Q4 2021 Stitch Fix Inc Earnings Call

September 21, 2021

[music].

Please standby we're about to begin.

Good day, everyone welcome to the Stitch fix earnings Conference call. Today's conference is being recorded at this time I'd like to turn the conference over to Willie during Mendell interim head of IR. Please go ahead.

Thank you for joining us on the call today to discuss the results for our fourth quarter and full fiscal year 2021.

Joining me on today's call are Elizabeth Spaulding, CEO stitch fix and then get our CFO.

We have posted complete fourth quarter and full fiscal year 2021 financial results in a press release on the IR section of our website investors <unk> Dot com a link to the webcast of today's conference call can also be found on our site.

I would like to remind everyone that we will be making forward looking statements on this call, which involve risks and uncertainties actual results could differ materially from those contemplated by our forward looking statements.

Reported results should not be considered as an indication of future performance.

Please review our filings with the SEC for a discussion of the factors that could cause our results to differ.

Note that the forward looking statements on this call are based on information available to us as of today's date.

Same any obligation to update any forward looking statements, except as required by law.

During this call we will discuss certain non-GAAP financial measures reconciliations to the most directly comparable GAAP financial measures are provided in the press release on our IR website.

These non-GAAP measures are not intended to be a substitute for our GAAP results.

Finally, this call in its entirety is being webcast on our IR website and a replay of this call will be available on the website shortly.

I'd now like to turn the call over to Elizabeth.

Thanks will and thank you all for joining us after the market closed today, we issued a press release with details on our quarterly performance and outlook.

We delivered strong fourth quarter results to close out a successful fiscal year Q4, net revenue growing 29% over last year's fourth quarter, and helping us cross $3.0 billion in annual net revenue predict first time.

We're excited to share both the highlights of our full year business results as well as our vision looking forward.

As I step into the CEO role I'm incredibly honored to be leading this team we.

Have an exceptional organization.

Leaders and innovators, who share my passion for stitch fix and a bright future ahead.

The last 10 years with stitch fix is journey set the stage for our future with our highly differentiated approach to marrying data science and creative human judgment.

This differentiation has enabled us to build a deep understanding of the apparel vertical and the engine to power our expansion.

We see our future propelled by this incredible strength and it is only the beginning.

We are uniquely positioned to deliver the most personalized shopping experience for both our current and future clients.

Today, we will focus on three main chapters.

First we will share our fourth quarter results, where we saw strong demand trends and positive momentum in our fundamentals.

Second we will discuss the closing out of a successful fiscal year 2021.

We embarked on a meaningful transformation in our business on a number of front <unk>.

Including the expansion of shop to our current client base.

Launch and scale of fixed preview and foundational investments in our systems and people.

And lastly, we'll look ahead to our future discussing our overarching vision as well as plans and in fiscal year 2022 ahead, as we expand our offering to serve more clients across shopping occasions, and a uniquely personalized way.

For our first topic of our Q4 FY 'twenty one results.

We delivered strength in our top line business through both our fixed and direct buy offerings.

Overall in Q4, we delivered $571 million and net revenue representing 29% growth over Q4 of 2020.

Along with $55 million and adjusted EBITDA.

We ended the quarter with $169.0 million active clients and closed out the second half of the year with nearly 300000 total net adds.

Dan will provide some additional context on both adjusted EBITDA and active client trends later on.

Now shifting to our second topic.

'twenty, one and review.

As we look back on the last 18 months. This time period ushered in a new era for apparel and footwear retail.

Sifting, our category from roughly 25% of sales online to nearly 40% online with a meaningful and we believe permanent shift in consumer behavior.

As a result of this shift and our proactive focus on innovation. This period has been a galvanizing moment for stitch fix.

As consumers adapted we intentionally and successfully captured an outsized piece of the disrupted apparel market by leveraging new product innovation evolving our assortment and using our personalized experience to migrate more clients into our ecosystem.

Most notable in our evolution is our expansion into personalized direct purchases for our clients.

Formerly known as shop, and what we have often referred to as direct buy we have now branded this channel stitch fix freestyle.

Going forward, we will refer to freestyle when referencing our direct buy experience.

It's a change that reflects the philosophy driving this product.

Clients have agency flexibility and choice, while also experiencing a highly personalized shopping experience.

We have achieved numerous milestones in building this narrow to one product of freestyle over the last year.

In fiscal year 'twenty, one we've grown top line net revenue for freestyle more than 100%, reaching almost 30% penetration of our women's client base.

We also saw success in product categories in which we see significant long term opportunity.

Footwear for example comprise a bigger percentage of Q4 revenue for freestyle than for fixed and both womens and mens.

And overall early indications are that freestyle is meaningfully accretive to revenue per active client metrics, which reached an all time high in Q4 and.

In fact, our revenue per active client closed the year over $500 for the first time ever.

And recently, we've opened up freestyle to new to stitch fix customers unlocking the channel to in hiring marketplace and marking the beginning of a tremendous opportunity for our business.

Retail was only part of the story.

We simultaneously innovated in our fixed offering and doubled our U K business.

We use insights from our signed up prospects as well as existing clients.

<unk> identified the opportunity for greater client engagement and fix experience.

We recently rolled out fixed preview two 100% of our women's and men's clients across both the U S and U K markets.

Now all clients can preview 10 personalized items before their fix is completed and shipped.

We are also now leveraging algorithmically generated recommendations to continuously improve the efficacy of fixed preview as we continue to refine our data driven approach to better meet client preferences.

The impact is clear with conversion and average order value both growing.

Keep rates have achieved all time highs, while client sentiment and retention have continuously increased.

We also evolved our assortment and breadth and depth supporting our clients through their shifting apparel needs.

In a year, where much of the world embraced a work from home model, we rapidly expanded women's active athleisure and lounge to meet the demand.

Growing revenue in these product categories more than four times in Q4 over the prior year and establishing this part of our assortment as a true engine of growth that we expect to power us going forward.

Consumers started to get back to travel socializing and leisure activities, we saw acceleration in going out and dressier items in women's as well with 51% growth in these categories in the fourth quarter as compared to the fourth quarter 2020.

These accomplishments have generated success across our business.

Our plus offering delivered 51% growth in net revenue in fiscal year 'twenty, one demonstrating the strong potential in serving these clients.

We also see strong runway ahead, given that our plus penetration today represents roughly half the penetration of the overall women's market.

On the international front, the UK achieved triple digit revenue growth in fiscal year 'twenty, one with a rapidly growing client base and significantly improved unit economics that have validated our international opportunity and have us excited for what's to come.

