Stitch Fix(SFIX) - 2024 Q3 - Quarterly Results

Executive Summary & Business Overview This section provides an overview of Stitch Fix's Q3 FY2024 performance, highlighting financial results exceeding expectations and the cessation of UK operations, alongside a description of the company's online personal styling service Q3 FY2024 Performance Overview Stitch Fix announced its Q3 FY2024 financial results, with revenue and adjusted EBITDA exceeding expectations, signaling positive initial outcomes from its transformation efforts. The company also noted the cessation of its UK business operations, now reported as a discontinued operation - CEO Matt Baer stated that Q3 revenue and adjusted EBITDA exceeded expectations, indicating that transformation efforts are beginning to work, with a strategic focus on strengthening the foundation and reimagining the client experience for sustainable, profitable growth[2] - During Q1 FY2024, Stitch Fix ceased operations of its UK business, which is now reported as a discontinued operation in the unaudited condensed consolidated financial statements for all periods presented[2] About Stitch Fix, Inc. Stitch Fix is a leading online personal styling service that combines expert stylists with AI and recommendation algorithms to help clients discover personalized styles, offering convenience and a tailored shopping experience - Stitch Fix is an online personal styling service that helps clients discover styles that fit perfectly by pairing expert stylists with best-in-class AI and recommendation algorithms[9] - The company leverages an assortment of exclusive and national brands to meet individual client tastes and needs, making personal style expression convenient[9] - Founded in 2011, Stitch Fix is headquartered in San Francisco[9] Financial Highlights & Outlook This section details Stitch Fix's Q3 FY2024 key financial metrics, provides forward-looking guidance for Q4 and the full fiscal year 2024, and outlines an anticipated impairment charge Third Quarter Fiscal 2024 Key Metrics and Financial Highlights Stitch Fix reported a decrease in net revenue and active clients for Q3 FY2024, but saw an increase in net revenue per active client and gross margin, alongside positive adjusted EBITDA and free cash flow, reflecting improved cost management Third Quarter Fiscal 2024 Key Metrics | Metric | Q3 FY2024 Value (in millions USD) | YoY Change | QoQ Change | | :-------------------------------- | :---------------- | :--------- | :--------- | | Net revenue | $322.7 | (16)% | - | | Active clients | 2,633,000 | (20)% | (6)% | | Net revenue per active client (RPAC) | $525 | 2% | - | | Gross margin | 45.5% | +280 bps | - | | Net loss from continuing operations | $22.0 | - | - | | Diluted loss per share from continuing operations | $0.18 | - | - | | Adjusted EBITDA | $6.7 | - | - | | Free cash flow | $18.9 | - | - | | Cash, cash equivalents, and investments | $244.5 | - | - | | Debt | $0 | - | - | - Gross margin increased by 280 basis points year-over-year, driven by improved product margins and transportation leverage[5] - Adjusted EBITDA of $6.7 million reflects continued cost management discipline[5] Financial Outlook for Q4 Fiscal 2024 The company provided guidance for Q4 FY2024, projecting net revenue between $312 million and $322 million, representing a year-over-year decrease, and adjusted EBITDA between $5 million and $10 million Q4 Fiscal 2024 Outlook | Metric | Q4 2024 Outlook (in millions USD) | YoY Change (adjusted) | | :---------- | :-------------------- | :-------------------- | | Net Revenue | $312 - $322 | (14)% - (12)% | | Adjusted EBITDA | $5 - $10 | 1.6% - 3.1% margin | - The net revenue outlook for Q4 2024 is adjusted to remove the impact of an extra week for year-over-year comparative purposes, as fiscal year 2024 is a 53-week year[4] Financial Outlook for Full Fiscal Year 2024 Stitch Fix updated its full fiscal year 2024 outlook, forecasting net revenue between $1.33 billion and $1.34 billion and adjusted EBITDA between $25 million and $30 million, with revenue figures adjusted for the 53rd week Full Fiscal Year 2024 Outlook | Metric | Fiscal Year 2024 Outlook | YoY Change (adjusted) | | :---------- | :----------------------- | :-------------------- | | Net Revenue | $1.33 billion - $1.34 billion | (18)% - (17)% | | Adjusted EBITDA | $25 million - $30 million | 1.9% - 2.2% margin | - The full fiscal year 2024 net revenue outlook is adjusted to remove the impact of the 53rd week for year-over-year comparative purposes[6] Impairment Charge Expectation The company anticipates recording a non-cash impairment charge in Q4 FY2024, estimated between $15 million and $20 million, related to its San Francisco headquarters' right-of-use lease asset due to an intended change in space usage - Stitch Fix expects to record a non-cash impairment charge in the range of $15 million to $20 million during Q4 FY2024[7] - This charge is associated with the right-of-use lease asset for its San Francisco headquarters, due to an intended change in the use of the space[7] Consolidated Financial Statements This section presents the condensed consolidated balance sheets, statements of operations and comprehensive loss, and statements of cash flow for the reported periods Condensed Consolidated Balance Sheets The balance sheet shows a decrease in total assets from $614.5 million in July 2023 to $537.0 million in April 2024, primarily driven by reductions in cash, inventory, and property and equipment. Total liabilities also decreased, leading to a reduction in total stockholders' equity Condensed Consolidated Balance Sheets | Item | April 27, 2024 (in thousands USD) | July 29, 2023 (in thousands USD) | | :---------------------------------- | :---------------------------- | :--------------------------- | | Assets | | | | Cash and cash equivalents | $196,507 | $239,437 | | Short-term investments | $47,998 | $18,161 | | Inventory, net | $114,467 | $130,548 | | Total current assets | $385,282 | $425,461 | | Property and equipment, net | $57,636 | $79,757 | | Operating lease right-of-use assets | $89,099 | $104,533 | | Total assets | $536,964 | $614,478 | | Liabilities | | | | Accounts payable | $99,242 | $96,730 | | Total current liabilities | $219,849 | $238,111 | | Total liabilities | $328,075 | $367,168 | | Stockholders' Equity | | | | Additional paid-in capital | $670,182 | $615,236 | | Accumulated deficit | $(430,755) | $(338,413) | | Total stockholders' equity | $208,889 | $247,310 | | Total liabilities and stockholders' equity | $536,964 | $614,478 | Condensed Consolidated Statements of Operations and Comprehensive Loss For Q3 FY2024, Stitch Fix reported a net revenue of $322.7 million, a decrease from the prior year, but an improved gross margin of 45.5%. The company recorded a net loss from continuing operations of $22.0 million, which was a slight increase in loss compared to the prior year's quarter Condensed Consolidated Statements of Operations and Comprehensive Loss | Item | Three Months Ended April 27, 2024 (in thousands USD) | Three Months Ended April 29, 2023 (in thousands USD) | Nine Months Ended April 27, 2024 (in thousands USD) | Nine Months Ended April 29, 2023 (in thousands USD) | | :------------------------------------------ | :----------------------------------------------- | :----------------------------------------------- | :---------------------------------------------- | :---------------------------------------------- | | Revenue, net | $322,731 | $383,419 | $1,017,918 | $1,227,782 | | Cost of goods sold | $175,753 | $219,744 | $568,357 | $713,041 | | Gross profit | $146,978 | $163,675 | $449,561 | $514,741 | | Gross margin | 45.5% | 42.7% | 44.2% | 41.9% | | Selling, general, and administrative expenses | $171,818 | $184,195 | $541,100 | $647,079 | | Operating loss | $(24,840) | $(20,520) | $(91,539) | $(132,338) | | Net loss from continuing operations | $(22,017) | $(18,421) | $(83,144) | $(130,017) | | Net income (loss) from discontinued operations | $689 | $(3,404) | $(9,198) | $(13,297) | | Net loss | $(21,328) | $(21,825) | $(92,342) | $(143,314) | | Diluted loss per share from continuing operations | $(0.18) | $(0.16) | $(0.70) | $(1.14) | - Gross margin improved to 45.5% for the three months ended April 27, 2024, up from 42.7% in the prior year period[15] - Net loss from continuing operations for the three months ended April 27, 2024, was $(22,017) thousand, compared to $(18,421) thousand in the prior year[15] Condensed Consolidated Statements of Cash Flow For the nine months ended April 27, 2024, net