Stitch Fix(SFIX) - 2025 Q3 - Quarterly Report

Part I Financial Statements (Unaudited) The unaudited condensed consolidated financial statements for Q3 FY25 show a slight revenue increase and a significantly narrowed net loss, with the UK business classified as discontinued operations Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | May 3, 2025 | August 3, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $108,915 | $162,862 | | Inventory, net | $114,410 | $97,903 | | Total current assets | $373,276 | $366,710 | | Total assets | $484,748 | $486,864 | | Total current liabilities | $206,820 | $203,551 | | Total liabilities | $284,357 | $299,842 | | Total stockholders' equity | $200,391 | $187,022 | Condensed Consolidated Statements of Operations Highlights (in thousands) | Metric | For the Three Months Ended May 3, 2025 | For the Three Months Ended April 27, 2024 | For the Nine Months Ended May 3, 2025 | For the Nine Months Ended April 27, 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenue, net | $325,016 | $322,731 | $955,944 | $1,017,918 | | Gross profit | $143,558 | $146,978 | $427,224 | $449,561 | | Operating loss | $(9,708) | $(24,840) | $(27,699) | $(91,539) | | Net loss from continuing operations | $(7,381) | $(22,017) | $(20,267) | $(83,144) | | Basic and Diluted Loss per share | $(0.06) | $(0.18) | $(0.16) | $(0.70) | - For the nine months ended May 3, 2025, net cash provided by operating activities from continuing operations was $18.6 million, a slight decrease from $20.0 million in the prior-year period. Net cash used in investing activities was $59.7 million, and net cash used in financing activities was $12.4 million[21] - The company ceased operations of its UK business during the first quarter of fiscal 2024, and the results of the UK business are presented as a discontinued operation for all periods[27][78] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q3 and nine-month fiscal 2025 results, highlighting Q3 revenue growth, improved net loss, and sufficient liquidity Financial Overview & Key Metrics Q3 FY25 financial performance shows revenue growth, active client decline, and improved net loss and Adjusted EBITDA Key Operating Metrics | Metric | May 3, 2025 | April 27, 2024 | % Change | | :--- | :--- | :--- | :--- | | Active clients (in thousands) | 2,353 | 2,633 | (10.6)% | | Net Revenue per Active Client | $542 | $525 | 3.2% | Adjusted EBITDA Reconciliation (in thousands) | Metric | For the Three Months Ended May 3, 2025 | For the Three Months Ended April 27, 2024 | | :--- | :--- | :--- | | Net loss from continuing operations | $(7,381) | $(22,017) | | Adjusted EBITDA | $11,013 | $6,681 | - Free cash flow for the nine months ended May 3, 2025 was $6.5 million, compared to $9.7 million in the prior-year period[96] Results of Operations Q3 FY25 revenue increased, gross margin decreased, and SG&A expenses significantly declined from restructuring efforts - Q3 FY25 revenue increased by $2.3 million (0.7%) compared to the prior year, primarily due to an improvement in net revenue per active client from higher average order values, which was partially offset by a decrease in active clients[114] - Q3 FY25 gross margin decreased by 130 basis points to 44.2%, primarily driven by lower product margins. For the nine-month period, gross margin increased by 50 basis points due to higher average order values and transportation leverage[115] - SG&A expenses for Q3 FY25 decreased by $18.6 million (10.8%) YoY, driven by lower compensation and benefits, depreciation, and facilities costs from restructuring actions. This was partially offset by higher advertising spend[116] Liquidity and Capital Resources The company maintains sufficient liquidity through cash, investments, and a credit facility, with no share repurchases in the nine-month period - As of May 3, 2025, the company had $108.9 million of cash and cash equivalents and $133.2 million of investments[120] - The company has a $50.0 million revolving credit facility maturing in December 2026, with $31.3 million of excess availability as of May 3, 2025[121] - No shares were repurchased during the nine months ended May 3, 2025. $120.0 million remained available under the share repurchase program authorization[125][74] Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk were reported compared to the 2024 Annual Report on Form 10-K - During the three months ended May 3, 2025, there were no material changes in market risk from the information presented in the 2024 Annual Report on Form 10-K[135] Controls and Procedures Management concluded disclosure controls were effective as of May 3, 2025, with no material changes to internal control - Based on their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of May 3, 2025[137] - There were no changes in the company's internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[138] Part II Legal Proceedings Ongoing legal matters include a pending securities class action and two related derivative actions concerning the Freestyle offering - A securities class action lawsuit alleges violations of the Securities Exchange Act for allegedly making materially false and misleading statements regarding the Freestyle offering between June 2020 and June 2022. A motion to dismiss the second amended complaint is pending before the court[49] - Two derivative actions based on the same factual allegations as the securities class action have been filed. One is stayed pending the resolution of the motion to dismiss in the securities case, and the other has not progressed past the initial filing[50] Risk Factors This section outlines business, industry, and legal risks, including client retention, competition, macroeconomic pressures, and cybersecurity Business Risks Key business risks include client retention, inventory management, stylist performance, and potential fraud losses - The company's number of active clients has decreased due to an inability to attract new clients and retain existing ones, which has negatively affected revenue and is expected to continue[153] - Effective inventory management is crucial; inaccurate demand prediction has previously led to higher inventory levels and increased reserves, and a smaller fulfillment network increases assortment risk[166][167] - The business depends on a strong brand and the effective management of its stylist workforce, which was recently transitioned to a part-time only model[186][188] Industry, Market, and Economic Risks The company faces risks from retail apparel competition, macroeconomic conditions, and operational disruptions at fulfillment centers - The business is subject to macroeconomic conditions impacting consumer discretionary spending, such as inflation, recessionary concerns, and general economic uncertainty[194] - The retail apparel industry is highly competitive, with rivals potentially having greater resources, infrastructure, and brand recognition[196][197] - Operations are vulnerable to disruptions at fulfillment centers and in the supply chain from natural disasters, public health crises (like the COVID-19 pandemic), or political crises[199][200] Cybersecurity, Legal, and Regulatory Risks Risks include data security breaches, evolving privacy laws, litigation, and changes in U.S. tax or tariff policies - Compromises of data security, either at the company or its third-party providers, could lead to unexpected expenses, litigation, and material harm to its reputation and operating results[202][203] - Compliance with evolving privacy laws (e.g., CCPA, GDPR) is complex and costly, with non-compliance carrying risks of significant fines, penalties, and litigation[211][212] - Changes in U.S. tax or tariff policy, particularly regarding goods produced in China, could adversely affect the business by increasing merchandise costs and creating uncertainty[223] Risks Relating to Ownership of Our Class A Common Stock Stockholder risks include price volatility, potential dilution, concentrated voting power, no dividend intent, and anti-takeover provisions - The dual-class stock structure, where Class B common stock has ten votes per share, concentrates considerable voting control with certain directors, executive officers, and their affiliates[234] - The company does not currently intend to pay dividends, so any return on investment will depend on the appreciation of the stock's value[235] - The company's certificate of incorporation includes provisions that could discourage or delay a change of control, such as a classified board, no stockholder action by written consent, and super-majority voting requirements[236][238] Other Information (Items 2, 3, 4, 5, 6) This section covers minor reporting items, including no unregistered sales or defaults, and discloses a Rule 10b5-1 trading plan - Anthony Bacos, Chief Product and Technology Officer, adopted a Rule 10b5-1 trading plan on March 13, 2025, for the potential sale of up to 360,000 shares of Class A common stock, expiring March 31, 2026[254] - The company reports no unregistered sales of equity securities or defaults upon senior securities for the period[251][252]