Kids has similarly been on a rapid growth clip growing revenue more than 75% in fiscal year 'twenty one.

And men's continues to grow though more slowly as we reshaped our assortment strategy to onboard new brand and are excited about the availability of freestyle for all our mail clients.

I would also like to give some additional context on recent changes we implemented around how we schedule stylist labor hours.

As we continue to drive innovation across our experience leveraging both our data driven model and unique stylus engagement will remain critical to driving the best client experience.

To accommodate our customer experience evolution.

Made some recent changes to our scheduling practices with our filing field to better align with when and how we see clients wanting to connect with pilot.

We know this approach wouldn't work for all of our stylists.

So we offered an opt out accommodation with this change and we were well prepared for the expected opt out.

That said, we realize we removed certain aspects of flexibility that mattered more to folks and we appreciate it and we intend to continue to evaluate our practices with an eye towards increased flexibility.

Overall, we are confident in our path to the future for an exceptional client experience as we continue to expand our styling services as well as freestyle.

Now our third topic looking ahead to our future.

Our vision is to become the global destination for personalized shopping styling and inspiration supporting clients across all categories and occasions.

In a world, where authentic human touch and the ability to know me matters more than ever we help clients to both confidence in discovering items and looks that they otherwise would not have considered.

Our continued success serving clients in the U S as well as the U K also gives us conviction in our opportunity to build this ecosystem on a global scale.

To achieve this vision of personalized shopping we will invest in our biggest sources of differentiation.

Algorithms powered by consumer preferences.

Understanding of the drivers of fit relationships with stylists and vendor insights.

We intend to accelerate our penetration in categories and with consumers, where we have meaningful white space for growth.

Today, we are largely U S based business with a heavy focus on tops and bottoms, representing over 75% of our sales only 30% of our relevant apparel categories.

We are currently focused at affordable and mid tier price point, both or a strong assortment of exclusive and national brand.

We are now expanding into a broader range of brands and price points as well as investing further in product categories, where we are seeing promising success through vies, presell and fixed premium, namely footwear dresses outerwear accessories and sleep and loungewear.

These product categories represent $90 billion in the U S women's market alone and we have already started to see higher growth rates in categories like dresses through our freestyle experience relative to fix it.

To enable this category expansion, we will broaden our partnerships with notable brands as well as create empower a set of new exclusive brands.

Our elevate program focused on entrepreneurs of color and their brands is also an example of how we plan to help showcase and grow emerging brands on our platform.

Our strategies are innovating through freestyle expanding into new categories and price tiers and eventual geographic growth into new markets gives us a significant runway for growth ahead.

Specifically in fiscal year, 'twenty, two we will enhance and broaden our freestyle offering in numerous ways.

For example, we plan to test and incorporate distinctive client facing features such as enhanced output capabilities.

<unk> search and Stylus led nudges to further support our algorithmic regenerated recommendation.

<unk> stylus supporting clients to take what is in their freestyle basket to create effects.

And with our assortment, we plan to scale to 200 class available branded shop over the course of the year across women's and men's to.

To increase consumer awareness of our evolution, we will invest in an updated brand story as.

As well as open up new channels of the marketing mix such as product listing ads as we expose our product catalog for consumer search. We will also continue to experiment with Influencer and affiliate partnerships, both effective channels to broaden awareness and appeal of our growing offering.

Finally, we will continue to invest significantly in our infrastructure to enable new inventory models.

Both network capacity as well as the automation required to deliver on various modes with our vendors such as consignment like inventory and drop ship. These.

These investments will allow us over time to maximize our working capital efficiency.

Overall fiscal year 'twenty, two will set us up for scale beyond where we are today with new consumer populations expansion in critical growth categories as well as prepare us for geographic expansion building on our success in the U S and U K the <unk>.

Coming year ahead will be an exciting time for stitch fix.

With that I'd like to turn it over to Dan.

Thanks, Elizabeth and Hello to everyone joining us on today's call.

In Q4, we generated net revenue of $571 million, representing 29% year over year growth.

We saw overall strength in both our fixed and preschool channels with strong demand in our women's fixed offering an outsize growth in kids as well as in the U K.

We saw increased order volume and freestyle driven by several factors, including our increased focus on engagement of freestyle with existing clients and improved product features such as expanding branded shops.

Full year net revenue was $3.0 billion, representing 23% year over year growth.

We ended the year with active clients of $169.0 million, an increase of 58000 clients quarter over quarter, and 643000 clients or 18% year over year.

Q4, net adds were impacted by our typical summer season, where we normally see a slowdown in new active clients.

We also pulled back on advertising spend in anticipation of the launch of freestyle Shenouda stitch fix clients in early August.

Overall net adds for the second half of the year remain largely in line with those in the first half and.

And we see strong productivity signals from our newest client cohorts, which gives us confidence in our acquisition strategies.

Advertising was 6% of net revenue in Q4, a sequential decrease of 340 basis points from Q3, and 420 basis points decrease from the same quarter last year.

As noted earlier, we made the decision launched freestyle to nudist its fixed customers in early fiscal Q1 of this year.

This did result in pushing Q4 advertising spend to Q1 fiscal 2022.

Since our freestyle launch we have already begun increasing advertising spend relative to Q4, FY 'twenty, one and we expect to continue this elevated investment going forward.

This will include our existing acquisition based advertising channels as well as new advertising channels, such as SCO, SCM and brand based marketing specific to freestyle.

Many of these channels were not available to us with a fixed only business when inventory was not accessible outside our existing client base and shopping ecosystem.

With the launch of freestyle, we expect this increased investment in marketing will pay off in future quarters to come as we work to build increased awareness of freestyle.

Revenue per active client reached an all time high of $505 in Q4, a sequential increase of 5% compared to 481 in Q3, 2021, and 4% year over year growth.

Q4 gross margin was 46, 5% representing a sequential increase of 50 basis points from Q3, and a 160 basis point increase from the same period last year.

Despite the supply chain issues and increased carrier freight rates that many companies are experiencing we reported our highest quarterly gross margin ever.

Quarter over quarter. These gains were largely driven by higher product margins.

Year over year. These gains were driven primarily by higher product margins and lower transportation costs through efficiency gains.

Full year gross margin was 45, 1%, a 100 basis points higher than last year.

Other SG&A, excluding advertising was 37, 2% of net revenue in Q4, a sequential decrease of 420 basis points from Q3, and a 110 basis point decrease from the same period last year.

While we continue to experience higher wages for our warehouse associates, where average hourly rate is over $17. An hour. This was more than offset by variable and fixed productivity gains.

