STITCH FIX, INC. “In Q2, we delivered
Second Quarter Key Metrics and Financial Highlights
- Net revenue of
$516.7 million , an increase of 3% year over year - Active clients of 4,019,000, an increase of 146,000 or 4% year over year
- Net revenue per active client (RPAC) of
$549 , an increase of 18% year over year - Net loss of
$30.9 million and diluted loss per share of$0.28 - Adjusted EBITDA of
$10.1 million
Business Performance
- Delivered the quarter we largely expected, with modest growth in revenue, as well as ongoing strength in gross margin and adjusted EBITDA
- Observed positive trends in client engagement with RPAC reaching a record high for the third quarter in a row, up 18% from a year ago – a result of higher average order values in our Fix business and the incrementality that Freestyle provides to our existing client base
- While Freestyle revenue grew 29% year-over-year, we are observing challenges with onboarding and conversion of clients and are beginning to direct new clients to a clear and easy Fix onboarding path
Financial Outlook
Our financial outlook for the third quarter of fiscal 2022, which ends on
| Q3’22 | ||
| Net Revenue | (10)% - (7)% YoY decline | |
| Adjusted EBITDA | (6)% - (5)% margin | |
Given softness in the number of active clients in the first half of fiscal 2022 and uncertainty in the timing of improvements in conversion, we are lowering the prior full year revenue outlook that we shared on our
Conference Call and Webcast Information
A telephonic replay will be available through
About
Forward-Looking Statements
This press release, the related conference call and webcast contain forward-looking statements within the meaning of the federal securities laws. All statements other than statements of historical fact could be deemed forward looking, including but not limited to statements regarding our expectations for future financial performance, including our profitability and long-term targets; guidance on financial results and active clients for the third quarter and full fiscal year of 2022; that we are taking the right steps to become the global leader in personalized styling and shopping; that directing stitchfix.com traffic to a Fix onboarding path will boost Fix client conversion over time; that the learning and experimenting we are engaging in can be optimized and will help build a great customer experience; our efforts in Fix and Freestyle will drive improved client conversion; the opportunity related to our Freestyle offering, including that Freestyle will unlock a much larger total addressable market and is an engine for growth; that Freestyle will provide leverage in our overall margin; that we will be able to create the optimal client experience and conversion paths for new clients; that we are taking the right steps for the future of the business; our advertising and marketing plans, including opening up new marketing channels, increasing marketing spend, and whether our marketing investments will pay off in future quarters; that we are well-positioned to execute against our vision; and that the investments we are making now will allow us to unlock a long-term opportunity presented by Freestyle. These statements involve substantial risks and uncertainties, including risks and uncertainties related to the ongoing COVID-19 pandemic, our responses to the pandemic, the responses of our clients, competitors, suppliers, governmental authorities, and public health officials; our ability to generate sufficient net revenue to offset our costs; the growth of our market and consumer behavior; our ability to acquire, engage, and retain clients; our ability to provide offerings and services that achieve market acceptance; our data science and technology, stylists, operations, marketing initiatives, and other key strategic areas; risks related to our inventory; risks related to our supply chain, sourcing of materials and shipping of merchandise; risks related to international operations; and other risks described in the filings we make with the
| Condensed Consolidated Balance Sheets | ||||||||
| (Unaudited) | ||||||||
| (In thousands, except share and per share amounts) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 193,878 | $ | 129,785 | ||||
| Short-term investments | 73,052 | 101,546 | ||||||
| Inventory, net | 183,458 | 212,294 | ||||||
| Prepaid expenses and other current assets | 53,440 | 50,512 | ||||||
| Income tax receivable | 27,624 | 27,667 | ||||||
| Total current assets | 531,452 | 521,804 | ||||||
| Long-term investments | 82,182 | 59,035 | ||||||
| Income tax receivable, net of current portion | 27,054 | 27,054 | ||||||
| Property and equipment, net | 104,557 | 86,959 | ||||||
| Operating lease right-of-use assets | 144,836 | 118,565 | ||||||
| Other long-term assets | 8,167 | 5,732 | ||||||
| Total assets | $ | 898,248 | $ | 819,149 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 124,431 | $ | 73,499 | ||||
| Operating lease liabilities | 26,716 | 25,702 | ||||||
| Accrued liabilities | 95,021 | 99,028 | ||||||
