item 1. Financial Statements and other one-time costs were $3.6 million in one-time professional services fees. For the three and six months ended January 28, 2023, restructuring charges were $34.6 million and $35.5 million described in Note 11, “Restructuring” in the Notes to the Condensed Consolidated Financial Statements in Item 1. Financial Statements and other one-time costs were $0.1 million and $5.4 million in retention bonuses for continuing employees.

Current wording

(2) Restructuring and other one-time costs include restructuring charges as described in Note 11, “Restructuring” in the Notes to the Condensed Consolidated Financial Statements in Item 1, as well as one-time professional service fees and retention bonuses for continuing employees.

Previous wording

We believe that the number of active clients is a key indicator of our growth and the overall health of our business. We define an active client as a client who checked out a Fix or was shipped an item via Freestyle in the preceding 52 weeks, measured as of the last day of that period. A client checks out a Fix when she indicates what items she is keeping through our mobile application or on our website. We consider each Women’s, Men’s, or Kids account as a client, even if they share the same household. We had 2,805,000 and 3,377,000 active clients as of January 27, 2024 and January 28, 2023, respectively, representing a year-over-year decline of 16.9%. The decline in active clients is due to fewer new client additions, which we largely attribute to client conversion and retention challenges.

Current wording

We believe that the number of active clients is a key indicator of our growth and the overall health of our business. We define an active client as a client who checked out a Fix or was shipped an item via Freestyle in the preceding 52 weeks, measured as of the last day of that period. A client checks out a Fix when she indicates what items she is keeping through our mobile application or on our website. We consider each Women’s, Men’s, or Kids account as a client, even if they share the same household. We had 2,633,000 and 3,288,000 active clients as of April 27, 2024 and April 29, 2023, respectively, representing a year-over-year decline of 19.9%. The decline in active clients is due to dormant clients outpacing new client additions during the quarter, which we largely attribute to client conversion and retention challenges.

Previous wording

We believe that net revenue per active client is an indicator of client engagement and satisfaction. We calculate net revenue per active client based on net revenue over the preceding four fiscal quarters divided by the number of active clients, measured as of the last day of the period. Net revenue per active client was $515 and $530 as of January 27, 2024, and January 28, 2023, respectively, or a decline of 2.8% year over year.

Current wording

We believe that net revenue per active client is an indicator of client engagement and satisfaction. We calculate net revenue per active client based on net revenue over the preceding four fiscal quarters divided by the number of active clients, measured as of the last day of the period. Net revenue per active client was $525 and $516 as of April 27, 2024, and April 29, 2023, respectively, or an increase of 1.7% year over year.

Previous wording

To grow our business, we must continue to acquire clients and successfully engage and retain them. Our marketing strategy aims to preserve liquidity and achieve profitability, while simultaneously attracting long-term customers to fuel a return to growth. We utilize both digital and offline channels to attract new visitors to our website or mobile app and subsequently convert them into clients. Our marketing costs are largely composed of advertising, client referrals, and public relations expenses. At any given time, our advertising efforts may include social media marketing, keyword search campaigns, affiliate programs, partnerships, campaigns with celebrities and influencers, display advertising, television, radio, video, content, direct mail, email, mobile “push” communications, SMS, and search engine optimization. Our marketing expenses have varied from period to period and we expect this trend to continue. In fiscal 2024, we expect our marketing spend as a percentage of revenue to be relatively consistent with fiscal 2023.

Current wording

To grow our business, we must continue to acquire clients and successfully engage and retain them. Our marketing strategy aims to preserve liquidity and achieve profitability, while simultaneously attracting long-term customers to fuel a return to growth. We utilize both digital and offline channels to attract new visitors to our website or mobile app and subsequently convert them into clients. Our marketing costs are largely composed of advertising, client referrals, and public relations expenses. At any given time, our advertising efforts may include social media marketing, keyword search campaigns, affiliate programs, partnerships, campaigns with celebrities and influencers, display advertising, television, radio, video, content, direct mail, email, mobile “push” communications, SMS, and search engine optimization. Our marketing expenses have varied from period to period and we expect this trend to continue.

Previous wording

Marketing expense is recorded in selling, general, and administrative expenses in the condensed consolidated statements of operations and comprehensive loss. The largest component of our marketing expense is advertising, which was $24.2 million and $53.9 million for the three and six months ended January 27, 2024, and $19.2 million and $59.8 million for the three and six months ended and January 28, 2023, respectively. Beginning in the second quarter of fiscal 2023, we began including costs for influencer campaigns in our advertising expense, and advertising expense for the three and six months ended January 28, 2023 reflects the inclusion of these costs. We expect advertising expense to approximate 8% to 9% of revenue in the third quarter ending April 27, 2024, and we expect advertising expense to approximate 8% of revenue for the fiscal year ending August 3, 2024; however, we will continue to be methodical about our approach when we are making advertising decisions, and may adjust our spending up or down based on performance.

