Q2 2024 Stitch Fix Inc Earnings Call
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Operator: Good afternoon, and thank you for standing by. Welcome to the second quarter fiscal year 2024 Stitch Fix earnings call. At this time, all participants are in a listen-only mode.
Good afternoon, and thank you for standing by walking through the second quarter fiscal year 'twenty 'twenty four stitch fix earnings call at.
Speaker Change: At this time all participants are in a listen only mode. After the speaker's presentation, you will be invited to participate in a question and answer session.
Operator: After the speaker's presentation, you will be invited to participate in a question and answer session. To ask a question during the session, please press star 11 on your telephone. You will then hear an automated message indicating that your hand is raised.
Speaker Change: To ask a question during this session. Please press star one on your telephone you went in her automated message, indicating your hand is right.
Operator: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Hayden Blair. Sir, you may begin.
Speaker Change: To withdraw your question. Please press star one again.
Speaker Change: Please be advised that today's conference is being recorded.
Speaker Change: I would now like to hand, the conference Hayden Blair.
Hayden Blair: May begin.
Hayden Blair: Good afternoon, and thank you for joining us today for the Stitch Fix second quarter fiscal 2024 earnings call. With me on the call are Matt Baer, Chief Executive Officer, and David Aufderhaar, Chief Financial Officer. We have posted complete second quarter 2024 financial results and a press release on the quarterly results section of our website, investors.stitchfix.com.
Hayden Blair: Good afternoon.
Hayden Blair: Thank you for joining us today for the stitch fix second quarter fiscal 2024 earnings call.
Hayden Blair: With me on the call are Matt There, Chief Executive Officer, and David <unk>, Chief Financial Officer.
Speaker Change: We have posted complete second quarter 2024 financial results in a press release on the quarterly results section of our web site investors that stitch fix dot com.
Hayden Blair: A link to the webcast of today's conference call can also be found on our site. We would like to remind everyone that we will be making forward-looking statements on this call, which involve risks and uncertainty. 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.
Speaker Change: The webcast of today's conference call can also be found on our site.
Speaker Change: We would like to remind everyone that we will be making forward looking statements on this call, which involve risks and uncertainties actual.
Speaker Change: Actual results could differ materially from those contemplated by our forward looking statements.
Speaker Change: Reported results should not be considered as an indication of future performance.
Hayden Blair: Please review our filings with the SEC for a discussion of the factors that could cause results to differ, in particular, our press release issued and filed today, as well as the risk factors sections of our annual report on Form 10-K for fiscal 2023, previously filed with the SEC, and the quarterly report on Form 10-Q for our second quarter 2024, which we expect to be filed later this week. Also note that the forward-looking statements on this call are based on information available to us as of today's date. We disclaim any obligation to update any forward-looking statements, except as required by law.
Speaker Change: Please review our filings with the SEC for a discussion of the factors that could cause results to differ in particular, our press release issued and filed today as well as the risk factors section of our annual report on Form 10-K, perpetual 2023 previously filed with the SEC and the quarterly report on Form 10-Q.
Speaker Change: Our second quarter 2024, which we expect to be filed later this week.
Speaker Change: Also note that the forward looking statements on this call are based on information available to us as of today's date reading.
Speaker Change: We disclaim any obligation to update any forward looking statements, except as required by law.
Hayden Blair: 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 investor relations website. These non-GAAP measures are not intended to be a substitute for our GAAP results.
During this call we will discuss certain non-GAAP financial measures.
Speaker Change: Reconciliations to the most directly comparable GAAP financial measures are provided in the press release on our Investor Relations website.
Speaker Change: non-GAAP measures are not intended to be a substitute for our GAAP results.
Hayden Blair: In the first quarter of fiscal 2024, we began to report our UK business as a discontinued operation. Accordingly, all metrics discussed on today's call represent our continuing operation. Finally, this call in its entirety is being webcast on our Investor Relations website, and a replay of this call will be available on the website shortly. Now, let me turn the call over to our CEO, Matt Baer. Thanks, Hayden, and good afternoon.
Speaker Change: In the first quarter of fiscal 2024, we began to report our UK business as a discontinued operation Accordingly, all metrics discussed on today's call represent our continuing operations.
Speaker Change: Finally, this call in its entirety is being webcast on our Investor Relations website and a replay of this call will be available on the website shortly.
Speaker Change: And now let me turn the call over to our CEO, Matt Bear.
Matt Baer: Thanks, Steven and good afternoon.
Matt Baer: As we have said for the past few quarters, we are committed to managing our business with financial discipline to drive profitability in the near term and growth over time. We delivered second quarter results in line with our outlook on both revenue and adjusted EBITDA. While these fell within our outlook, there is additional work to be done to improve the trajectory of our business. The original Stitch Fix vision to create an easier and more enjoyable way for people to shop for clothing and accessories is as compelling and relevant today as when the company was founded 13 years ago.
Matt Baer: As we have said for the past few quarters, we are committed to managing our business with financial discipline to drive profitability in the near term and growth over time.
Matt Baer: We delivered second quarter results in line with our outlook on both revenue and adjusted EBITDA.
Speaker Change: While these fell within our outlook there is additional work to be done to improve the trajectory of our business.
Speaker Change: The original stitch fix vision to create an easier and more enjoyable way for people to shop for clothing, and accessories is as compelling and relevant today as when the company was founded 13 years ago.
Matt Baer: Our leadership in personalization technology, combined with our passionate and skilled stylists, continues to create an innovative and exciting way to shop. Our transformation efforts are grounded in fully realizing our vision and evolving the Stitch Fix experience. As we stated on last quarter's call, we are focused on three priority areas. Berk, We are working to strengthen the foundation of our business across all disciplines. This includes embedding retail best practices across the enterprise and ensuring we have the right organizational structure in place to enable our future success. SEC. We are reimagining the client experience in order to attract and retain high lifetime value customers. Third, and simultaneous.
Speaker Change: Our leadership in personalization technology, combined with our passionate and skilled stylists continues to create an innovative and exciting way to shop.
Speaker Change: Our transformation efforts are grounded and fully realizing our vision and evolving the stitch fix experience.
Speaker Change: As we stated on last quarters call. We are focused on three priority areas.
Speaker Change: First.
Speaker Change: We are working to strengthen the foundation of our business across all disciplines.
Speaker Change: This includes embedding retail best practices across the enterprise.
Speaker Change: And ensuring we have the right organizational structure in place to enable our future success.
Speaker Change: Second.
Speaker Change: We are re imagining the client experience in order to attract and retain high lifetime value customers.
Speaker Change: Third and simultaneously.
Matt Baer: We are developing a long-term strategy to build upon these areas and ensure we best serve our clients as their needs evolve in the future. We believe the execution of these priorities will enable the company to return to sustainable, profitable growth. In the second quarter, we made progress on several initiatives to strengthen the foundation of our business across merchandising and marketing. These actions contributed to our expanding gross margins year-over-year and will provide the opportunity for us to realize additional efficiencies in our operations. In merchandising, a robust offering of national and private brands is one of the ways we best serve our clients, so we continue to enhance our assortment of both.
Speaker Change: We are developing a long term strategy to build upon these areas and ensure we best serve our clients as their needs evolve in the future.