| Gift card liability | 13,164 | 9,903 | ||||||
| Deferred revenue | 14,445 | 18,154 | ||||||
| Other current liabilities | 2,864 | 2,027 | ||||||
| Total current liabilities | 276,641 | 228,313 | ||||||
| Operating lease liabilities, net of current portion | 151,704 | 121,623 | ||||||
| Other long-term liabilities | 8,821 | 8,364 | ||||||
| Total liabilities | 437,166 | 358,300 | ||||||
| Stockholders’ equity: | ||||||||
| Class A common stock, | 1 | 1 | ||||||
| Class B common stock, | 1 | 1 | ||||||
| Additional paid-in capital | 463,143 | 416,755 | ||||||
| Accumulated other comprehensive income | 991 | 3,411 | ||||||
| Retained earnings | 7,942 | 40,681 | ||||||
| (10,996 | ) | — | ||||||
| Total stockholders’ equity | 461,082 | 460,849 | ||||||
| Total liabilities and stockholders’ equity | $ | 898,248 | $ | 819,149 | ||||
| Condensed Consolidated Statements of Operations and Comprehensive Loss | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| (In thousands, except share and per share amounts) | ||||||||||||||||
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| Revenue, net | $ | 516,724 | $ | 504,087 | $ | 1,097,968 | $ | 994,510 | ||||||||
| Cost of goods sold | 283,920 | 287,744 | 592,247 | 558,716 | ||||||||||||
| Gross profit | 232,804 | 216,343 | 505,721 | 435,794 | ||||||||||||
| Selling, general, and administrative expenses | 263,502 | 256,694 | 538,269 | 495,678 | ||||||||||||
| Operating loss | (30,698 | ) | (40,351 | ) | (32,548 | ) | (59,884 | ) | ||||||||
| Interest income | 171 | 642 | 505 | 1,803 | ||||||||||||
| Other expense, net | (45 | ) | (107 | ) | (154 | ) | (312 | ) | ||||||||
| Loss before income taxes | (30,572 | ) | (39,816 | ) | (32,197 | ) | (58,393 | ) | ||||||||
| Provision (benefit) for income taxes | 340 | (18,777 | ) | 542 | (46,895 | ) | ||||||||||
| Net loss | $ | (30,912 | ) | $ | (21,039 | ) | $ | (32,739 | ) | $ | (11,498 | ) | ||||
| Other comprehensive loss: | ||||||||||||||||
| Change in unrealized gain (loss) on available-for-sale securities, net of tax | (654 | ) | (388 | ) | (969 | ) | (1,051 | ) | ||||||||
| Foreign currency translation | (848 | ) | 1,929 | (1,451 | ) | 1,591 | ||||||||||
| Total other comprehensive income, net of tax | (1,502 | ) | 1,541 | (2,420 | ) | 540 | ||||||||||
| Comprehensive loss | $ | (32,414 | ) | $ | (19,498 | ) | $ | (35,159 | ) | $ | (10,958 | ) | ||||
| Net loss attributable to common stockholders: | ||||||||||||||||
| Basic | $ | (30,912 | ) | $ | (21,039 | ) | $ | (32,739 | ) | $ | (11,498 | ) | ||||
| Diluted | $ | (30,912 | ) | $ | (21,039 | ) | $ | (32,739 | ) | $ | (11,498 | ) | ||||
| Loss per share attributable to common stockholders: | ||||||||||||||||
| Basic | $ | (0.28 | ) | $ | (0.20 | ) | $ | (0.30 | ) | $ | (0.11 | ) | ||||
| Diluted | $ | (0.28 | ) | $ | (0.20 | ) | $ | (0.30 | ) | $ | (0.11 | ) | ||||
| Weighted-average shares used to compute loss per share attributable to common stockholders: | ||||||||||||||||
| Basic | 109,178,086 | 105,544,515 | 108,776,998 | 104,840,283 | ||||||||||||
| Diluted | 109,178,086 | 105,544,515 | 108,776,998 | 104,840,283 | ||||||||||||
| Condensed Consolidated Statements of Cash Flow | ||||||||
| (Unaudited) | ||||||||
| (In thousands) | ||||||||
| For the Six Months Ended | ||||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ | (32,739 | ) | $ | (11,498 | ) | ||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Change in inventory reserves | 445 | 4,619 | ||||||
| Stock-based compensation expense | 64,713 | 44,684 | ||||||
| Depreciation, amortization, and accretion | 17,374 | 14,206 | ||||||
| Other | 7 | 214 | ||||||
| Change in operating assets and liabilities: | ||||||||
| Inventory | 28,100 | (62,024 | ) | |||||
| Prepaid expenses and other assets | (5,755 | ) | 2,524 | |||||
| Income tax receivables | 43 | (44,154 | ) | |||||
| Operating lease right-of-use assets and liabilities | 4,855 | (793 | ) | |||||
| Accounts payable | 51,296 | 11,261 | ||||||
| Accrued liabilities | (4,267 | ) | 38,763 | |||||
| Deferred revenue | (3,699 | ) | 1,884 | |||||
| Gift card liability | 3,261 | 3,669 | ||||||
| Other liabilities | 1,298 | 2,311 | ||||||
| Net cash provided by operating activities | 124,932 | 5,666 | ||||||
| Cash Flows from Investing Activities | ||||||||
| Purchases of property and equipment | (30,900 | ) | (13,894 | ) | ||||
| Purchases of securities available-for-sale | (77,532 | ) | (112,646 | ) | ||||
| Sales of securities available-for-sale | 4,690 | 29,317 | ||||||
| Maturities of securities available-for-sale | 76,109 | 90,439 | ||||||
| Net cash used in investing activities | (27,633 | ) | (6,784 | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from the exercise of stock options, net | 1,365 | 20,539 | ||||||
| Payments for tax withholdings related to vesting of restricted stock units | (23,372 | ) | (24,116 | ) | ||||
| Repurchase of common stock | (9,996 | ) | — | |||||
| Net cash used in financing activities | (32,003 | ) | (3,577 | ) | ||||
