Stitch Fix(SFIX) - 2023 Q4 - Earnings Call Transcript

Financial Data and Key Metrics - Q4 gross margin expanded 330 basis points year-over-year to 43.3%, driven by improved inventory composition [22] - Q4 net revenue was $376 million, down 22$1.64 billion, a decline of 21% year-over-year [46] - Q4 adjusted EBITDA was $10.4 million, above the range due to better-than-expected revenues and gross margin improvements [69] - FY'23 adjusted EBITDA improved by more than$35 million year-over-year to $17 million [46] - Q4 free cash flow was$18 million, and FY'23 free cash flow was nearly $39 million [46][69] Business Line Data and Key Metrics - The company decided to exit the UK market, with full closure expected by the end of the calendar year [21] - Private brands delivered approximately 5$355 million and $365 million, with adjusted EBITDA between$2 million and $7 million [49] - FY'24 US revenue is expected to be between$1.3 billion and $1.37 billion, with adjusted EBITDA between$5 million and $30 million [70] Company Strategy and Industry Competition - The company is focusing on enhancing the client experience, strengthening profitability, and investing carefully to drive growth [17] - Stitch Fix plans to leverage its combination of data science and human connection, advancing AI and human touch to differentiate itself [18] - The company is consolidating its US warehouse footprint from five locations to three, expected to be completed in FY'24, with immediate cost savings and inventory efficiencies [68] - Stitch Fix has a competitive advantage in discounting due to its private brands and direct client relationships, allowing it to operate as a full-price retailer [63] Management Commentary on Operating Environment and Future Outlook - The US consumer remains under pressure due to rising energy prices, high interest rates, and the resumption of student loan payments [62] - Management is focused on factors within their control, such as assortment quality, pricing intelligence, and acquiring high lifetime value clients [119] - The company expects to maintain stable pricing throughout FY'24 and improve inventory health, with gross margin expected to improve by 100 to 200 basis points [60][71] Other Important Information - FY'24 is a 53-week fiscal year, and the company will report UK results as discontinued operations starting in Q1 [23] - The company expects inventory balances to rise in Q1 due to fall-winter receipts but anticipates improved inventory turns as the year progresses [50] - Advertising spend was 7% of net revenue in Q4, down more than 350 basis points year-over-year, and is expected to remain at 7% to 8% of revenue in FY'24 [69][71] Q&A Session Summary Question: Key learnings from the CEO's first 90 days - The CEO highlighted the strong bond between loyal clients and the service, which creates opportunities for future growth despite revenue declines [55] - The strength of private brands and their higher IMU and keep rates were noted as key learnings [78] Question: Gross margin improvement and 53rd week impact - Gross margin improvement is driven by better inventory health and transportation efficiencies, with FY'24 expected to see a 100 to 200 basis point improvement [60] - The 53rd week is expected to contribute about 1 to 1.5 points to revenue [86] Question: Macro environment and competitive pressure - The company is cautious about the US consumer environment but believes its private brands and direct client relationships provide a competitive edge [62][63] Question: Active client count and pricing expectations - The company expects Q1 active clients to be negative but better than Q4's 5% decline, with stable pricing throughout FY'24 [79] Question: Revenue decline and future growth strategy - The company is focused on building a healthy foundation for the business, including inventory, client franchise, and financial health, before driving long-term profitable growth [102] Question: Marketing and sales relationship - Marketing efforts are focused on acquiring high lifetime value clients, with a balanced approach between brand awareness and programmatic acquisition [104] Question: Churn and dormancy drivers - Life-changing events and assortment quality are key drivers of churn, with re-engagement campaigns showing success in bringing back dormant clients [109][110]