cash provided by operating activities from continuing operations significantly decreased to $20.0 million from $50.7 million in the prior year. Investing activities resulted in a net cash outflow, while financing activities continued to use cash Condensed Consolidated Statements of Cash Flow | Item | Nine Months Ended April 27, 2024 (in thousands USD) | Nine Months Ended April 29, 2023 (in thousands USD) | | :---------------------------------------------------- | :---------------------------------------------- | :---------------------------------------------- | | Net cash provided by operating activities from continuing operations | $20,007 | $50,680 | | Net cash provided by (used in) investing activities from continuing operations | $(39,549) | $36,300 | | Net cash used in financing activities from continuing operations | $(11,817) | $(10,383) | | Net increase (decrease) in cash and cash equivalents from continuing operations | $(31,359) | $76,597 | | Net decrease in cash and cash equivalents from discontinued operations | $(10,624) | $(14,994) | | Net increase (decrease) in cash and cash equivalents | $(42,930) | $62,640 | | Cash and cash equivalents at end of period | $196,507 | $193,575 | - Net cash provided by operating activities from continuing operations decreased by over 60% year-over-year for the nine-month period[17] - Investing activities shifted from a net cash inflow of $36.3 million in the prior year to a net cash outflow of $39.5 million, primarily due to purchases of securities available-for-sale[17] Non-GAAP Financial Measures This section defines and reconciles non-GAAP financial measures, including Adjusted EBITDA and Free Cash Flow, providing insights into their utility and inherent limitations Overview and Limitations of Non-GAAP Measures Stitch Fix uses non-GAAP financial measures like Adjusted EBITDA and Free Cash Flow to provide additional insights into performance and facilitate comparisons, while acknowledging their limitations as they are not substitutes for GAAP measures - Management believes Adjusted EBITDA and Free Cash Flow provide useful information for evaluating performance and comparing companies, but they should not be considered in isolation from or as substitutes for GAAP financial information[18][19] - Limitations of Adjusted EBITDA include the exclusion of interest income, income taxes, non-cash expenses like depreciation, amortization, and stock-based compensation, and certain restructuring costs[20] Adjusted EBITDA Reconciliation The reconciliation shows Adjusted EBITDA for Q3 FY2024 was $6.7 million, a decrease from $13.2 million in the prior year, primarily due to higher net loss from continuing operations and lower adjustments for stock-based compensation and restructuring costs Adjusted EBITDA Reconciliation | Item | Three Months Ended April 27, 2024 (in thousands USD) | Three Months Ended April 29, 2023 (in thousands USD) | Nine Months Ended April 27, 2024 (in thousands USD) | Nine Months Ended April 29, 2023 (in thousands USD) | | :------------------------------------ | :----------------------------------------------- | :----------------------------------------------- | :---------------------------------------------- | :---------------------------------------------- | | Net loss from continuing operations | $(22,017) | $(18,421) | $(83,144) | $(130,017) | | Interest income | $(3,002) | $(2,434) | $(7,923) | $(3,814) | | Other (income) expense, net | $9 | $203 | $(980) | $1,043 | | Provision for income taxes | $170 | $132 | $508 | $450 | | Depreciation and amortization | $8,443 | $9,654 | $27,283 | $28,742 | | Stock-based compensation expense | $18,944 | $22,032 | $59,911 | $78,423 | | Restructuring and other one-time costs | $4,134 | $2,080 | $24,103 | $42,977 | | Adjusted EBITDA | $6,681 | $13,246 | $19,758 | $17,804 | - Adjusted EBITDA for the three months ended April 27, 2024, was $6.7 million, a decrease from $13.2 million in the prior year[19] - For the nine months ended April 27, 2024, Adjusted EBITDA increased to $19.8 million from $17.8 million in the prior year[19] Free Cash Flow Reconciliation Free Cash Flow for Q3 FY2024 was $18.9 million, down from $26.4 million in the prior year. For the nine-month period, Free Cash Flow significantly decreased to $9.7 million