While we continued focus on operational efficiencies. We will also continue to invest in hiring more tech and product personnel as we continue to invest and expand both fixed and freestyle.

Q4, adjusted EBITDA was $55 million and reflected the flow through of higher net revenue improved gross margins and lower marketing spend that I've already touched on.

Full year 2021, adjusted EBITDA was $65 million.

Q4, net income was 21 million and diluted earnings per share was <unk> 19.

For full year 2021, net loss was $9 million and diluted loss per share was negative <unk>.

We delivered free cash flow of $8 million in the quarter and ended the quarter with no debt and $290 million in cash cash equivalents and highly rated securities.

Now looking ahead, it's important to acknowledge a number of factors that are impacting how we forecast our business throughout the coming fiscal year.

First there are many unknowns related to the macro environment driven by the Delta variant and the ongoing impacts of the pandemic.

While we feel confident that consumers will continue to migrate online and that we're well positioned to take more than our share of this channel shift a great deal of short term volatility remains.

Additionally, within our own business.

We're focused on unlocking this long term opportunity represented by freestyle and we're just getting started in this journey.

We see huge upside in the expansion of our Tam as we continue to expand our selection improve the client experience.

And activate marketing campaigns that drive awareness.

We believe we are setting our business on a trajectory of strong long term growth at the same time, we're very early in building. This new business. We've only recently opened up freestyle <unk> fixed customers and we will continue to learn from and optimize our freestor experience over the next several months and quarters.

Given these realities, we are providing guidance for Q1, while providing some more directional signals on our full year expectation.

As we learn more about what the external environment and internal business trends will refine this outlook ensure additional detail in quarters to come.

Looking forward for Q1, we expect net revenue in the range of $560 to $575 million representing growth of 14% to 17% year over year.

We expect to generate positive adjusted EBITDA in the range of $15 million to $20 million or two 7% to three 5% of net revenue all while investing aggressively in our future.

For the rest of FY 'twenty two we expect continued top line revenue growth in the range of 15% or above while maintaining EBITDA at 2% or higher of net revenue.

We are optimistic and believe we can drive acceleration in our business looking forward.

I do want to call out to the back half of this fiscal year left a strong net revenue growth we achieved in Q3 and Q4 of FY 'twenty one.

Our long term growth opportunity is greater than ever, especially now that we've launched freestyle.

We're building the most personalized shopping experience in the marketplace.

And as we invest to transform our business, we are well positioned to gain market share and accelerate growth over time.

With that we're now ready for your questions.

Operator, I'll turn it over to you.

Thank you once again, if you'd like to ask a question. Please Sigma pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure that your mute function is turned off to allow your signal to reach our equipment. Once again that is star one to ask a question.

Pause for just a moment, everyone an opportunity to signal.

And we'll take our first question from Ross Sandler from Barclays. Please go ahead.

Hey, guys I know, it's only been a couple of weeks, but just any.

Initial learnings on both the freestyle uptick since the public launch.

How the marketing on new customers is going with all the efficiency compares to what you guys are doing in the past.

Yeah, I'll just start with I guess.

Yes. Thanks Ross. This is Elizabeth I can start on that one and Dan should feel free to add on I think we're really pleased with what we're seeing so far I think overall, if you look back on Q4, one of the things that got US very excited is just the strength across our ecosystem and having consumers participating in both of these channels as demonstrated by our revenue per active client.

Crossing that 500 dollar Mark and really speaks to the continued enhancement of what we're doing with freestyle.

In terms of marketing, we really are just turning on our brand campaign, you'll see it go live actually this week and that's really beginning to tell the story on really the top of the funnel awareness building for the business, which is quite exciting and then as we've launched we began experimenting with things that Dan and I mentioned on the call like product listing ads and being able to.

To expose consumers into a new way to start entering stitch fix for the first time, so no data to share yet, but I think early momentum, we're really pleased with and.

In addition, I think just that the new brands the new offerings that we're unveiling through the experience I think gets us really excited because we know we are seeing traction in some of these less penetrated product categories with fixes already through our current base and so the the coming quarters, we will really be the focus of building this brand awareness.

Got it and then.

The other one I wanted to ask is on.

The comment about the lowest churn in company history.

And then 2021.

So just any additional color there is a lot going on in the business in terms of new products expanded selection and then like improving keep rates.

It's driving the higher retention versus.

Previous periods of all these different things that you guys are doing.

Yeah, I can share a few thoughts on that I think one of the things. We're really excited about is the scaling up of fixed preview, which we believe is one driver of that increase performance. Both on success rate, but overall, we know it's impacting client happiness, which tends to impact ultimately of course things like retention and churn and so we've been.

Really happy to see the continued gains both on keep rate.

As well as on retention and then of course, just having more ways to engage with US. We know that there are use cases that we were unable to satisfy with consumers in a fixed only model. So we would anticipate just our ability to serve more user needs more occasions being a bigger part of our part of our consumers' lives is also kind of increasing loyalty dry.

<unk> higher reactivation, all those good things budgets and enhancing the value out of our offering.

Great Congrats on the results.

Thank you.

Thank you we'll take our next question from Edward <unk> from Keybanc capital markets.

Hey, good afternoon, guys. Thanks for taking the questions I guess first I think you mentioned one of the previous calls that at that moment, where you are within client direct buy now call increased hours kind of gross margin neutral as we think about your medium term view or at least what's assumed in the guidance kind of what is the margin implication from freestyle and then just as a bigger picture question.

Was the best I.

Cat had made a northstar kind of 20% growth and felt like that was a good kind of exciting growth rate, but when you scratch. Your organization you are pretty close to it in your own 15, what do you think the longer term growth rate of your business should be thanks.

Yeah. Thanks for the questions Ed I can how could I start on the longer term view and then I'll hand, it hand, it over to Dan to talk about the gross margin question related to freestyle and you know we had a very strong gross margin this quarter that we can share more on as well.

Think about long term growth vision, I think well have more to share in the quarters to come what we do know is that by opening up freestyle. We are opening up so much potential on consumer expansion.

Use case of shopping occasions.

Category growth potential in many categories that we're very underpenetrated in today all of those present opportunities for frankly accelerated growth. This fiscal 'twenty two is going to be very heavily focused on building awareness building that foundation of more brands more categories. Some.

Some of the new marketing channels that we talked about and so opening up and now having built the foundation of a $2 billion business, we actually see so much potential, especially with a category that is shifting so meaningfully from a consumer standpoint.