Speaker Change: We believe the execution of these priorities will enable the company to return to sustainable profitable growth.
Speaker Change: In the second quarter, we made progress on several initiatives to strengthen the foundation of our business across merchandising and marketing.
Speaker Change: These actions contributed to our expanding gross margins year over year, and we will provide the opportunity for us to realize additional efficiencies in our operations.
Speaker Change: In merchandising.
Speaker Change: Mobile offering of National and private brands is one of the ways. We best serve our clients. So we continue to enhance our assortment of both.
Matt Baer: Extensive ongoing client feedback enables us to offer private brands that perform better and more profitably than our national brands, and we plan to further strengthen our private brand portfolio by making enhancements to our existing brands and introducing new ones. At the same time, we continue to deepen relationships with the national brands that resonate most with our clients.
Speaker Change: Extensive ongoing client feedback enables us to offer private brands that perform better and more profitably than our national brands and we plan to further strengthen our private brand portfolio by making enhancements to our existing brands and introducing new ones.
At the same time, we continue to deepen relationships with the national brands that resonate most with our clients.
Matt Baer: In marketing, we continue to evolve both program and channel strategies to optimize media mix and efficiency and to strengthen brand affinity. We know that when we reach clients for whom our offering resonates, they have higher order values and purchase frequency, as we saw with our newer client cohorts in the second quarter. While we have invested in new upper and mid-funnel tactics that help increase traffic, we continue to have an opportunity to improve our current levels of client conversion, which have not met our expectations. We are focused on improving the performance of our full-funnel media, and as we move through the back half of the year, we will adjust our media mix and spend levels in an effort to improve client conversion and retention.
In marketing, we continued to evolve both program and channel strategies to optimize media mix and efficiency and a strengthened brand affinity.
Speaker Change: We know that when we reach clients for whom our offering resonates they have a higher order value and purchase frequency as we saw with our newer client cohort in the second quarter.
Speaker Change: While we have invested in new upper and mid funnel tactics that helped increase traffic. We continue to have an opportunity to improve our current levels of client conversion.
Speaker Change: Which have not met our expectations.
Speaker Change: We are focused on improving the performance of our full funnel media and as we move through the back half of the year, we will adjust our media mix and spend levels in an effort to improve conversion and retention of clients.
Matt Baer: Now, let me shift gears to describe how we are reimagining the client experience, which we believe will help us attract and engage the right clients and drive higher lifetime value. We are taking a holistic approach to rethink how our clients engage with Stitch Fix, and going forward, we are prioritizing a reimagination of the client experience to focus on long-term growth. A few initial areas guide our thinking about how to reimagine the client experience.
Speaker Change: Now, let me shift gears to describe how we're re imagining the client experience, which we believe will help us attract and engage the right clients and drive higher lifetime value.
Speaker Change: We are taking a holistic approach to rethink how our clients engage with stitch fix and going forward. We are prioritizing a re imagination of the client experience to focus on long term growth.
Speaker Change: A few initial areas guide our thinking about how to re imagine the client experience.
Matt Baer: We want to create a more fun and visual experience that better engages clients beginning at their sign-up and creates ongoing confidence that we will deliver for them on both fit and style in the coming months. We plan to introduce a new onboarding experience that will be a more dynamic and interactive way for clients to begin their relationship with Stitch Fix. Second, we plan to deepen engagement by developing new ways to inspire and empower clients as they discover their personal style through our service. This includes creating new social connections that help clients visualize their style and give them reasons to return to our platform. 3rd
First.
Speaker Change: We want to create a more fun and visual experience that better engages clients beginning at their sign up and create ongoing confidence that we will deliver for them on both fit and style.
Speaker Change: In the coming months, we plan to introduce a new onboarding experience that will be a more dynamic and interactive way for clients to begin their relationship with stitch fix.
Speaker Change: Second we plan to deepen engagement by developing new ways to inspire and empower clients as they discover their personal style to our service.
Speaker Change: This includes creating new social connections that help clients visualize their style and give them reasons to return to our platform.
Matt Baer: We plan to offer new touchpoints for clients to interact and develop more personalized connections with stylists. Our stylists play a critical part in our value proposition, and our clients have told us they want to get to know the stylists behind their fixes by enabling more direct ways to connect with stylists. We believe these relationships will become deeper and more meaningful. While some of these initiatives will begin to roll out in the coming months, it will take time to accomplish our ambitious plans to significantly evolve the Stitch Fix client experience. I look forward to sharing updates as our work progresses. Finally, we have a powerful value proposition that combines a strong network of stylists, a carefully curated merchandise assortment, and advanced data science and technology to create an experience that only Stitch Fix can deliver.
Speaker Change: Third.
Speaker Change: We plan to offer new touch points for clients to interact and develop more personalized connections with stylists.
Speaker Change: Our stylists play a critical part in our value proposition and our clients have told us they want to get to know the stylists behind their fixes.
Speaker Change: By enabling more direct ways to connect with stylists.
Speaker Change: We believe these relationships will become deeper and more meaningful.
Speaker Change: While some of these initiatives will begin to rollout in the coming months.
Speaker Change: It will take time to accomplish our ambitious plans to significantly above the stitch baked client experience.
Speaker Change: I look forward to sharing updates as our work progresses.
Speaker Change: Finally, we have a powerful value proposition that combines a strong network of stylists carefully curated merchandise assortment and advanced data science and technology to create an experience that only stitch fix can deliver.
David Aufderhaar: We believe that these strategic priorities tied to strengthening our foundation and reimagining the client experience will lead to sustainable, profitable growth over time. With that, I'll turn the call over to David to talk about our Q2 Financial Results and Outlook. Thanks, Matt.
Speaker Change: We believe that these strategic priorities tied to strengthening our foundation and re imagining the client experience will lead to sustainable profitable growth over time.
Speaker Change: With that I'll turn the call over to David to talk about our Q2 financial results and outlook.
David: Thanks, Matt.
David Aufderhaar: In Q2, we continued to focus on driving leverage in our P&L while also funding initiatives that position us for long-term growth. The actions we took in Q2, including negotiating cost savings throughout our business, optimizing our carrier mix, implementing efficiency measures, and ensuring we have the right organizational structure in place to enable our future success. Taking a step back, since Q3 of fiscal 2022, we've undertaken detailed reviews of our business and cost structure to identify savings. And the resulting actions have allowed us to expand gross margins and reduce total annualized SG&A spend by over $370 million.
David: Q2, we continued to focus on driving leverage in our P&L, while also funding initiatives that position us for long term growth.
David: The actions, we took in Q2, including negotiating cost savings throughout our business optimizing our carrier mix implementing efficiency measures and ensuring we have the right organizational structure in place to enable our future success.
Taking a step back.
David: Since Q3 of fiscal 2022.
David: We've undertaken detailed reviews of our business and cost structure to identify savings opportunities and the resulting actions have allowed us to expand gross margins and reduced total annualized SG&A spend by over $370 million.
David Aufderhaar: The work our teams have done to improve gross margin and variable cost leverage continues to produce enviable unit and order economics, and our contribution profit is nearing the high end of its historical 25 to 30% rate. And our work here is not done. We believe there are additional opportunities for us to operate more efficiently and drive more leverage in both our fixed and variable costs. Now, let me get into the Q2 results. Q2 net revenue was $330 million, down 18% year-over-year and down 9% compared to last quarter.