from $35.8 million, primarily due to reduced cash from operating activities Free Cash Flow Reconciliation | Item | Three Months Ended April 27, 2024 (in thousands USD) | Three Months Ended April 29, 2023 (in thousands USD) | Nine Months Ended April 27, 2024 (in thousands USD) | Nine Months Ended April 29, 2023 (in thousands USD) | | :---------------------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | :---------------------------------------------- | :---------------------------------------------- | | Net cash provided by operating activities from continuing operations | $21,743 | $29,897 | $20,007 | $50,680 | | Purchases of property and equipment from continuing operations | $(2,832) | $(3,466) | $(10,259) | $(14,864) | | Free Cash Flow | $18,911 | $26,431 | $9,748 | $35,816 | - Free Cash Flow for the three months ended April 27, 2024, was $18.9 million, a decrease from $26.4 million in the prior year[21] - For the nine months ended April 27, 2024, Free Cash Flow was $9.7 million, a substantial decrease from $35.8 million in the prior year[21] Operating Metrics This section details key operating metrics, including active client trends and net revenue per active client, providing insights into customer engagement and monetization Active Clients Stitch Fix defines an active client as one who has checked out a Fix or received a Freestyle item in the preceding 52 weeks. The company reported a decline in active clients both quarter-over-quarter and year-over-year Active Clients | Period | Active Clients (in thousands) | | :---------------- | :---------------------------- | | April 27, 2024 | 2,633 | | January 27, 2024 | 2,805 | | October 28, 2023 | 2,989 | | July 29, 2023 | 3,121 | | April 29, 2023 | 3,288 | - Active clients decreased by 172,000 (6%) quarter-over-quarter and by 655,000 (20%) year-over-year to 2,633,000 as of April 27, 2024[5][21] - An active client is defined as a client who checked out a Fix or was shipped an item via Freestyle in the preceding 52 weeks[22] Net Revenue per Active Client (RPAC) Net Revenue per Active Client (RPAC) increased by 2% year-over-year to $525 as of April 27, 2024, calculated based on net revenue over the preceding four fiscal quarters Net Revenue per Active Client (RPAC) | Period | RPAC (in USD) | | :---------------- | :--- | | April 27, 2024 | $525 | | April 29, 2023 | $516 | - RPAC increased by 2% year-over-year, from $516 as of April 29, 2023, to $525 as of April 27, 2024[5][23] - Net revenue per active client is calculated based on net revenue over the preceding four fiscal quarters divided by the number of active clients[23] Additional Information This section provides details on the conference call, a disclaimer regarding forward-looking statements, and contact information for investor relations and media Conference Call and Webcast Information Stitch Fix hosted a conference call and webcast on June 4, 2024, to discuss its financial results and outlook, with access details provided for live participation and replay - A conference call and live webcast were hosted on June 4, 2024, at 2:00 p.m. Pacific Time to discuss the Company's financial results and outlook[8] - Access to the webcast and replay is available on the investor relations section of the Stitch Fix website[8] Forward-Looking Statements This section provides a standard disclaimer regarding forward-looking statements, emphasizing that future financial performance and strategic outcomes are subject to substantial risks and uncertainties, and actual results may differ materially from projections - The press release contains forward-looking statements regarding future financial performance, guidance, strategic execution, and long-term targets[10] - These statements involve substantial risks and uncertainties, including macroeconomic conditions, consumer behavior, client acquisition and retention, and operational factors, which could cause actual results to differ materially[10][11] - The company undertakes no obligation to update any forward-looking statements, except as required by law[11] Investor and Media Contacts Contact information for investor relations and media inquiries is provided for stakeholders - Investor Relations contact: ir@stitchfix.com[25] - Public Relations contact: media@stitchfix.com[25]