So no updates on the long term guide, but we absolutely think what we're doing today sets us up to achieve a very different scale because of the expansion of our platform.

Let me hand, it to Dan to talk about gross margin.

Yes. Thanks Elisabeth two question on gross margins that we did talk about this in prior calls that on a gross margin basis.

The economics of freestyle versus fix are fairly comparable what we love about freestyle is the average order value is actually high its a very strong average order value and therefore, the economics on the gross margin side are comparable and we've also said and I will continue to iterate reiterate that the.

Profit on freestyle.

Is higher than fixed business, which is also something we're very excited about we love the economics of it it is materially higher than fix.

And a lot of that is due to just efficiencies on the variable side.

We have a lot of room to improve on that such as reducing our split shipments and other operational efficiencies that we feel we can get from freestyle. So the economics are very very very favorable for us on freestyle.

Thank you.

Thank you we'll take our next question from Mark Mahaney with ISI.

Okay. Thanks want to ask about gross customer adds and if you had if you had the record low churn given the number of net adds you had that would suggest that gross adds were very low maybe record low gross adds could you address that.

Yeah. Thanks, Mark I can start on that and Dan feel free to add on.

Yeah, maybe I'll share a few things.

I think we look a little bit at the back half of the year, just because Q4 tends to be a seasonal trough for us. So on that for second half basis. We added nearly 3000.300000 net adds which we feel very good about I would say a couple of things impacted this quarter in particular.

It being a Q4 that tends to be a lower period of ads just that summer period for consumers with both our model, but just in retail in general.

Dan mentioned one of them on the call, which is just our investment in marketing spend we definitely.

Spent less than we were initially anticipating in anticipation for really being able to start to build the brand build the offering of freestyle this quarter and beyond.

The second thing that we did see some headwind with which I think everybody experience, which was the transition to iOS 14.

We are still more heavily mobile web versus app based so it didn't affect us that materially, but I think the adapting to being able to optimize our campaigns understand users, which we feel very good about going forward, but that was on <unk>.

We experienced a bit in Q4 as well, but overall to some extent, we're where we thought we would be in terms of delaying some of that marketing spend and just that tends to be a quarter, where we have fewer net adds than in periods like Q1 and Q3.

Okay, and then I want to follow up on Ed's question about.

No.

Do you believe the potential for recovering to that 20% plus growth rate that the company really did consistently I don't know 10 or 11 quarters prior to Covid.

A reasonable scale to that was that was pretty impressive and your guidance here as you know for kind of mid teens, maybe high teens growth, but you talk about acceleration. So what would be the potential biggest drivers of acceleration and can I throw out a few as it.

Is it a is it categories like kids is it geographies like the U K.

Any others that you would think about there or is it just simply the successful rollout of <unk>.

Freestyle. So if there is material acceleration in Europe are able to recover to above 20% revenue growth and we look back on it what would what do you think is most likely to have caused that.

Yeah, I think it's really a combination of things that we believe can translate into that type of growth first is.

If you think about it from a share of wallet standpoint, which is one way of looking at it there are purchase occasions as well as categories onto the mentioning of tops bottoms is a big focus relative to many other very large product categories that consumers are buying them too. So that ended up itself is obviously, a big opportunity for both new customers and existing customers.

Then if we look at just broadly consumers. We know there are a lot of consumers that would prefer to start with personalized shopping and in general or maybe a bit more of a lean forward consumer segment that have an appetite for fashion, they really enjoy being engaged in the experience and we've seen that actually within our our core segmentation of our user base.

Now with that.

That comprises double digit percentage of our consumer base today, but we know we're under indexed relative to that consumer spending capacity and just the overall size of those segments and so we believe with this expansion into an experience that really has fluidity across us doing more of the work for you providing guidance and discovery together with consumer.

Having more agency being able to have that one click shopping experience. We believe really just expands our addressable market and penetrating consumer groups that were less penetrated in today and then of course to your point moving into additional geographies over time, you know we shared some of those growth rates are more early stage businesses that you can just.

The the kind of ramps that we're on as we enter.

Combination of new user experiences new categories, new geographies and all of those things together, we think contribute to that accelerated picture going forward.

Okay. Thank you very much I will just add to that if I could just add to that real quick too I think it's important to know that.

Well freestyle awareness within our fixed customer base is relatively high outside of our fixed customer base, it's really low and as we said that we're going to invest.

In building the awareness of freestyle throughout this year, we had a heavy investment in marketing to do that and we feel that that will also bring the accelerated growth in the back half as.

As we build that awareness and as we as I said earlier the economics of freestyle are very favorable for us. So I'll just reiterate what Elizabeth said in the categories and the geographic but first and foremost we simply got to get the word out there we could not obviously markets freestyle two new to stitch fix customers until we launched it.

And built the Onboarding experience that is now out there. So we're very excited about.

Building the awareness of the freestyle business throughout this fiscal year.

Okay. Thank you Dan.

Thank you, we'll now take our next question from Erinn Murphy from Piper Sandler.

Great. Thanks, Good afternoon, a couple of questions for me Firstly I was hoping you could talk a little bit more about the men's business. It seems that you guys have been driving a little bit more promotional activity with the 25 off if you refer a male customer can you talk about how successful that's been and what kind of youre looking at to maybe improve the that error.

Any of the business and then <unk>.

Second question around supply chain could you just talk about what you're seeing in the supply chain what percent of your private label product is sourced from Vietnam or other regions in South East Asia that have been impacted.

Impacted by factory shut ins.

And then how are you compensating on freight be at airfreight or are you seeing kind of logistical challenges with ocean at the point at this point. Thank you.

Thanks, Darrin I can start on the mens question, then I can hand, it to Dan on the supply chain topic.

Yeah, our men's business one source of growth in that business has always been and similar for women's and kids client referrals and one thing that we know has been effective is bringing in clients. You know both nudist checks prospects, but also adding family member accounts, both in kids and mens has been very effective for us and so we have to.

<unk> are doing things like <unk>.

Taking our user base and offering.

Credit referral to engage the client base typically a 25 dollar for all those tend to be very high ROI and so as we've been expanding our inventory are offering those are that is an area that tends to be very ROI positive for us and especially as we know we've improved and added some great brands to our assortment, we have been activating that as a channel.

It's actually something we've had.

<unk> on a historic basis, you may have seen some of those E mails with summer, especially in gearing up for the fall time period, but that tends to be a very effective vehicle and as part of our.

Historic marketing, Mexico will be a part of that going forward.

I can hand, it to Dan for the supply chain topic.

Yes to your question on supply chain, we are seeing some impact, but theyre not material for us yet we do not source.