David: The work our teams have done to improve gross margin and variable cost leverage continues to produce enviable unit in order economics, and our contribution profit is nearing the high end of its historical 25% to 30% range.
And our work here is not done we believe there are additional opportunities for us to operate more efficiently and drive more leverage in both our fixed and variable cost structures.
Speaker Change: Now, let me get into the Q2 results.
Speaker Change: Q2, net revenue was $330 million.
Speaker Change: Down, 18% year over year, and down 9% compared to last quarter.
David Aufderhaar: Net active clients ended the quarter down 6% compared to last quarter at approximately 2.8 million clients. Revenue per active client ended the quarter at $515, down 3% year over year but up 2% quarter over quarter. As Matt said, we continue to see strength in our newer client cohorts, with both order value and fixed frequency up year over year for those clients. Additionally, our 90-day revenue per active client had its third consecutive quarter of sequential growth. Gross margin for the quarter was 43.4%, down 20 basis points quarter over quarter and up 250 basis points year over year, driven by strong product margins, improvement in inventory health, and transportation. Net inventory decreased 22% quarter over quarter, as expected due to the front loading of our inventory at the beginning of this fiscal year.
Speaker Change: Net active clients ended the quarter down 6% compared to last quarter at approximately $2 8 million clients.
Speaker Change: Revenue per active client ended the quarter at $515 down 3% year over year, but up 2% quarter over quarter.
Speaker Change: As Matt said, we continue to see strength in our newer client cohorts with both order value and fixed frequency up year over year for those clients.
Speaker Change: Additionally, our 90 day revenue per active client had its third consecutive quarter of sequential growth.
Speaker Change: Gross margin for the quarter was 43, 4% down 20 basis points quarter over quarter, and up 250 basis points year over year, driven by strong product margins improvement in inventory health and transportation leverage.
Net inventory decreased 22% quarter over quarter as expected due to the front loading of our inventory at the beginning of this fiscal year.
David Aufderhaar: We continue to expect inventory balances to remain at these lower levels for the remainder of fiscal 2024 as we align our inventory position with demand, rationalize our assortment, and focus on our successful private label. Advertising was 7% of revenue in the quarter, down 19% quarter over quarter due to our typical lower seasonal spending around the holiday. Q2 Adjusted EBITDA came in at $4.4 million and reflected our ongoing cost management disadvantages. As expected, free cash flow was negative $26.1 million in the quarter due to the timing of receipts related to our inventory purchases in Q1.
Speaker Change: We continue to expect inventory balances to remain at these lower levels for the remainder of fiscal 2024, as we align our inventory position with demand rationalize our assortment and focus on our successful private brands.
Speaker Change: Advertising was 7% of revenue in the quarter down 19% quarter over quarter due to our typical lower seasonal spending around the holidays.
Speaker Change: Q2, adjusted EBITDA came in at $4 4 million and reflected our ongoing cost management discipline.
As expected free cash flow was negative $26 $1 million in the quarter due to the timing of receipts related to our inventory purchases in Q1.
David Aufderhaar: We still expect to be free cash flow positive for the full year and end of the quarter with $230 million in cash, cash equivalents, and investments, and Nobank. Turning to our outlook, we are updating our full fiscal year outlook to reflect the current trends we are seeing in our business. For Q3, we expect total net revenue to be between $300 million and $310 million. We expect Q3 adjusted EBITDA to be between negative $5 million and breakeven.
Speaker Change: We still expect to be free cash flow positive for the full year and ended the quarter with $230 million in cash cash equivalents and investments and no bank debt.
Speaker Change: Turning to our outlook.
Speaker Change: We are updating our full fiscal year outlook to reflect the current trends we are seeing in our business.
Speaker Change: For Q3, we expect total net revenue to be between $300 million and $310 million.
Speaker Change: We expect Q3, adjusted EBITDA will be between negative $5 million and breakeven.
David Aufderhaar: In the back half of the year, we expect gross margin to increase to between 44% and 45% as a result of the ongoing efforts to drive improvement in our inventory position and efficiencies in our transportation. We expect Q3 advertising to be between 8% and 9% of revenue. As we've said in the past, we will continue to be methodical about our approach when we are investing in markets and may adjust up or down based on the ROI we achieve. For the full year, we are lowering our expectations for net revenue to reflect the current trends we are seeing in active clients. We now expect revenue to be between $1.29 billion and $1.32 billion. We expect adjusted EBITDA to be between $10 million and $20 million.
Speaker Change: In the back half of the year, we expect gross margin to increase to between 44% and 45% as a result of the ongoing efforts to drive improvement in our inventory position and efficiencies in our transportation costs.
Speaker Change: We expect Q3 advertising to be between 8% and 9% of revenue.
Speaker Change: As we've said in the past we will continue to be methodical about our approach. When we are investing in marketing and may adjust up or down based on the ROI we are seeing.
Speaker Change: For the full year, we are lowering our expectations for net revenue to reflect the current trends we are seeing in active clients.
Speaker Change: We now expect revenue to be between $1 9 billion.
Speaker Change: And $132 billion.
Speaker Change: We expect adjusted EBITDA to be between $10 million and $20 million.
David Aufderhaar: For the full fiscal year, we expect gross margin to be approximately 44% and advertising to be approximately 8% of revenue. Overall, I am confident in our ability to maintain profitability today, and I'm excited about the work we are doing to strengthen the foundation of our business and reimagine the client experience. We will do so by remaining focused on leverage and profitability, along with acquisition and engagement of high lifetime value. Now, let me turn the call back to Matt.
Speaker Change: For the full fiscal year, we expect gross margin to be approximately 44% and advertising to be approximately 8% of revenue.
Speaker Change: Overall, I am confident in our ability to maintain profitability today and I'm excited about the work we are doing to strengthen the foundation of our business and re imagine the client experience.
Speaker Change: We will do so by remaining focused on leverage and profitability.
Speaker Change: Along with acquisition and engagement of high lifetime value customers.
Speaker Change: Now, let me turn the call back to Matt.
Matt Baer: Thanks, David. As you heard me say earlier, I believe that we have the right strategic priorities in place to generate sustainable, profitable growth over time. We are strengthening the foundation of our business. We are reimagining the client experience to attract and retain high-lifetime value customers. And we are developing a long-term strategy to build upon these areas and ensure we best serve our clients as their needs evolve in the future. While some of these initiatives will begin to come to life later this year, we know it will take time to accomplish our ambitious plans to reimagine the Stitch Fix client experience.
Matt: Thanks, David.
Matt: As you heard me say earlier I believe that we have the right strategic priorities in place to generate sustainable profitable growth over time we.
Matt: We are strengthening the foundation of our business.
Matt: We are re imagining the client experience to attract and retain high lifetime value customers.
Speaker Change: And we are developing a long term strategy to build upon these areas and ensure we best serve our clients as their needs evolve in the future.
Speaker Change: While some of these initiatives will begin to come to life. Later this year, we know it will take time to accomplish our ambitious plans to re imagine the stitch fix client experience.
Operator: I look forward to sharing updates as our work progresses. Thank you all for joining today's call. And now we'll turn it over to the operator so we can take your questions. Thank you.
I look forward to sharing updates as our work progresses.
