Stitch Fix(US:SFIX)2022-09-21 21:22Part I Business Stitch Fix offers personalized online styling services in the US and UK, combining data science and human stylists to deliver curated apparel, shoes, and accessories to approximately 3.8 million active clients as of July 30, 2022 - The company's business model combines data science with human stylists to offer personalized apparel through two main services: "Fix" (personalized shipments) and "Freestyle" (direct-buy recommendations)19 - A key competitive advantage is the rich, proprietary dataset collected directly from clients, which fuels algorithms for personalization, demand forecasting, and inventory optimization2234 Key Company Statistics (as of July 30, 2022) | Metric | Value | | :--- | :--- | | Active Clients | 3,795,000 | | Total Employees | ~7,920 | | Stylists | >3,430 | | Fulfillment Centers | 7 (6 in US, 1 in UK) | - The company designs its own private labels, called Exclusive Brands, using data science to identify and fill gaps in the market not met by third-party brand partners5960 - As of July 30, 2022, 82% of employees and 56% of the management team identified as female. The company conducts annual third-party audits to ensure pay equity, reporting no statistically significant pay differences across gender or race7781 Risk Factors The company faces significant risks across business operations, market conditions, and regulatory compliance, including client acquisition, inventory management, cybersecurity, data privacy, and the impact of its dual-class stock structure - Business growth is highly dependent on attracting new clients cost-effectively. Recent challenges in converting new clients, partly due to the launch of the Freestyle offering and Apple's iOS privacy changes, negatively impacted revenue in fiscal 2022101102 - Ineffective inventory management, including inaccurate demand forecasting and supply chain disruptions (freight delays, port congestion), has led to inventory write-offs and could adversely affect operating results108123 - The COVID-19 pandemic has caused significant operational disruptions, including fulfillment center closures, hiring difficulties, and supply chain delays, with unpredictable future impacts on the business109110111 - The business is subject to data privacy laws like GDPR and CCPA. Failure to comply could result in significant fines, litigation, and reputational damage170 - The dual-class stock structure concentrates voting control with executive officers and directors, which may limit the influence of other stockholders and could depress the trading price of Class A common stock189 Unresolved Staff Comments The company reports that it has no unresolved staff comments from the U.S. Securities and Exchange Commission (SEC) - There are no unresolved staff comments203 Properties The company's operations include a San Francisco headquarters and seven fulfillment centers (six in the US, one in the UK) totaling approximately 3.755 million square feet in the US - Corporate headquarters are in San Francisco, CA (approx. 134,000 sq. ft.)204 - Operates six fulfillment centers in the U.S. and one in the UK, totaling approximately 3,755,000 square feet in the U.S205 Legal Proceedings This section incorporates by reference the information on legal proceedings detailed in Note 8, "Commitments and Contingencies," of the Notes to the Consolidated Financial Statements - Information regarding legal proceedings is incorporated by reference from Note 8 of the financial statements207 Mine Safety Disclosures The company reports that there are no mine safety disclosures applicable to its operations - Not applicable208 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Stitch Fix Class A common stock trades on Nasdaq under "SFIX"; the company has never paid dividends but authorized a $150 million share repurchase program in January 2022, with $120 million remaining as of July 30, 2022 - Class A common stock trades on the Nasdaq Global Select Market under the symbol "SFIX"210 - The company has never paid cash dividends and does not intend to in the foreseeable future212 - A share repurchase program for up to $150.0 million was authorized in January 2022. As of July 30, 2022, $120.0 million remained available for repurchases217 Selected Financial Data Disclosure under this item is not required as per the regulations in effect on the date of this report - No disclosure is required under this item218 Management's Discussion and Analysis of Financial Condition and Results of Operations In FY2022, Stitch Fix reported $2.1 billion net revenue (down 1.4%) and a $207.1 million net loss, with active clients declining 8.9% to 3.8 million, prompting a 15% salaried workforce reduction and maintaining strong