| Net increase (decrease) in cash and cash equivalents | 65,296 | (4,695 | ) | |||||
| Effect of exchange rate changes on cash | (1,203 | ) | 1,271 | |||||
| Cash and cash equivalents at beginning of period | 129,785 | 143,455 | ||||||
| Cash and cash equivalents at end of period | $ | 193,878 | $ | 140,031 | ||||
| Supplemental Disclosure | ||||||||
| Cash paid for income taxes | $ | 389 | $ | 227 | ||||
| Supplemental Disclosure of Non-Cash Investing and Financing Activities: | ||||||||
| Purchases of property and equipment included in accounts payable and accrued liabilities | $ | 3,040 | $ | 5,530 | ||||
| Capitalized stock-based compensation | $ | 3,682 | $ | 2,348 | ||||
| Repurchase of common stock included in accrued liabilities | $ | 1,000 | $ | — | ||||
Non-GAAP Financial Measures
We report our financial results in accordance with generally accepted accounting principles in
Our non-GAAP financial measures should not be considered in isolation from, or as substitutes for, financial information prepared in accordance with GAAP. There are several limitations related to the use of our non-GAAP financial measures as compared to the closest comparable GAAP measures. Some of these limitations include:
- adjusted EBITDA excludes interest income and other expense, net, as these items are not components of our core business;
- adjusted EBITDA does not reflect our tax provision (benefit), which may increase or decrease cash available to us;
- adjusted EBITDA excludes the recurring, non-cash expenses of depreciation and amortization of property and equipment and, although these are non-cash expenses, the assets being depreciated and amortized may have to be replaced in the future;
- adjusted EBITDA excludes the non-cash expense of stock-based compensation, which has been, and will continue to be for the foreseeable future, an important part of how we attract and retain our employees and a significant recurring expense in our business; and
- free cash flow does not represent the total residual cash flow available for discretionary purposes and does not reflect our future contractual commitments.
Adjusted EBITDA
We define adjusted EBITDA as net income (loss) excluding interest income, other expense, net, provision (benefit) for income taxes, depreciation and amortization, and stock-based compensation expense. The following table presents a reconciliation of net income (loss), the most comparable GAAP financial measure, to adjusted EBITDA for each of the periods presented:
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| (in thousands) | ||||||||||||||||
| Net loss | $ | (30,912 | ) | $ | (21,039 | ) | $ | (32,739 | ) | $ | (11,498 | ) | ||||
| Add (deduct): | ||||||||||||||||
| Interest income | (171 | ) | (642 | ) | (505 | ) | (1,803 | ) | ||||||||
| Other expense, net | 45 | 107 | 154 | 312 | ||||||||||||
| Provision (benefit) for income taxes | 340 | (18,777 | ) | 542 | (46,895 | ) | ||||||||||
| Depreciation and amortization | 8,439 | 6,664 | 16,179 | 13,123 | ||||||||||||
| Stock-based compensation expense | 32,390 | 24,759 | 64,713 | 44,684 | ||||||||||||
| Adjusted EBITDA | $ | 10,131 | $ | (8,928 | ) | $ | 48,344 | $ | (2,077 | ) | ||||||
Free Cash Flow
We define free cash flow as cash flows provided by operating activities reduced by purchases of property and equipment that are included in cash flows provided by (used in) investing activities. The following table presents a reconciliation of cash flows provided by operating activities, the most comparable GAAP financial measure, to free cash flow for each of the periods presented:
| For the Six Months Ended | ||||||||
| (in thousands) | ||||||||
| Free cash flow reconciliation: | ||||||||
| Cash flows provided by operating activities | $ | 124,932 | $ | 5,666 | ||||
| Deduct: | ||||||||
| Purchases of property and equipment | (30,900 | ) | (13,894 | ) | ||||
| Free cash flow | $ | 94,032 | $ | (8,228 | ) | |||
| Cash flows used in investing activities | $ | (27,633 | ) | $ | (6,784 | ) | ||
| Cash flows used in financing activities | $ | (32,003 | ) | $ | (3,577 | ) | ||
Operating Metrics
| Active clients (in thousands) | 4,019 | 4,180 | 4,165 | 4,107 | 3,873 | ||||||||||
| Net revenue per active client | $ | 549 | $ | 524 | $ | 505 | $ | 481 | $ | 467 | |||||
Active Clients
We define an active client as a client who checked out a Fix or was shipped an item using our direct-buy functionality, “Freestyle,” in the preceding 52 weeks, measured as of the last day of that period. A client checks out a Fix when she indicates what items she is keeping through our mobile application or on our website. We consider each Men’s, Women’s, or Kids account as a client, even if they share the same household.
Net Revenue per Active Client
We calculate net revenue per active client based on net revenue over the preceding four fiscal quarters divided by the number of active clients, measured as of the last day of the period.
| IR Contact: ir@stitchfix.com | PR Contact: media@stitchfix.com |
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