Speaker Change: Thank you all for joining today's call.
Speaker Change: And now I'll turn it over to the operator, so we can take your questions.
Speaker Change: Thank you.
Operator: As a reminder to ask the question, please press star 11 on your telephone and wait for your name to be announced. We ask that you limit yourself to one question and one follow-up question and refrain from multi-part questions until everyone in the queue has had a chance to participate. If time allows, we will then come back to answer any remaining questions. Please stand by while we compile the Q&A list. Our first question comes from the line of Youssef Squali with Troy's Securities. Your line is open. Great, thank you very much.
Speaker Change: As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.
Speaker Change: We ask that you limit yourself to one question and one follow up question and to refrain from multi part questions and to everyone. In the queue has had a chance to participate.
Speaker Change: Tom allows we will then come back to answer any remaining questions. Please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Youssef Squali with choice Securities. Your line is open.
Youssef Houssaini Squali: Hi Guys, so I guess a two-part question. The active client count was down about 17% year-on-year.
Youssef Houssaini Squali: Great. Thank you very much hi, guys. So I guess, a two part question.
Youssef Houssaini Squali: Client count was down about 17% year on year I think thats.
Youssef Houssaini Squali: I think that's a deterioration from the prior quarter's growth. What's baked into your Q3 and 2024 guide? And can you maybe just flesh out kind of the key initiatives that you have line of sight into that should help reverse or at least stabilize client count in the near-to medium-term? Thank you. Hey, Youssef. It's Matt.
Youssef Houssaini Squali: The deterioration from the prior quarter's growth.
Youssef Houssaini Squali: Whats baked into your Q3, and 2024 guide and can you maybe just flesh out kind of the key initiatives that you have line of sight into that.
Should help reverse or at.
Youssef Houssaini Squali: At least stabilized client count in the near to medium term. Thank you.
Matt Baer: I appreciate the question. I'll let David answer first in terms of what's baked into the guide, any additional color that he wants to share in terms of the initiatives, and then I'll add additional color to round out those initiatives that we're focused on. Yeah, Youssef, I think you asked a couple questions around active client count. First, Q2 specifically, I think you called out, and there were just a couple call outs there.
Youssef Houssaini Squali: Yes.
Youssef Houssaini Squali: Hey, Youssef, it's Matt I appreciate the question.
Matt: David answer first in terms of what's baked into the guide.
Matt: Any additional color that he wants to share in terms of the initiatives and then I'll.
Matt: Add additional color to round out on those initiatives that we're focused on.
David: Yes, Joseph I think you asked a couple of questions around active client count first Q2, specifically I think you called out in just a couple of callouts. There first Q2 is typically our softest quarter for active clients.
David Aufderhaar: First, Q2 is typically our softest quarter for active clients. And second, as Matt mentioned in the earlier comments, client conversion was below our expectations, and we continue to have an opportunity there. And both of those factors are really what's at play there. And we had gross ads and reactivations that were down quarter over quarter. And so that's Q2 specifically.
David: And second as Matt mentioned in the earlier comments client conversion was below our expectation and we continue to have an opportunity there and both of those factors.
David: Or really what's at play there and we had gross adds and reactivation that were down quarter over quarter, and so thats Q2, specifically.
David Aufderhaar: In the back half of the year, you know, we don't specifically guide to active clients, but we do expect the sequential decline in active clients to continue in the back half of the year. And, you know, that said, returning to healthy client growth continues to be a priority focus for the company. You know, we're still very encouraged by the results we're seeing in the new clients we're acquiring that have higher order values and higher frequency. And I think we mentioned in our remarks earlier that, you know, 90-day RPAC is up again for the third quarter in a row.
In the back half of the year, we don't specifically guide to active clients, but we do expect a sequential decline in active clients to continue in the back half of the year and that said returning to healthy.
David: Client growth continues to be a priority focus for the company. We're still very encouraged by the results. We're seeing in the new clients. We are acquiring that have higher order value and higher frequency and I think we mentioned in our remarks earlier that 90 day, our pack is up.
David: Up again for the third quarter in a row and so as Matt said earlier, we're really focused on improving the performance of our full funnel media.
David Aufderhaar: And so, as Matt said earlier, we're really focused on improving the performance of our full-funnel media while also leaning into prioritizing the reimagining of our client experience. And we're really excited about that work and believe that it'll attract and retain more of those high-value clients. And that's why we continue to have a really methodical approach around this. You know, we're taking the time needed to make sure we focus on returning to healthy, sustainable, long-term active client growth. Matt?
David: While also leaning into prioritizing the reimagining of our client experience.
David: We're really excited about that work and believe that it will attract and retain more of those high value clients and Thats why we continue to have really a methodical approach around this we're taking the time needed to make sure. We focus on returning to healthy sustainable long term active client growth map.
Matt Baer: Yeah, maybe just a quick build on that. You know, it's absolutely right that in terms of optimization within our media spend and our media mix, in order to make sure that we're acquiring the right clients, and as I've noted in previous calls, our focus is just a really judicious spend of our marketing dollars to make sure that the clients that we're targeting are ones that demonstrate all of the strong likelihoods and characteristics of being high LTV clients for us. And over time, we'll continue to be methodical in the expansion of those client segments that we're targeting. I feel really confident in terms of the work that our marketing team is doing.
Speaker Change: Yes, maybe just a quick build on that.
Speaker Change: It's absolutely right that in terms of optimization within our media spend and our media mix in order to make sure that we're acquiring the right clients that as I've noted in previous calls that our focus is just to really judicious spend of our marketing dollars to make sure that the clients that we're targeting are one.
Speaker Change: That demonstrate all of the strong likelihood and characteristics of being high LTV clients for us and over time, we'll continue to be methodical around an expansion of those client segments that we're targeting I feel really confident in terms of the work that our marketing team is doing there.
Matt Baer: They're really focused on making sure we've got the right message in front of the right potential clients at the right time. We're testing into new mediums as well and increasing spend there so that we can continue to test and learn. We're doing a good job within video right now in terms of storytelling that calls out the unique differentiators of our business model and the manners in which we can uniquely serve clients relative to other retail options that might be at their disposal. So that gives me a lot of confidence.
Speaker Change: Really focused on making sure we've got the right message in front of the right perspective clients at the right time, we're testing into new mediums as well and increasing spend there. So that we can continue to test and learn we're doing a good job within video right now in terms of storytelling that caused that.
Speaker Change: <unk> differentiators of our business model and the manner in which we can uniquely serve clients relative to other retail options that might be at their disposal. So that gives me a lot of confidence. The other piece is just really important is what David noted in terms of the re imagination of our experience. We have are just really really phenomenal asset.
Matt Baer: The other piece that's really important is what David noted in terms of the reimagination of our experience. We have a really, really phenomenal asset where, on day zero, we know more about our client than many retailers could aspire to know about their clients over the entire course of their relationship with them. We know their style preferences.
Speaker Change: We're on day zero, we know more about our client and many retailers could aspire to know about their clients over the entire course of their relationship with them. We know their style preferences, we know their value orientation, and we can nail their fit as early as their very first transaction and thats an extremely powerful differentiator in.