Any material amount out of Vietnam, a matter of fact, it's it's in the single digits.

Of our sourcing so thats helpful. I know Vietnam has had some impacts due to COVID-19.

But we are seeing some small impacts on supply chain not better good impact to our fall or winter, we feel very good about our selection entering fall and winter. So we're covered on each one.

We're watching very closely for H, two and the reason by the way as we bought of course, we bought that product for fall and winter several months ago.

We're not typically using airfreight, we don't we're not in a position where we need to do that so that's a positive for us as well, but Dan to finish the thought on that is H. One recovered we're watching HQ very closely we're very proactive.

Managing what we see on the supply chain side, and so far we don't see an impact for us just given how we bought it for each one and.

We're well ahead of this on <unk> and watching it very closely.

Got it and then just a follow up there the inventory at the end of the year was up 70% is that just kind of covering what you think the demand will be in the first half and just trying to get ahead of maybe any potential challenges in the supply chain or is there anything else that is driving that inventory up so substantially.

Yes. It is.

Great question, a quarter on quarter were flat and Youre right year on year of course, a year ago inventory was in a precarious position for is simply due to COVID-19. So that's probably not the right comparable we do we are.

We did buy in advance of supply chain to some extent. We are also increasing selection as Elizabeth said and we're going to continue to increase that selection.

Going forward and looking for the rest of the year.

We probably won't be back to historical turns that we normally would see and thats again, because we're very focused on increasing the selection for freestyle that being said I think by the time in the back half of the year, we're targeting more of that four to five.

Im turns basis, but again, it's very dependent on the selection we bring in for our freestyle experience, which is our number one priority.

Thank you so much.

Thank you, we'll now move on to our next question from Cory Carpenter with Jpmorgan.

Hey, Thanks for the question.

On gross margins, how do you think about the runway from here just giving you exceeded the high end of what has typically been your long term guide for the first time this quarter and then for Dan maybe specifically on the ones you guide the midpoint implies a slight step down in revenue sequentially. Despite ramping marketing spend so I was hoping you could talk about the trends you are.

Seeing so far this quarter.

And what could be impacting that.

Great. Thanks for the question Cory I can start on both of those and then I'll hand, it over to Dan on the gross margin side, we're very pleased with what we've seen I think there are some.

Real positive drivers there in terms of our product margin both.

Favorable mix shifts, but also some of the programs we have with our vendors that are providing really nice tailwind and we do think there is good sustainability there I can let dan speak more to that.

And then in terms of the marketing relative to growth guide that we are investing more in dollars in marketing. We're really in this period as Dan mentioned earlier of really building brand awareness of what stitch fix is becoming you know people who have awareness of districts have known us for a very specific offering and we've now really open the door to Tony <unk>.

Oh system this ability to shop in a personalized way and we know that's going to take.

Some time for people to build awareness like the awareness of Fisher freestyle is obviously high in our current user base, but very very low for the market as a whole and some of the spend we're making we anticipate will pay off in future quarters versus the current quarter.

And so that's part of what Youre seeing there probably in terms of just the anticipation to build that we're investing in terms of building that awareness.

Dan do you want to add on the gross margin or either of those.

Yes, just again.

Reiterate we feel very good about gross margins going forward our product margins remain.

At record levels for us and.

We're very focused on transportation.

As being very efficient on transportation and making sure we're balancing the right client experience with the right operational efficiency. So we feel good about gross margins as you know we've always been a full price.

Full price business with fixed opening up shop does lead to the possibility for clearance. Although that's nothing that we're focused on in any big way that could eventually drive some impact on gross margin, but thats simply getting rid of them.

Sure.

Uh huh.

Clinton's based inventory in the most economically efficient way possible so more to come on that going forward, but gross margins are we think that they will maintain this level going forward.

To your question on guidance I'll, just reiterate what Elizabeth said as we go forward and look at each one.

We're very focused on building the awareness for.

For freestyle and increasing the selection for freestyle and launching new product features for freestyle and we feel that that will take some time that will take a little bit of time to build that awareness to get the actives growing. So we feel we felt our guidance appropriately reflects that in the first half of the year and as I mentioned in the call in the back half of the year, we're simply.

Comping some very aggressive revenue achievement that we received in each two of FY 'twenty one.

Thank you Bob.

We'll hear next from Mark <unk> with Baird.

Good afternoon. Thanks for taking the question wanted to dig into the branded shop initiative, a little bit more I guess first how do you see that scaling over the next year or two and how should we be thinking about the investment behind that from a marketing perspective as you pursue some new channels.

Would you be at the higher end or above the historical kind of 9% to 11% target.

From a marketing perspective.

And then Relatedly, Dan as you mentioned.

<unk> has historically been our full price channel for brands I guess do you see.

Any change to that I guess to the promotion of the offering is the branch ups rollout and consumers have the ability to more effectively compare pricing across other retailers. Thank you.

Thanks, Mark I can start on that I appreciate the questions.

So on the branded shop can stitch fix is always carried several hundred if not low thousand number of brands. Both a combination of national brands, our own exclusive brands unique to stitch fix offerings that we partner on with third parties and that that really isn't changing I think what's happening is really more of an expansion to deepening.

Our portfolio of some of those brands that we already have extending into some new brands that we know some of the newer clients that we're bringing on to our platform will appreciate and it's also just a really natural entry point for many consumers to typically have a few brands that they tend to really love and is a great way to experience stitch fix for the first time might be something they are searching for.

Or something that they know fits them, while and that creates just a really amazing jumping off things jumping off point for us to show them outfits that go with that have our style is to assist them with other looks that they might like with it helps us identify them goods that are likely to fit them incredibly well and match their personal style and so from a market.

Investment standpoint, it's actually represents some efficiencies for us because it's part of what will allow us to participate in some of product listing ads and search or allow us to have Influencer partners talk about specific products on our platform, whether it's our own brands like the elevate program that we're expanding into our or our own exclusive brands.

As well as well known brands.

Dan can touch more on the percentage.

Expectation of how that Pops to historic we are making investments in brand at a more global basis that I do think we'll see some increased investment, but we always are very focused on.

Real efficiencies and at that customer acquisition level and.

And then on the full price spread.

Our differentiation is really around helping clients discover things that they otherwise would not have on their own and so its that its discovery. Its convenience that has historically characterized the real value proposition, especially in that eye towards personalization versus promotions and so I would expect that set of characteristics to absolute.

We continue I would view a lot of this brand expansion as making sure we're matching consumers with what they love and some of those brands may be brands that they've never discovered before.