Current wording

Marketing expense is recorded in selling, general, and administrative expenses in the condensed consolidated statements of operations and comprehensive loss. The largest component of our marketing expense is advertising, which was $28.6 million and $82.5 million for the three and nine months ended April 27, 2024, and $26.8 million and $86.6 million for the three and nine months ended and April 29, 2023, respectively. We expect advertising expense to approximate 9% to 10% of revenue in the fourth quarter ended August 3, 2024, respectively; however, we will continue to be methodical about our approach when we are making advertising decisions, and may adjust our spending up or down based on performance.

Previous wording

We intend to leverage our data science and deep understanding of our clients’ needs to make targeted investments in technology and product, and we plan to prioritize investments with near-term positive returns. In the second quarter of fiscal 2023, we decided to close our Salt Lake City fulfillment center in order to optimize network capacity. In June 2023, we announced the intended closures of our fulfillment centers in Bethlehem, Pennsylvania and Dallas, Texas. The Bethlehem, Pennsylvania location ceased operations during the three months ended October 28, 2023 and we expect the Dallas, Texas location to cease operations in the three months ending April 27, 2024. Refer to Note 11, “Restructuring” within the Notes to the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report for further details.

Current wording

We intend to leverage our data science and deep understanding of our clients’ needs to make targeted investments in technology and product, and we plan to prioritize investments with near-term positive returns. In the second quarter of fiscal 2023, we decided to close our Salt Lake City fulfillment center in order to optimize network capacity. In June 2023, we announced the intended closures of our fulfillment centers in Bethlehem, Pennsylvania and Dallas, Texas. The Bethlehem, Pennsylvania location ceased operations during the three months ended October 28, 2023 and the Dallas, Texas location ceased operations in the three months ended April 27, 2024. Refer to Note 11, “Restructuring” within the Notes to the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report for further details.

Previous wording

Revenue decreased by $70.2 million and $149.2 million, or 17.5% and 17.7% during the three and six months ended January 27, 2024, respectively, compared to the three and six months ended January 28, 2023. The decrease was primarily due to a 16.9% decline in active clients from January 28, 2023 to January 27, 2024, which led to a decrease in sales of merchandise.

Current wording

Revenue decreased by $60.7 million and $209.9 million, or 15.8% and 17.1% during the three and nine months ended April 27, 2024, respectively, compared to the three and nine months ended April 29, 2023. The decrease for both periods was primarily due to a 19.9% decline in active clients from April 29, 2023 to April 27, 2024, which led to a decrease in sales of merchandise. Partially offsetting the revenue decline during the three months ended April 27, 2024, was an improvement in net revenue per active client, which was driven by an increase in the average order value with both average unit retail price and number of items kept by our clients per Fix increasing.

Previous wording

Gross margin for the three and six months ended January 27, 2024, increased by 250 and 190 basis points, respectively, compared to the same period last year. For both respective periods, the increase in gross margin was primarily driven by improved product margin and inventory health and transportation leverage as our carrier mix yielded more favorable rates year over year.

Current wording

Gross margin for the three and nine months ended April 27, 2024, increased by 280 and 230 basis points, respectively, compared to the same period last year. For both respective periods, the increase in gross margin was primarily driven by improved product margins and transportation leverage as our carrier mix yielded more favorable rates year over year. For the three months ended April 27, 2024, the increase in gross margin was partially offset by additional inventory reserves.

Previous wording

SG&A decreased by $45.5 million and $93.6 million for the three and six months ended January 27, 2024, compared to the three and six months ended January 28, 2023. The year-over-year decrease was primarily driven by our restructuring actions, as we realized lower year-over-year compensation and benefits expense including lower stock-based compensation expense, and lower facilities costs due to the $16.9 million non-cash impairment charge recorded in the three and six months ended January 28, 2023, partially offset by one-time professional service fees. For the three months ended January 27, 2024, the decrease in SG&A was partially offset by an increase in advertising spend.

Current wording

SG&A decreased by $12.4 million and $106.0 million for the three and nine months ended April 27, 2024, compared to the three and nine months ended April 29, 2023. The year-over-year decrease was primarily driven by our restructuring actions, as we realized lower year-over-year compensation and benefits expense including lower stock-based compensation expense, and lower facilities costs due to the $16.9 million non-cash impairment charge recorded in the three and nine months ended April 29, 2023. For the three months ended April 27, 2024, the decrease in SG&A was partially offset by an increase in advertising spend. For the nine months ended April 27, 2024, the decrease in SG&A was partially offset by one-time professional service fees.