Matt Baer: We know their value orientation, and we can nail their fit as early as their very first transaction. And that's an extremely powerful differentiator and asset that we have. And as we reimagine the experience, we're going to make sure to embed that within everything that we do. As I noted in my prepared remarks, one of the first areas of focus for us is on that onboarding experience. We have an opportunity to make that more fun and more dynamic.
Speaker Change: Asset that we have and as we re imagine the experience we're going to make sure to embed that within everything that we do as I noted in the prepared remarks, one of the first areas of focus for US is on that Onboarding experience, we have an opportunity to make that more fond more dynamic and at the end of the day inspire more confidence and perspective clients.
Matt Baer: And, at the end of the day, inspire more confidence in prospective clients so that they convert with us at much higher levels. As we increase that conversion through the funnel, we'll be able to optimize our media dollars even more and, hopefully, then be able to increase the number of new clients that come through the funnel. That optimized or reimagined experience is also one that helps us deepen the relationship with our existing clients as well, so that we can better understand how their style preferences, value orientation, and fit change over time, so that we can continue to keep our active and loyal clients for a longer tenure and generate even greater revenue from them. I'm already encouraged by the increase in revenue per active client that we've seen recently, and now our opportunity remains to continue to improve Great. All right. Thank you both.
Speaker Change: So that they convert with us at much higher levels as we increase that conversion through the funnel will be able to optimize our media dollars, even more and be able to hopefully then be able to increase the number of new clients as they come through the funnel.
<unk> optimized our re imagined experience is also one that helps us deepen the relationship with our existing clients as well so that we can better understand how their style preferences value orientation and fit changes over time. So that we can continue to keep our active and loyal clients for a longer tenure and generate even greater revenue from them.
Speaker Change: Already encouraged by the increase in revenue per active client that we've seen of recent and now our opportunity remains to continue to improve that can improve our conversion metrics and as we re imagine our experience and optimize our media investment I'm confident that we'll be able to do that over the long term.
Speaker Change: Great Alright, Thank you Lou.
Youssef Houssaini Squali: Thank you. Please stand by for our next question. Our next question comes from the line of Simeon Siegel with BMO Capital Markets. Your line is open. Thanks, everyone. Did you say whether there's an ideal percentage of total sales that you'd like to take through private brands? And maybe what's the ASP and margin differential for private versus national? And then I just wanted to confirm something.
Lou: Thank you.
Speaker Change: Ladies standby for our next question.
Speaker Change: Our next question comes from the line of Simeon Siegel with BMO capital markets. Your line is open.
Simeon Avram Siegel: Thanks, Hi, everyone. Good afternoon.
Simeon Avram Siegel: Could you say, whether there is an ideal percentage of total sales that you'd like to take through private brands and maybe what's the ASP margin differential for private versus National and then I just wanted to confirm something.
Simeon Avram Siegel: I think so. At this point, 90-day RPAC, I think you said has now been up for three straight quarters. The trailing 12 month is still down, so I just want to say that that should give you some strong confidence the next quarter's trailing 12 months should be up, right? So any color around that and an order of magnitude if possible. Hey, Simeon, it's Matt.
Speaker Change: I think so at this point 90 day, our pack I think you said it that went up for three straight quarters. The trailing 12 months is still down so.
Speaker Change: Safe to say that that should give you some strong confidence in next quarters trailing 12 months that should be up right. So just any color around that in order of magnitude if possible. Thank you.
Matt Baer: I'll speak to the questions around private brands, and I'll let David speak to the questions about RPAC and any additional color that he'd like to share in terms of our private brand portfolio. In terms of the penetration between private brands and national brands, I have a strong perspective on that, that we're going to lead with a very client-focused approach. And by putting our clients first, that gives us the opportunity, over the longer term, to allow that mix to organically shake out based on what's in the greatest interest of our clients. And they're effectively voting with both their dollars and all the other ways that we have built into our experiences so that we have an ability to interact with them.
Matt: Hey, Tim it's Matt.
Matt: I'll speak to the questions around private brand I'll, let David speak to the questions about our pack and any additional color that you'd like to share in terms of our private brand portfolio.
Matt: In terms of the penetration between private brands and National brands have a strong perspective on that that we're going to lead with a very client focused approach and by putting our clients first that gives us the opportunity over the longer term to allow that makes to organically shake out based on what's in the greatest interest of our clients and they are effective.
Matt: <unk> voting with their dollars and all the other ways that we built into our experiences that we have an ability to interact with them now it's true that our private brand assortment does.
Matt Baer: Now, it's true that our private brand assortment does contribute a higher margin for us and currently shows higher keep rates. As I spoke about in previous calls, though, we continue to do a rationalization around our national brand matrix, which is helping us continue to deepen our relationship with the national brands that resonate best with our clients. So I feel confident that the performance of our national brands will similarly improve over time.
Contribute a higher margin for us and currently demonstrate higher keep rates as I spoke to you in previous calls, though we continue to do a rationalization around our national brand matrix, which is helping us continue to deepen our relationship with the national brands that resonate best with our clients. So I feel confident that the performance of our national brands, who are similarly.
David Aufderhaar: The amount of data that we have from our clients, both through the onboarding experience, as well as through our continued relationships with them, not only helps us develop some of the best private brand products on the market, but it's also information that we're able to work back with our national brands to continue to improve the performance of the buys that we make with them. So overall, I think it's about finding the balance but letting the client effectively help us get there. And then, Simeon, on the RPAC side, you know, I think you called out that we definitely are encouraged by the strength we're seeing in the 90-day RPAC. But also, from an overall RPAC standpoint, yes, year over year, it's still down slightly, but quarter over quarter, it's up 2%. And a big part of that is what we're seeing in AOV.
Matt: Improve over time.
Matt: The amount of data that we have from our clients both through the onboarding experience as well as through our continued relationships with them not only helps us develop some of the best private brand best private brand product on the market, but it's also information that we're able to work back with our national brands to continue to perform to continue to improve.
Matt: The performance of the buys that we make with them. So overall I think it's about finding the balance but letting the client effectively help us get there.
Matt: And then on the <unk> side.
Matt: I think you'd called out we definitely are encouraged by the strength, we're seeing in the 90 day our pack.
Matt: But also from an overall <unk> standpoint, yes year over year, it's still down slightly but quarter over quarter, it's up 2%.
Matt: And a big part of that is what we're seeing in <unk> I think we called this out last quarter as well, but we're seeing continued strength in overall fixed <unk>, which which hit sort of a multiyear high for the second quarter in a row, and so and so definitely something thats an encouraging sign.
David Aufderhaar: I think we called this out last quarter as well, but we're seeing continued strength in overall fixed AOV, which hits sort of a multi-year high for the second quarter in a row. And so, definitely something that's an encouraging sign. And would you expect that to continue? Like, should we be looking at this sequentially, rather than year over year? from an AOV perspective.
Matt: And would you expect that to continue like should we be looking at this sequentially than year over year.
David Aufderhaar: The Bulletproof Executive 2013, Yeah, I think AOV, you know, there is seasonality to that. But, you know, certainly the upside that we're seeing is encouraging, and we're going to continue to focus on progressive, Great. Perfect. Thanks a lot, guys. Best of luck for the rest of the year. Thanks, Simeon.
Matt: From an <unk> perspective.
Matt: Sure.
Speaker Change: Yes, I think.
Speaker Change: There is seasonality to that.
