Stitch Fix(SFIX) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported net revenue of $318.8 million, which is a 13% decrease year-over-year but flat quarter-over-quarter [27] - Adjusted EBITDA for Q1 was$ 13.5 million, representing a margin of approximately 4.2%, up 180 basis points year-over-year and 120 basis points quarter-over-quarter [33] - Gross margin for the quarter was 45.4%, an increase of 180 basis points year-over-year and 80 basis points quarter-over-quarter [29] - Contribution margin was approximately 34%, marking the third consecutive quarter above the historical range of 25% to 30% [30] Business Line Data and Key Metrics Changes - The penetration of newness in inventory increased by more than 40% in Q1, contributing to a year-over-year increase in Average Unit Retail (AUR) of 6% [13][28] - Sales of wide-leg and boot cut styles increased by 250% from the previous year, indicating strong demand for fresh styles [14] - The company introduced flexibility in its offerings, allowing clients to receive up to eight items in a Fix, which has led to clients requesting nearly 40% more items on average [17] Market Data and Key Metrics Changes - Net active clients ended the quarter at 2.4 million, representing the lowest sequential decline in active client count in two years, down 19% year-over-year and down 3% quarter-over-quarter [29] - Revenue per active client for the quarter was $531, up 5% year-over-year and relatively flat quarter-over-quarter [29] Company Strategy and Development Direction - The company is focused on returning to revenue growth by the end of FY '26 and has raised its annual guidance [10][34] - The strategy includes improving inventory quality, enhancing client experience, and embedding retail best practices across the business [11][10] - The company is leveraging AI and data science to enhance client engagement and improve inventory management [24][75] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ongoing transformation strategy and the positive results seen in Q1, indicating that the strategy is working [38] - The company expects to see continued improvement in active client counts and revenue growth, with a focus on sustainable, profitable growth [26][34] - Management highlighted the importance of engaging clients through personalized marketing and promotional capabilities [19][22] Other Important Information - The company ended Q1 with net inventory of$ 119.1 million, down 26% year-over-year and up 22% quarter-over-quarter [33] - The company generated $9.9 million of free cash flow in Q1 and ended the quarter with$ 253 million in cash and no debt [33] Q&A Session Summary Question: Key contributors to stronger than expected spend per client - Management highlighted improvements in inventory and assortment, increased flexibility in Fix offerings, and optimized pricing architecture as key contributors [41][43][45] Question: Impact of private brands on the business - Management stated that private brands account for around 40% to 50% of total sales and have outperformed market brands in terms of keep rate and margins [58][60] Question: Progress with the active client file - Management emphasized the importance of acquiring healthy clients and enhancing engagement to increase revenue per active client [61][63] Question: Trends in reactivations - Management reported a 17% year-over-year increase in reactivations, indicating successful efforts to re-engage former clients [87][88]