And of course, ensuring we've always put a lot of focus enterprise, comparing and making sure that our price points are competitive in the marketplace.

I'll just add to the question on marketing.

So we're very focused on acquiring healthy customers.

And we do that in our customer acquisition strategy and of course, whereas we mentioned we're investing in many new channels of marketing inclusive of SCM and brand based marketing.

And we're also going to invest in Influencer marketing, but in total we expect that marketing to still be in that 9% to 11% of revenue going forward, It's just making sure that we're.

Very efficient in the channels that we do have and so that's something that we look at every week to make sure our marketing investments are efficient and we're bringing in the right. The right clients for us and so going forward you should expect that to be more in line with historical of the 911% on revenue.

Thank you.

Thank you, we'll now take our next question from Dana Telsey with Telsey Advisory group.

Good afternoon, everyone and so nice to see the progress as you think of the average order value in excess of $500. How much of that would you say was freestyle how much of it came from fixed and was there any different categories that added to that and then can you expand any further on the improvement in the U K and what Youre seeing there.

Sure. Thank you.

Thank you Dana great questions I can start on the <unk> front, yes, I think we're excited both for the impact we're seeing from fixed preview.

Our clients being able to really find what they love their and having really that two step process. We know has had a positive impact.

And then secondarily, we do our cohorts continue to improve in the penetration, especially in early lifecycle and the adoption of freestyle. So I would say, it's definitely a combination of those.

Dan can add more if there are other drivers who want to touch on.

And then in the U K I think just our value proposition is absolutely resonating we've seen real strength in our marketing we've seen real strength in the unit economics, continuing to improve that as the market will be first incubated.

Preview and scaled even earlier in its life cycle to get to the full market and that's had a positive benefit and then we just continue to get to know that market better and better our brand awareness is building our understanding of that UK consumer base continues to get sharpened in terms of our merchandise and assortment, which over the first year was.

The big learning opportunity for us.

And so we're really really pleased with what we're seeing.

The continued momentum there.

Yeah, and I'll just add the question on our pack I think I mentioned earlier that the <unk> that we see are comparable between freestyle and fix and I think Elizabeth mentioned that roughly 30% over 30% of our of our womens fixed customers do engage.

And freestyle and while that doesn't answer your question directly. It does give you an indication of the meaningful driver that freestyle is.

Our revenue per active customers.

We will give more data points on that as we get more freestyle.

New clients and we look at what their trends are it's obviously very early in our journey for new to stitch fix customers for freestyle.

Thank you.

Thank you, we'll now take our next question from Youssef Squali from <unk> Securities.

Great. Thank you for taking the questions two if I may 1st.

Maybe Elizabeth where are you guys in your inventory inventory imagination between once the consignment drop ship et cetera.

Talked about making some strides there trying to understand how quickly you guys are able to layer that in and how much of your 2022 growth expectations, our bacon and maybe.

A mix of different inventory.

And then.

I don't know if you addressed this question, Dan, but maybe could you just speak to the linearity of demand.

And last quarter in Europe.

<unk> seen so far.

The first I guess three weeks of the quarter.

Great. Thank you Youssef.

I can start on the inventory one and then pass it pass it over to Dan on the demand trends. Yeah. We continue to be very optimistic and are investing in our new inventory model, both confinement like inventory as well as drop ship and we've had multiple beta programs across both of those and.

We're really in build mode of the infrastructure the vendor tools the ability to automate.

The capabilities to be able to bring that fully to life and so that would be a big focus of FY 'twenty two in terms of like the materiality to the business and really impacting working capital and that expansion, we would expect to see those more in FY 'twenty three as we start to truly scale them, but we're absolutely in build mode and team and very closely.

With our vendor community and vendor castle and have been really pleased with the success that we've seen in these early test basis, so more to come on that and we are definitely very focused on the build out.

We'll see more of the impact in the next fiscal year.

I'll pass it over to Dan for your second question.

Actually I think Dan might have actually had the phone drop I just saw attacks from him. So let me take eastern Europe.

Your second question.

You were asking about the linearity just to clarify the question or are you just asking about quarter on quarter growth or could you just clarify exactly what you're asking there yeah of course, no just trying to understand how the.

Demand progressed throughout the quarter.

Because we've seen some some data points I would suggest that the quarter the demand accelerated coming out of the quarter and remains at a pretty high level. Just wanted to kind of see how you guys are seeing it from the from the inside.

Got it okay.

Yeah, I think Q4 tenths, I guess, you're asking a little bit insight until like what we're seeing now which you know we're not reporting out on Q1, but I will say just historically that that may time period tends to be a real strength in our business that as we get further into the summer months, we kind of internally think of it and I think a lot of folks in our category is a bit of a former slump and we.

Consumers. This year, we're back to vacationing again us being out more than they were a year ago, but in general all good things like the revenue per active et cetera, but that tends to be a quieter period ended the fall season tends to be a period of consumers really shopping again with change in season back to school back to work and so I think consistent with that you know this is.

<unk> kind of an uptick time period that we see in our business.

Dan is back sedan feel free to add on if you have anything on top of that.

Yes, sorry about that my phone dropped no I think our guidance does take into account what we're seeing on trends.

Yeah.

That's all we have for now.

Got it okay. That's helpful. Thank you both.

Yeah.

Thank you we'll take our next question from Lauren Schenker with Morgan Stanley.

Hi, This is Nathan further on for Lauren.

Can you just talk through a bit the drivers of the higher product margin within the quarter and any potential impact from exclusive brands et cetera.

Are you able to potentially size or talk about how we should think about.

Impact of marketing shifting from <unk> into <unk> with the freestyle launch. Thank you.

Great. Thanks Nathan.

Dan do you want to take both of these I can add on if needed.

Yeah on the profit margin side.

We do we are seeing improved product margins for a couple of different reasons. We are seeing a big shift we do continue to have very strong private label.

Especially within our fixed business enter freestyle business and that does help product margins I think going forward.

As we bring on National brands, we'll watch that closely but we also have a lot of a lot of opportunity in project and product margins to keep them, where they are at so we feel very good about the product margins.

In terms of both the mix and.

And what we see from from our clients are engaging with our private label.

And can.

Can you repeat the second the second part of the question. Please.

Yes.

Just talk about how to think about the sizing of marketing moving from <unk> into <unk> with the freestyle launch.

Yes.

Ill basically say, what I said earlier is getting back to that 9% to 11%.

Is where we see.

The entire fiscal year 'twenty, two and that includes Q1, which again is a step up from Q4, which we very intentionally delayed some of our marketing spend until we launched freestyle.