Speaker Change: But certainly the upside that we're seeing is encouraging and we're going to continue to focus on progressing there.
Speaker Change: Great perfect. Thanks, a lot guys best of luck for the rest of the year.
Simeon Avram Siegel: Will you stand by for our next question? Our next question comes from the line of Tom Nikic with Wedbush. Your line is open. Hey guys, thanks for taking my question. I want to ask about planning to, you know, spend a little more on the percent of sales on the marketing side in the second half. Is that because you feel like you're starting to see, you know, better returns on your marketing spend? You've sort of, you know, I know that there was a plan to kind of, you know, pivot to higher efficiency channels of marketing. Are you starting to see that pay off? And because of that, do you kind of want to step on the gas pedal a little bit to try to reinvigorate the top line? Or is there just something else going on here?
Speaker Change: Okay.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Tom <unk> with Wedbush. Your line is open.
Speaker Change: Okay.
Tom: Hey, guys. Thanks for taking my question.
I wanted to ask about.
Tom: Marketing I think you said.
Tom: Second half will be eight 9% of sales.
Tom: Higher than what we've seen recently and higher year over year. You also made a comment that depending on the ROI that you're getting.
The flexible up or down.
Tom: The fact of that.
Tom: Yes.
<unk> spent a little more as a percent of sales on the marketing side in the second half is that because you feel like youre starting to see better returns on your marketing spend you've sort of.
Speaker Change: Yes, I know.
Speaker Change: The plan to kind of pivot to a higher.
Speaker Change: Efficiency channels of marketing are you starting to see that pay off and because of that kind of one step on the gas pedal a little bit.
Speaker Change: To reinvigorate the top line or is there something else going on.
Tom Nikic: Hey, Tom, I'll answer your question. And David, if you want to add any additional color, feel free to jump in. In terms of where we've seen our marketing, you know, we got into the year in terms of our marketing spend as a percentage of sales. And, you know, we're still tracking towards that for the totality of the fiscal year. There's also some seasonality built in, in terms of the amount of marketing spend that we have as a percentage of sales quarter to quarter, that helps us lean into, you know, both where we're strongest and also where we have the strongest ROI then based on that marketing investment. So we haven't deviated much from, you know, what we anticipated coming into the fiscal year.
Speaker Change: Hey, Tom I'll answer your question and David you want to add any additional color feel free to jump in.
Speaker Change: In terms of where we've seen our marketing.
Speaker Change: We guided to the year in terms of our marketing spend as a percentage of sales and.
Speaker Change: Still tracking towards that for the totality of the fiscal year. There is also some seasonality built in in terms of the amount of marketing spend that we have as a percentage of sales quarter to quarter that helps us lean into both.
Speaker Change: We're strongest and also where we have the <unk>.
Speaker Change: Strongest ROI then based on that marketing investment.
Speaker Change: So we haven't deviated much from what we anticipated coming into the fiscal year in terms of where we would continue to increase our spend we look at that on a daily weekly basis, and it's not just the totality of the spend but it's also where we're spending it in which clients segments that we're targeting within each channel.
Matt Baer: In terms of where we would continue to increase our spend, we look at that, you know, on a daily and weekly basis. And it's not just the totality of the spend, but it's also where we're spending it and which client segments that we're targeting within each channel. The marketing team is pretty dialed in at the moment in order to make sure that we're quite judicious in terms of where we're making those investments and the return that we're getting from them. We also anticipate that, over a longer period of time, as the reimagined experience comes to life, we'll start to see higher conversion through the funnel, which would then help us, without even increasing that marketing spend, get a But we'll continue to balance. And as we continue to see higher, you know, RPAC, it's another signal that would give us confidence in a future state in which we might increase marketing as a percentage of sales in order to drive the top line. understood.
Speaker Change: The marketing team is pretty dialed in at the moment in order to make sure that we are.
Speaker Change: Quite judicious in terms of where we're making those investments and the return that we're getting from them.
Speaker Change: I also anticipate that over a longer period of time as the re imagined experience comes to life, we will start to see higher conversion through the funnel, which would then help us without even increasing that marketing spend get a greater return for it but we will continue to balance and as we continue to see higher our packet another signal that would give us comping.
Speaker Change: <unk> in the future state in which we might increase marketing as a percentage of sales in order to drive the topline.
Tom Nikic: And if I could ask a follow-up question on gross margin. So, you know, again, it sounds like gross margin for the second half of the fiscal year should be better than for the first half of the fiscal year. Can you just kind of help us understand what's driving the improvement in gross margin that you're seeing? And I guess how much more runway is there to take gross margin time? Yeah, Tom, thanks for the question.
Speaker Change: Alright, understood and if I could ask a follow up on gross margin.
Speaker Change: So again it sounds like gross margin for the second half of the fiscal year. I think you said should be better than the first half of the fiscal year.
Speaker Change: Can you just kind of helps us understand what's driving the improvement in gross margin that youre seeing in.
Speaker Change: And I guess, how much more runway is there.
Speaker Change: To take gross margins higher.
David Aufderhaar: On the gross margin side, you know, we are definitely really happy with the progress we've made. If you think about where we were last quarter, gross margins were up 140 basis points year over year. This quarter, gross margins are up 250 basis points year over year.
Speaker Change: Yes, Tom Thanks for the question.
Speaker Change: On the gross margin side, we are definitely really happy with the progress. We've made if you think about where we were last quarter in our gross margins was up 140 basis points year over year. This quarter gross margins are up 250 basis points year over year and I think we've called out for the last couple of quarters. There is a couple of things there.
David Aufderhaar: And I think we've called out for the last couple of quarters; there are a couple things there. You know, what Matt was talking about this quarter and last quarter about sort of strengthening our foundation and establishing retail best practices. You know, that's really around inventory buying and planning and really seeing the benefits there from a merchandising cost standpoint. We've also highlighted, you know, transportation has been a big part of our focus. We've adjusted our carrier mix. We've negotiated some of our national carriers, and we continue to use local carriers as well.
Speaker Change: What Matt was talking about this quarter and last quarter about sort of strengthening our foundation and establishing retail best practices, that's really around inventory buying and planning and really seeing the benefits there from from a merchandising cost standpoint, we've also highlighted.
Speaker Change: Transportation has been a big part of our focus we have.
Adjusted our carrier mix, we've negotiated some of our national carriers, and we continue to use local carriers as well and so just a lot of focus around that both inbound shipments and outbound shipments and Thats why were comfortable with talking about sort of a back half guide of 44% to 45% I think we've also called out.
David Aufderhaar: And so just a lot of focus around that, both inbound shipments and outbound shipments. And that's why we're comfortable with talking about sort of a back half guide of 44 to 45%. I think we've also called out www.youtube.com.uk. Very helpful. Thank you very much and best of luck for the rest of the year.
Speaker Change: Historically that there's nothing structurally different about our business. It says that we can't get back to the high end of that range of 45% and so this continues to be a big focus of ours.
Ours.
Speaker Change: And making sure that we are driving gross margin leverage and contribution leverage as we go forward.
Aneesha Sherman: Thank you. Please stand by for our next question. Our next question comes from the line of Aneesha Sherman with Bernstein. Your line is open.
Speaker Change: Okay very helpful. Thank you very much and Buffalo course of the year.