Previous wording

Our continuing operations are subject to income taxes in the United States. Our effective tax rate for the three and six months ended January 27, 2024 differs from the federal statutory income tax rate primarily due to the full valuation allowance recorded on our net federal and state deferred tax assets. The tax provision for the three and six months ended January 27, 2024 is primarily comprised of state taxes.

Current wording

Our continuing operations are subject to income taxes in the United States. Our effective tax rate for the three and nine months ended April 27, 2024 differs from the federal statutory income tax rate primarily due to the full valuation allowance recorded on our net federal and state deferred tax assets. The tax provision for the three and nine months ended April 27, 2024 is primarily comprised of state income taxes.

Previous wording

Our effective tax rate for the three and six months ended January 28, 2023 differed from the federal statutory income tax rate primarily due to the full valuation allowance recorded on our net federal and state deferred tax assets. The tax provision for the three and six months ended January 28, 2023 is primarily comprised of state taxes.

Current wording

Our effective tax rate for the three and nine months ended April 29, 2023 differed from the federal statutory income tax rate primarily due to the full valuation allowance recorded on our net federal and state deferred tax assets. The tax provision for the three and nine months ended April 29, 2023 is primarily comprised of state income taxes.

Previous wording

Our principal sources of liquidity are our cash, cash equivalents, investments, cash flows from continuing operations, and borrowing capacity under our credit facility. As of January 27, 2024, we had $227.5 million of cash and cash equivalents attributable to continuing operations, which included $26.2 million held outside the U.S. in the UK, and $2.3 million of short-term investments with contractual maturities of 12 months or less. We will use our cash balances in the UK to settle the remaining liabilities attributable to our discontinued operations, and we plan to repatriate the remaining UK cash into the U.S. within 12 months of liquidating of the UK entity. This cash repatriation may be subject to taxes and other local statutory restrictions.

Current wording

Our principal sources of liquidity are our cash, cash equivalents, investments, cash flows from continuing operations, and borrowing capacity under our credit facility. As of April 27, 2024, we had $196.5 million of cash and cash equivalents attributable to continuing operations, which included $24.7 million held outside the U.S. in the UK, and $48.0 million of short-term investments with contractual maturities of 12 months or less. We will use our cash balances in the UK to settle the remaining liabilities attributable to our discontinued operations, and we plan to repatriate the remaining UK cash into the U.S. within 12 months of liquidating of the UK entity. This cash repatriation may be subject to taxes and other local statutory restrictions.

Previous wording

For information on the terms of the 2023 Credit Facility, refer to Note 5, “Credit Agreement” within the Notes to Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report.

Current wording

For information on the terms of the 2023 Credit Facility, refer to Note 5, “Credit Facility” within the Notes to Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report.

Previous wording

In January 2022, our Board of Directors authorized a share repurchase program to repurchase up to $150.0 million of our outstanding Class A common stock, with no expiration date (the “2022 Repurchase Program”). We may repurchase shares from time to time through open market repurchases, privately negotiated transactions, or other means, including through Rule 10b5-1 trading plans. The actual timing, number and value of shares repurchased in the future will be determined by the Company in its discretion and will depend on a number of factors, including price, trading volume, market conditions, and other general business conditions. Repurchases will be funded from the Company’s existing cash and cash equivalents or future cash flow. The repurchase program may be modified, suspended, or terminated at any time. During the three and six months ended January 27, 2024 and January 28, 2023, the Company made no repurchases of Class A common stock. As of January 27, 2024, the Company had repurchased an aggregate 2,302,141 shares of Class A common stock for $30.0 million, and $120.0 million remained available under the 2022 Repurchase Program authorization.

Current wording

In January 2022, our Board of Directors authorized a share repurchase program to repurchase up to $150.0 million of our outstanding Class A common stock, with no expiration date (the “2022 Repurchase Program”). We may repurchase shares from time to time through open market repurchases, privately negotiated transactions, or other means, including through Rule 10b5-1 trading plans. The actual timing, number and value of shares repurchased in the future will be determined by the Company in its discretion and will depend on a number of factors, including price, trading volume, market conditions, and other general business conditions. Repurchases will be funded from the Company’s existing cash and cash equivalents or future cash flow. The repurchase program may be modified, suspended, or terminated at any time. During the three and nine months ended April 27, 2024 and April 29, 2023, the Company made no repurchases of Class A common stock. As of April 27, 2024, the Company had repurchased an aggregate 2,302,141 shares of Class A common stock for $30.0 million, and $120.0 million remained available under the 2022 Repurchase Program authorization.