Okay, great. Thank you.

Thank you and we'll take our last question from Roxanne Meyer from <unk> partners. Please go ahead.

Great. Thanks for taking my question.

I'm, just wondering how you're thinking about growth of the fixed business as your freestyle business ramps up obviously youre seeing a nice trend in the a b.

And in the past you've talked about low cannibalization, but I'm just curious to get any updated thoughts.

Yeah. Thank you Roxanne great question.

I think overall, we're just focused on our clients being able to enter the stitch fix ecosystem in what works best for them and obviously over the course of last year, we've seen real strength in our fixed there's definitely know that it is incredibly appealing to many consumers and so you know as youll see in our new onboarding experience or opportunities to engage directly in fixed.

To engage directly and freestyle and personalized shopping, which we really like the ability to cater and actually help clients find what's best for them and so I think what we would anticipate over time is you know many new clients coming in through this new freestyle experienced with them finding their way to certain use cases and occasions that a fix has really.

Great experience to add onto and vice versa, continuing to see clients also enter through Texas I would imagine a few years down the road, we will probably just be talking more about stitch fix as a whole and more fluidity between stylus lab support stylus on experiences that we will expand over time, including things that would be more deeply integrated into.

The shopping experience of freestyle as well.

In terms of like I guess, the specific cannibalization question.

<unk> got to offer one is just we think that revenue per active client that we shared and the knowledge. We have of like the newer cohorts of clients is the real strength in instrumentality of these two offerings really being quite complementary we do know that in this new phase of Onboarding, where and we have a lot to learn of helping consumers find the right fit over the cut.

And quarters, so that they can engage in the full fishbytes ecosystem, so more to come but I think we see solid growth in both sides of the business in the coming year.

Great. Thanks for that color and then just as a follow up I'm. Just wondering if you could talk about the inventory strategy for you know you're fixing and freestyle businesses are those going to be completely separately managed and how should we think about the mix of private label versus brands for each of those businesses.

Yeah. Thanks, Roxanne, that's a great question.

You know we love our exclusive brands, we know that they are incredibly high performing and clients love and fit the data that we apply to designing those products and we actually share the same data with our vendors. So that they can build new products. For example, we helped 30 of our vendors build new plus size product given the unique guests a battery in that product category.

As we think about fixes and free felt we know there are certain product segments that tend to do better within free trial, just because and also actually fixed preview where clients tend to be higher intent. They bought less on impulse like outerwear accessories footwear and so there are product categories that we will probably be intention.

Thinking about how those are going to perform in each channel, but there actually is a benefit where we're sharing the pool of inventory across and we can get the benefit of seeing how these products perform in both and having the benefit of some of these you know probably over time higher fashion higher trend that may be more higher sell through and freestyle, but being able to now.

And some of those goods in a bigger way in Texas as well as a result of having these two channels.

Great. Thanks, so much for all the color.

Thank you and that does conclude today's question and answer session I'd like to turn the conference back over to Elizabeth for any additional or closing remarks.

Well. Thank you all for joining US today, we look forward to seeing you in the coming months.

Thank you that does conclude today's conference. Thank you all for your participation and you may now disconnect.

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Please standby we're about to begin.

Good day, everyone welcome to the Stitch fix earnings conference call.

Today's conference is being recorded at this time I'd like to turn the conference over to Reelect or Mandela interim head of IR. He's go ahead.

Thank you for joining us on the call today to discuss the results for our fourth quarter and full fiscal year 2021, joining me on today's call are Elizabeth Spaulding, CEO stitch fix and then get our CFO.

Posted complete fourth quarter and full fiscal year 2021 financial results in a press release on the IR section of our web site investors.

Dot com a link to the webcast of today's conference call can also be found on our site.

I would like to remind everyone that we will be making forward looking statements on this call, which involve risks and uncertainty.

Results could differ materially from those contemplated by our forward looking statements.

Reported results should not be considered as an indication of future performance.

Please review our filings with the SEC for a discussion of the factors that could cause our results to differ.

Note that the forward looking statements on this call are based on information available to us as of today's date.

Same any obligation to update any forward looking statement, except as required by law.

During this call we will discuss certain non-GAAP financial measures reconciliation to the most directly comparable GAAP financial measures are provided in the press release on our IR website.

These non-GAAP measures are not intended to be a substitute for our GAAP results.

Finally, this call in its entirety is being webcast on our IR website and a replay of this call will be available on the website shortly.

I'd now like to turn the call over to Elizabeth.

Thanks will and thank you all for joining us after the market closed today, we issued a press release with details on our quarterly performance and outlook.

We're excited to share both the highlights of our full year business results as well as our vision looking forward.

As I step into the CEO role I'm incredibly honored to be leading this team.

Have an exceptional organization.

Leaders and innovators, who share my passion for stitch fix and the bright future ahead.

The last 10 years with stitch fix is journeys second stage for our future with our highly differentiated approach to marrying data science and creative human judgment.

This differentiation has enabled us to build a deep understanding of the apparel vertical and the engine to power our expansion.

We see our future propelled by the incredible strength and it is only the beginning.

We are uniquely positioned to deliver the most personalized shopping experience for both our current and future clients.

Today, we will focus on three main chapters.

First we'll share our fourth quarter results, where we saw strong demand trends and positive.

Momentum in our fundamentals.

Second we will discuss the closing out a successful fiscal year 2021.

We embarked on a meaningful transformation in our business on a number of fronts <unk>.

Including the expansion of shop to our current client base.

Launch and scale of fixed preview and foundational investments in our systems and people.

And lastly, we'll look ahead to our future discussing our overarching vision as well as planned in fiscal year 2022 ahead, as we expand our offering to serve more clients across shopping occasions, and a uniquely personalized way.

For our first topic of our Q4 FY 'twenty one resolved.

We delivered strength that our top line business through both our fixed and direct buy offerings.

Overall in Q4, we delivered $571 million and net revenue representing 29% growth over Q4 of 2020.

Along with $55 million and adjusted EBITDA.

We ended the quarter with $169.0 million active clients and closed out the second half of the year with nearly 300000 total net adds.

Dan will provide some additional context on both adjusted EBITDA and active client trends later on.

Now shifting to our second topic fiscal 'twenty, one and review.

As we look back on the last 18 months. This time period ushered in a new era for apparel and footwear retail shifting our category from roughly 25% of sales online to nearly 40% online with a meaningful and we believe permanent shift in consumer behavior.

As a result of this shift and our proactive focus on innovation. This period has been a galvanizing moment for stitch fix.