Speaker Change: Thank you.
Please standby for our next question.
Speaker Change: Our next question comes from the line of Alicia Sherman with Bernstein. Your line is open.
Aneesha Sherman: Hi, thank you. So Matt, I'm, if I just look at the business kind of top line growth over the over the last two quarters, and the next two where you've guided, you know, kind of, it feels like no matter how, which way you look at it, right to your stack, you know, versus 2020 versus 2019, really, what we're seeing is a continued deceleration of the top line, which seems like pretty much at odds with what you're saying about structurally improving the quality of the business, the client metrics you're seeing, and you know, heavier investment into marketing, because you're seeing that working. Can you square that for us a little bit?
Aneesha Sherman: Hi, Thank you.
Aneesha Sherman: So Matt.
Aneesha Sherman: If I just look at the business kind of topline growth okay.
Aneesha Sherman: Last two quarters in the next two where you guided.
Aneesha Sherman: It feels like no matter, which way you look at it right to your stock versus 'twenty 'twenty versus 2019 really what we're seeing is a continued deceleration of the topline, which seems like pretty much at odds with what youre, saying about structurally improving the quality of the business the client metrics youre seeing and heavier investment into <unk>.
Aneesha Sherman: Marketing because youre seeing that working can you square that for us a little bit like what do you see as the lag time here like are we talking about kind of a year lag or a couple of quarters on when that will actually start materializing in the top line.
Matt Baer: What do you see as the lag time here? Like, are we talking about kind of a year lag or a couple of quarters on when that will actually start materializing in the top line and accelerating again? Hey, Aneesha, I appreciate the question. Let me first state unequivocally that I'm confident in the future success of Stitch Fix. As I continue to immerse myself further in the business, my confidence in our future success continues to grow, and this is rooted in several things, many of which I've discussed previously. The first is, as I surveyed the overall retail landscape for apparel and accessories, it's clear the customer is just not satisfied with the current optionality that they have for their shopping. You know, as is topical now, the physical retail experience, it remains extremely cumbersome. Online shopping remains extremely overwhelming.
Aneesha Sherman: Accelerating again.
Speaker Change: In Asia I appreciate the question.
Speaker Change: Let me, let me first state.
Speaker Change: Unequivocally.
Speaker Change: And in the future success of Citrix as I continue to immerse myself further in the business.
Speaker Change: Confidence in our future success it continues to grow.
Speaker Change: And this is rooted in several things many of which I've discussed previously the first.
Speaker Change: Survey the overall retail landscape for apparel and accessories. It's clear the customer is just not satisfied with the current optionality that they have for their shopping.
Speaker Change: As topical now the physical retail experience it remains extremely cumbersome.
Speaker Change: Online shopping remains extremely overwhelming.
Matt Baer: The service that we offer at Stitch Fix solves many of those frustrations for the customer. And, as I just noted previously, at Stitch Fix on day zero, we know our client better than many retailers can aspire to know their customers over the course of their relationship. And it's with that information that we're able to know your style preference, serve your value orientation, and nail your fit as early as that very first transaction. And also critical is that, for us at Stitch Fix, personalization algorithms, artificial intelligence, machine learning, and data science are fundamental elements of our model. They've been part of our DNA since our inception.
Speaker Change: The service that we offer at stitch fix it solves many of those frustration for the customer and as I. Just noted previously at stitch fix on day zero, we know our clients better than many retailers can aspire to know their customers over the course of their relationship and it's with that information that we're able to know your style preference serve your valuers.
Speaker Change: <unk> and nail your fit as early as that very first transaction.
Speaker Change: And also critical is that for us at stitch fix personalization algorithms artificial intelligence machine learning and data science those are fundamental elements of our model <unk> been part of our DNA since our inception, it's something that we're going to continue to build upon going forward.
Matt Baer: It's something that we're going to continue to build upon going forward. Many of our tools, systems, experiences, they're all informed by that. And we're going to continue to invest in that further as we go forward. And as we've demonstrated over the course of our 13-year history.
Speaker Change: Any of our tool systems experiences. They are all informed by that and we're going to continue to invest in that further as we go forward and as we've demonstrated that over the course of our 13 year history now.
Matt Baer: Now, you know, as you noted, we're also in the midst of a transformation, and transformations take time. And we must continue to develop a stronger foundation for our business, one that's rooted in best-in-class operations built for scale, one that allows us to operate more efficiently, one that unlocks cost reductions from our operations while also improving the client experience. And we're strengthening that foundation and embedding these retail best practices throughout the organization. As we've already discussed on this call, too, as part of strengthening that foundation, we're maniacally focused on a healthier client franchise. We need to make sure that we're extremely judicious with that marketing spend, methodical in terms of the client segments that we're targeting, so that when we bring a client into the experience, we're demonstrating all the characteristics of high lifetime value, one that will have an enduring relationship with us over a long, long time. And finally, and critically, as we continue to reimagine that client experience and continue our proven history as It's a competitive strength and advantage for us. And how that manifests itself through the experience, well, that needs to evolve.
Speaker Change: Now.
Speaker Change: As you noted we're also in the midst of a transformation and transformations take time and we must continue to develop a stronger foundation for our business. One that's rooted in best in class operations built for scale.
Speaker Change: <unk> allows us to operate more efficiently.
Speaker Change: Net unlocks cost reductions from our operations, while also improving the client experience.
Speaker Change: And we're strengthening the foundation and embedding these retail best practices throughout the organization as we've already discussed on this call too as part of strengthening that foundation, we're maniacally focused on a healthier client franchise, we need to make sure that we're extremely judicious with that marketing spend methodical in terms of the client segments that we're targeting.
Speaker Change: So that we bring so that when we bring a client into the experience are demonstrating all the characteristics of high lifetime value. One that will have an enduring relationship with us over a long long time.
Speaker Change: And finally and critically as we continue to re imagine that client experience and continue our proven history as a disruptive retailer that core value proposition of just knowing your client style preference value orientation and bid on day zero. It's critical it's a competitive strength and advantage for us and how that manifest through the experience.
Speaker Change: Well that needs to evolve.
Matt Baer: And as I mentioned in the prepared remarks, we're currently reimagining the onboarding experience so that we can continue to engage with both our potential and our current clients to make it fun and easy so that they remain extremely competent in the service that we provide. As we continue to improve these experiences, we'll improve conversion through the funnel, better serve new clients, and better serve current clients, and we'll continue to reimagine this end-to-end experience over time, including how clients and stylists interact with each other. It's a work in progress, and as it continues, I'll be excited to share more with you. Can I thank you?
Speaker Change: As I mentioned in the prepared remarks, we're currently re imagining the onboarding experience. So that we can continue to engage with both our perspective and our current clients to make it fun and easy so that they remain extremely confident in the service that we provide as we continue to improve these experiences will improve conversion through the funnel better serve new clients better.
Serve current clients and we'll continue to re imagine this end to end experience over time, including our clients and stylus interact with each other it's a work in progress and as it continues I'll be excited to share more with you.
Aneesha Sherman: That's super helpful. Can I ask a quick follow-up question? Do you expect to go back to your usual seasonal cadence of having a slightly heavier weighted second half, which is kind of where you were pre-COVID, where the second half was contributing a little bit more than half of annual sales? I mean, it's a good question, Aneesha.
