Stitch Fix(US:SFIX)2024-03-04 23:07Financial Data and Key Metrics Changes - Q2 net revenue was $330 million, down 18% year-over-year and down 9% compared to the previous quarter [20] - Net Active clients ended the quarter at approximately 2.8 million, down 6% compared to the previous quarter [20] - Revenue per active client was $515, down 3% year-over-year but up 2% quarter-over-quarter [20] - Gross margin for the quarter was 43.4%, down 20 basis points quarter-over-quarter but up 250 basis points year-over-year [21] - Q2 adjusted EBITDA was $4.4 million, reflecting ongoing cost management discipline [22] - Free cash flow was negative $26.1 million in the quarter, but the company expects to be free cash flow positive for the full year [52] Business Line Data and Key Metrics Changes - Advertising constituted 7% of revenue in the quarter, down 19% quarter-over-quarter due to typical lower seasonal spending [22] - The company has reduced total annualized SG&A spend by over $370 million since Q3 of fiscal 2022 [19] Market Data and Key Metrics Changes - The company is experiencing a sequential decline in active clients, which is expected to continue in the back half of the year [57] - The 90-day revenue per active client has shown growth for three consecutive quarters, indicating potential for future improvement [50] Company Strategy and Development Direction - The company is focused on three priority areas: strengthening the foundation of the business, deepening client engagement, and developing a long-term strategy for sustainable growth [5][15] - The company plans to enhance its marketing strategies to optimize media mix and efficiency, aiming to improve client conversion rates [16] - A new onboarding experience is being developed to create a more engaging and dynamic interaction for clients [17][124] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to maintain profitability and strengthen its business foundation [25] - The company is committed to managing its business with financial discipline to drive profitability in the near term and growth over time [42] - Management acknowledged the challenges in client conversion and emphasized the need for a methodical approach to client acquisition [30][58] Other Important Information - The company has begun reporting its U.K. business as a discontinued operation, with all metrics discussed representing continuing operations [41] - The company expects gross margin to increase to between 44% and 45% in the back half of the year due to improvements in inventory position and transportation efficiencies [53] Q&A Session Summary Question: Active client count decline and initiatives to stabilize it - Management noted that Q2 is typically the softest quarter for active clients and acknowledged that client conversion was below expectations [30] Question: Confidence in future growth despite current numbers - Management expressed confidence in future success, emphasizing the unique understanding of client preferences and the ongoing transformation efforts [78][80] Question: Marketing spend increase and expected returns - Management indicated that the planned increase in marketing spend is based on anticipated better returns and the need to reinvigorate top-line growth [69] Question: Impact of lower-cost competitors - Management believes that the service offered by Stitch Fix resonates well with clients seeking personal styling, providing a competitive advantage [85][123] Question: New client onboarding experience features - Management highlighted that the new onboarding experience will be fun, engaging, and dynamic, aimed at better understanding client needs [124] Question: Engagement with lapsed customers - Management is focused on improving engagement with current clients to prevent dormancy and enhance retention [110] Question: Personalization of stylist interactions - Management stated that the goal is to create more meaningful interactions between clients and stylists, tailored to individual client needs [133]