Previous wording

During the six months ended January 27, 2024, cash used in operating activities from continuing operations was $1.7 million, which consisted of a net loss from continuing operations of $61.1 million, adjusted by non-cash charges of $61.1 million and a $1.7 million change in net operating assets and liabilities. The non-cash charges were primarily driven by $41.0 million of stock-based compensation expense and $26.6 million of depreciation and amortization. The change in net operating assets and liabilities was primarily due to a net decrease of $14.1 million in accounts payable and accrued liabilities due to the timing of payments. This is offset by $9.7 million change in gross inventory balances due to a decline in inventory receipts and a $6.7 million decrease in prepaid expenses and other assets.

Current wording

During the nine months ended April 27, 2024, cash provided by operating activities from continuing operations was $20.0 million, which consisted of a net loss from continuing operations of $83.1 million, adjusted by non-cash charges of $82.8 million and a $20.4 million change in net operating assets and liabilities. The non-cash charges were primarily driven by $59.9 million of stock-based compensation expense and $36.5 million of depreciation, amortization, and accretion, partially offset by $12.9 million of changes in inventory reserves. The change in net operating assets and liabilities was primarily due to a $29.0 million change in gross inventory balances due to a decline in inventory receipts to bring inventory balances in line with current demand.

Previous wording

During the six months ended January 28, 2023, cash provided by operating activities from continuing operations was $20.8 million, which consisted of a net loss from continuing operations of $111.6 million, adjusted by non-cash charges of $89.6 million and a change of $42.8 million in net operating assets and liabilities. The non-cash charges were primarily driven by $56.4 million of stock-based compensation expense and $21.5 million of depreciation and amortization, and $16.9 million in asset impairment charges. The change in our net operating assets and liabilities was primarily due to a change of $44.9 million in our gross inventory balance due to a decline in inventory receipts and a cash inflow of $26.6 million from income tax refunds, partially offset by a decrease of $39.6 million in accounts payable and accrued liabilities due to timing of payments.

Current wording

During the nine months ended April 29, 2023, cash provided by operating activities from continuing operations was $50.7 million, which consisted of a net loss from continuing operations of $130.0 million, adjusted by non-cash charges of $115.9 million and a change of $64.7 million in net operating assets and liabilities. The non-cash charges were primarily driven by $78.4 million of stock-based compensation expense, $31.3 million of depreciation and amortization, and $16.9 million in asset impairment charges. The change in our net operating assets and liabilities was primarily due to a change of $58.5 million in our inventory balance due to a decline in inventory receipts to bring inventory balances in line with current demand and a cash inflow of $26.6 million from income tax refunds, partially offset by a decrease of $29.7 million in accounts payable and accrued liabilities due to timing of payments.

Previous wording

Cash Provided by (Used in) Operating Activities from Continuing Operations

Current wording

Cash Provided by (Used in) Investing Activities from Continuing Operations

Previous wording

During the six months ended January 27, 2024, cash provided by investing activities from continuing operations was $8.6 million. This was primarily due to the maturities of available-for-sale securities of $16.0 million, partially offset by purchases of property and equipment of $7.4 million.

Current wording

During the nine months ended April 27, 2024, cash used in investing activities from continuing operations was $39.5 million. This was primarily due to the purchase of securities available-for-sale of $47.9 million and the purchases of property and equipment of $10.3 million, partially offset by the maturities of available-for-sale securities of $18.3 million.

Previous wording

During the six months ended January 28, 2023, cash used in investing activities from continuing operations was $3.7 million. This was primarily due to sales and maturities of available-for-sale securities of $15.4 million, partially offset by purchases of property and equipment of $11.4 million.

Current wording

During the nine months ended April 29, 2023, cash provided in investing activities from continuing operations was $36.3 million. This was primarily due to sales and maturities of available-for-sale securities of $50.6 million, partially offset by purchases of property and equipment of $14.9 million.

Previous wording

During the six months ended January 27, 2024, cash used in financing activities from continuing operations was $8.7 million, primarily due to payments for tax withholding related to vesting of restricted stock units.

Current wording

During the nine months ended April 27, 2024, cash used in financing activities from continuing operations was $11.8 million, primarily due to payments for tax withholding related to vesting of restricted stock units.

Previous wording

During the six months ended January 28, 2023, cash used in financing activities from continuing operations was $6.8 million, primarily due to payments for tax withholding related to vesting of restricted stock units.

Current wording

During the nine months ended April 29, 2023, cash used in financing activities from continuing operations was $10.4 million, primarily due to payments for tax withholding related to vesting of restricted stock units.