As consumers adapted we intentionally and successfully captured an outsized piece of the disrupted apparel market.

Leveraging new product innovations.

<unk>, our assortment and using our personalized experience to migrate more clients into our ecosystem.

Most notable in our evolution is our expansion into personalized direct purchases for our clients.

Formerly known as shop, and what we have often referred to as direct buy we have now branded this channel stitch fix freestyle.

Going forward, we'll refer to freestyle when referencing our direct buy experience.

It's a change that reflects the philosophy driving this product climb.

Clients have agency flexibility and choice, while also experiencing a highly personalized shopping experience.

We have achieved numerous milestones in building this narrow to one product at freestyle over the last year.

In fiscal year 'twenty, one we've grown top line net revenue for freestyle more than 100%, reaching almost 30% penetration of our women's client base.

We also saw success in product categories in which we see significant long term opportunity.

Footwear for example comprised a bigger percentage of Q4 revenue for freestyle than for fixed and both womens and mens.

And overall early indications are that freestyle is meaningfully accretive to revenue per active client metrics, which reached an all time high in Q4.

In fact, our revenue per active client closed the year over $500 for the first time ever.

And recently, we've opened up free to new to stitch fix customers unlocking the channel to them higher marketplace and marking the beginning of a tremendous opportunity for our business.

Retail was only part of the story.

We simultaneously innovated in our fixed offering and doubled our UK business.

We use insights from our signed up prospects as well as existing clients.

To identify the opportunity for greater client engagement and the fixed experience.

We recently rolled out fixed preview two 100% of our women's and men's clients across both the U S and U K market.

Now all clients can preview 10 personalized items before their fixed is completed and shipped.

The impact is clear with conversion and average order value both growing.

Keep rates have achieved all time highs, while client sentiment and retention have continuously increased.

We also evolved our assortment and breadth and depth supporting our clients through their shifting apparel needs.

In a year, where much of the world embraced a work from home model, we rapidly expanded women's active at leisure and lounge to meet the demand growing revenue in these product categories more than four times in Q4 over the prior year and establishing this part of our assortment as a true engine of growth that we expect.

Power going forward.

Consumer starting to get back to travel socializing and leisure activities, we saw acceleration in going out and dressier items in women's as well with 51% growth in these categories in the fourth quarter as compared to the fourth quarter 2020.

These accomplishments have generated success across our business.

Our plus offering delivered 51% growth in net revenue in fiscal year 'twenty, one demonstrating the strong potential in serving these clients.

We also see strong runway ahead, given that our plus penetration today represents roughly half the penetration of the overall women's market.

On the international front, the UK achieved triple digit revenue growth in fiscal year 'twenty, one with a rapidly growing client base and significantly improved unit economics that has validated our international opportunity and have us excited for what's to come.

Kids has similarly been on a rapid growth clip growing revenue more than 75% in fiscal year 'twenty one.

And men's continues to grow though more slowly as we reshaped our assortment strategy to onboard new brands and are excited about the availability of freestyle for all our mail clients.

I would also like to give some additional context on recent changes we implemented around how we schedule a stylist labor hours.

As we continue to drive innovation across our experience leveraging both our data driven model and unique stylus engagement will remain critical to driving the best client experience.

To accommodate our customer experience evolution.

Made some recent changes to our scheduling practices with our styling field to better align with when and how we see clients wanting to connect with Tyler.

We know this approach wouldn't work for all of our stylist. So we offered an opt out accommodation with this change and we were well prepared for the expected opt out.

Overall, we are confident in our path to the future for an exceptional client experience as we continue to expand our styling services as well as freestyle.

Now our third topic looking ahead to our future.

Our vision is to become the global destination for personalized shopping styling and inspiration supporting clients across all categories and occasions.

Our continued success serving clients in the U S as well as the U K also gives us conviction in our opportunity to build this ecosystem on a global scale.

To achieve this vision of personalized shopping we will invest in our biggest sources of differentiation.

Algorithms powered by consumer preferences understanding of the drivers of fit.

Relationships with stylus and vendor insights.

We intend to accelerate our penetration in categories and with consumers, where we have meaningful white space for growth.

Today, we are largely U S based business with a heavy focus on tops and bottoms, representing over 75% of our sales only 30% of our relevant apparel categories.

We are currently focused at affordable and mid tier price point, so all through a strong assortment of exclusive and national brand.

We are now expanding into a broader range of brands and price points as well as investing further in product categories, where we are seeing promising success trophies, presale and fixed preview, namely footwear dresses outerwear accessories and sleep and loungewear.

Product categories represent $90 billion in the U S women's market alone and we have already started to see higher growth rates in categories like dresses through our freestyle experience relative to fix it.

To enable this category expansion, we will broaden our partnerships with notable brands as well as create empower a set of new exclusive brands.

Our elevate program focused on entrepreneurs of color and their brands is also an example of how we plan to help showcase and grow emerging brands on our platform.

Our strategies are innovating through freestyle expanding into new categories and price tiers and eventual geographic growth into new markets gives us a significant runway for growth ahead.

Specifically in fiscal year, 'twenty, two we will enhance and broaden our freestyle offering in numerous ways.

For example, we plan to test and incorporate distinctive client facing features such as enhanced output capabilities.

<unk> search and stylus led to further support our algorithmic regenerated recommendation.

<unk> stylus supporting clients to take what is in their freestyle basket to create effects.

And with our assortment, we plan to scale to 200, plus available branded shop over the course of the year across women's and men's to.

To increase consumer awareness of our evolution, we will invest in an updated brand story as.

Finally, we will continue to invest significantly in our infrastructure to enable new inventory models.

Both network capacity as well as the automation required to deliver on various modes with our vendors such as consignment inventory and drop ship. These.

These investments will allow us over time to maximize our working capital efficiency.

Coming year ahead will be an exciting time for <unk>.

With that I'd like to turn it over to Dan.

Thanks, Elizabeth and Hello to everyone joining us on today's call.

In Q4, we generated net revenue of $571 million, representing 29% year over year growth.

Saw overall strength in both our fixed and presale channels with strong demand in our women's fixed offering an outsize growth in kids as well as in the U K.

Full year net revenue was $3.0 billion, representing 23% year over year growth.

We ended the year with active clients of $169.0 million, an increase of 58000 clients quarter over quarter, and 643000 clients or 18% year over year.

Q4, net adds were impacted by our typical summer season, where we normally see a slowdown in new active clients.

We also pulled back on advertising spend in anticipation of the launch of freestyle to nudist stitch fix clients in early August.