liquidity Fiscal Year 2022 Key Performance Metrics | Metric | FY 2022 | FY 2021 | YoY Change | | :--- | :--- | :--- | :--- | | Net Revenue | $2.1 billion | $2.1 billion | -1.4% | | Net Loss | $(207.1) million | $(8.9) million | N/A | | Active Clients | 3,795,000 | 4,165,000 | -8.9% | | Net Revenue per Active Client | $546 | $505 | +8.1% | - A restructuring plan was announced on June 9, 2022, which reduced the salaried workforce by approximately 15% (4% of total roles) to lower operating costs amid business challenges and macroeconomic uncertainty226407 Adjusted EBITDA Reconciliation (in thousands) | Line Item | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Net loss | $(207,121) | $(8,876) | | Stock-based compensation expense | $127,373 | $100,696 | | Depreciation and amortization | $35,011 | $27,610 | | Restructuring and other one-time costs | $26,206 | $— | | Adjusted EBITDA | $(19,455) | $64,945 | - Gross margin decreased by 130 basis points in FY2022 compared to FY2021, primarily due to increased inventory charges for excess spring and summer inventory251 - Selling, General, and Administrative (SG&A) expenses increased by $105.5 million in FY2022, driven by higher compensation (including $27.8 million more in stock-based compensation) and $26.2 million in restructuring costs252 Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rates, foreign currency, and inflation, though a hypothetical 10% change in rates or currency would not have materially impacted FY2022 financial statements - Primary market risks include interest rate risk on investments, foreign currency risk from UK operations, and inflation risk on costs283284285 - Management believes a hypothetical 10% change in interest rates or foreign exchange rates would not have materially impacted FY2022 financial statements283284 Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for FY2020-2022, including an unqualified opinion from Deloitte & Touche LLP, which identified inventory reserve estimation as a critical audit matter - The independent auditor, Deloitte & Touche LLP, issued an unqualified opinion on the financial statements and the effectiveness of internal control over financial reporting as of July 30, 2022289290 - The auditor identified the estimation of the inventory reserve for excess and slow-moving inventory as a Critical Audit Matter due to the subjective judgments involved297298 Consolidated Statements of Operations (in thousands) | Line Item | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | Revenue, net | $2,072,812 | $2,101,258 | $1,711,733 | | Gross profit | $908,474 | $947,636 | $754,210 | | Operating loss | $(208,045) | $(63,361) | $(51,664) | | Net loss | $(207,121) | $(8,876) | $(67,117) | | Diluted loss per share | $(1.90) | $(0.08) | $(0.66) | - Effective August 1, 2021, the company changed its inventory costing method from specific identification to the first-in-first-out (FIFO) method, citing it is preferable, consistent with physical flow, and aligns with industry peers315 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure - There were no disagreements with accountants on accounting and financial disclosure411 Controls and Procedures Management concluded that both disclosure controls and internal control over financial reporting were effective as of July 30, 2022, following modifications due to a new inventory management system implementation - Management concluded that both disclosure controls and procedures and internal control over financial reporting were effective as of July 30, 2022413415 - During the fiscal year, the company implemented a new inventory management system, which resulted in modifications to its internal controls over financial reporting417 Other Information There is no other information to be reported in this section - None419 Part III Directors, Executive Officers, Corporate Governance, Compensation, and Principal Accountant Fees Information required for Items 10 through 14, which cover directors, executive officers, corporate governance, executive compensation, security ownership, related transactions, director independence, and principal accountant fees and services, is incorporated by reference from the company's definitive Proxy Statement for its 2022 Annual Meeting of Stockholders - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the 2022 Proxy Statement421423424425426 Part IV Exhibits, Financial Statement Schedules This section provides an index of all exhibits filed, furnished, or incorporated by reference as part of the Annual Report, with financial statements included under Item 8 - This item contains the index of all exhibits filed with the Form 10-K429430 Form 10-K Summary There is no Form 10-K summary provided in this report - None435