Thank you that's super helpful can I ask a quick follow up do you expect to go back to your usual seasonal cadence of having a slightly heavier weighted second half, which is kind of where you were pre COVID-19, where second half was contributing a little bit more than half of annual sales.
David Aufderhaar: I think as we go forward, I think some of those trends could return to the business. But I think to Matt's point, like, I think we're focused right now on sort of some of those near-term actions that we're doing, because we know that will drive us towards active client growth and sustainable revenue growth. Thank you.
Speaker Change: I mean, it's a good question and I think as we go forward.
Speaker Change: I think some of those trends could could return to the business, but I think to Matt's point like I think we're focused right now on sort of some of those near term actions that we're doing because we know that will drive us towards active client growth and sustainable revenue growth.
Speaker Change: Thank you.
Maria Ripps: Thank you. Please stand by for our next question. Our next question comes from Alana Maria Ripp from CannaCorp. Your line is open.
Speaker Change: Sure.
Speaker Change: Thanks.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question on the line of Maria <unk> with Canaccord. Your line is open.
Maria Ripps: Great. Thank you for taking my questions. First, can you just talk about whether you're seeing any impact from some of the lower course competitors that are growing aggressively in the US, whether from the revenue standpoint or from the intensifying competition in advertising spend?
Maria: Great. Thank you for taking my questions.
Maria: First can you just talk about whether youre seeing any impact from some of that lower cost competitors that are growing aggressively in the U S with that from a revenue standpoint.
Maria: Intensifying competition in advertising spend.
Maria Ripps: And then secondly, can you just give us a little bit more color around the launch of the new client onboarding experience? What are some of the new features that you have in mind that maybe you can talk about, and how will it be different from the current process? Hey Maria.
Maria: And then secondly can you maybe just give us a little bit more color around the launch of new client on boarding experience. What are some of the new features that you have in mind that maybe you can talk about and how will it be different from the current process.
Matt Baer: Yeah, happy to answer both of those questions. First, a question around newer, lower-cost entrants into the market. You know, I think one of the things that really encourages me about the Stitch Fix business model is in terms of the client that we serve and one that our service resonates so well with. We don't feel like, you know, that's taking away from our business.
Speaker Change: Hey, Maria happy.
Maria: Happy to answer both of those questions.
Speaker Change: First question around newer lower cost entrants into the market.
Maria: I think one of the things that really encourages me about the Citrix business model is in terms of the client that we.
Maria: We're serving.
Maria: And one in which our service resonated so well with.
Maria: We don't feel like that's taking away from our business, we understand some of our natural competitors are having to deal with this on a considered basis, but from our perspective the clients that are coming to stitch fix the ones that are looking for help with personal styling. The ones that are looking for help in terms of completing their closet and completing their.
Matt Baer: We understand some of our natural competitors are having to deal with this on a considered basis. But from our perspective, you know, the clients that are coming to Stitch Fix, the ones that are looking for help with personal styling, the ones that are looking for help in terms of completing their closet and completing their wardrobe, the ones that are starting a new job and looking to understand how to build out their assortment so that they have a full collection of workwear, or someone that's, you know, you know, struggling with finding apparel that fits them perfectly, all of the need states that we meet that we're able to satisfy so much better than many other retailers, we feel like those are competitive differentiators for us that offer us a tremendous amount of protection from, you know, the retailers that you might have in mind, you know, that are, you know, in many ways disrupting others in the market today.
Maria: The ones that are starting a new job in looking to understand how to build out their assortments. So that they have a full collection of workwear or someone needs.
Maria: Struggling with finding apparel that fits them perfectly all of the need states that we mean that we are able to satisfy so much better than many other retailers. We feel like those are competitive differentiators for us that offer us a tremendous amount of protection from the retailers that you might have in mind.
Maria: Are in many ways disrupting others in the market today.
Matt Baer: In terms of additional color on the new onboarding experience, you know, at this point, what I'll share is that, you know, our goal through this process is to make sure that the experience achieves a few different objectives. The first of these is that we're able to acquire all the information that we need from prospective clients in order to serve them as well as possible from the very first interaction that we have with them. We also need to make sure that we're delivering confidence to them through that experience that we'll be able to meet those needs, that we'll be able to understand their style preferences, their value orientation. We need them to have tremendous confidence that we'll be able to understand and nail their fit. And then the third piece, which is really important and something that, you know, will manifest itself, is that it has to be fun, it has to be engaging, and it has to be dynamic.
Speaker Change: In terms of additional color on the new Onboarding experience at this point, what I will share is that our goal through this process is to make sure that the experience achieved a few different objectives. The first of which is that if we're able to acquire all of the information that we need from prospective clients in order to serve them.
Speaker Change: As well as possible from the very first interaction that we have with them. We also need to make sure that we're delivering confidence to them through that experience that we'll be able to meet those needs that will be able to understand our style preference there value orientation, we need them to have tremendous confidence that we'll be able to understand and nail their fit and then the third.
Which is really important and something that will manifest as it has to be fund it has to be engaging in it has to be dynamic and because we're in the early stages of it.
Maria Ripps: And because we're in the early stages of it, you know, I'll share more as we get closer. But those are the tenets and the principles that are underlying the development of this new product.
Speaker Change: I'll share more as we get closer but those are the tenants that and the principles that are underlying the development of this new product.
Ed Yruma: Thank you so much for the call. Thank you. Thank you. Please stand by for our next question. Our next question comes from the line of Edward Yruma with PSC. Your line is open.
Speaker Change: Got it. Thank you so much for the color.
Thanks, Brian.
Speaker Change: Thank you ladies sandbox, where our next question.
Speaker Change: Our next question comes from the line of Edward <unk> with PSC. Your line is open.
Ed Yruma: Hey, guys, thanks very much for taking the question. Two for me, I guess first, there's obviously a large customer base that is, you know, kind of lapsed or that's fallen out. I know at the time of the IPO, there was a thought process around a 24 to 36 month kind of reactivation period based on people's size or preference. Is any of that still holding?
Edward: Hey, guys. Thanks, very much for taking the questions two from me I guess first.
Edward: There's obviously a large customer base that is kind of lapsed or that's fallen out I know at the time of the IPO. There was a thought process around 24 to 36 month kind of reactivation period as people size or preferences change is there any is that still holding and kind of what efforts are you making against the lapsed customers and then as a follow up.
Matt Baer: And kind of what efforts are you making against the lab's customers? And then, as a follow-up, I know one area of refinement has been around the closeout policy on, you know, clearing excess inventory. I guess, kind of, where are you with that? And kind of how are you disposing?
Edward: One area of refinement has been around the closeout policy on.
Edward: Clearing excess inventory I guess kind of where are you with that and kind of how are you disposing of some of this excess inventory.
Matt Baer: Thanks. Hey Ed, I appreciate the question. As I understand the first part, it's about how we continue to drive engagement with our current clients, and it's something that we talked about in prior calls. You know, as we're continuing to improve and focus on our ability to acquire new clients judiciously, we're similarly working to ensure that we're doing a better job engaging our current clients in order to fend off dormancy proactively. And we're very mindful in terms of retention and reactivation campaigns. I do feel that the team is extremely well dialed in and has the right amount of focus on this.
Speaker Change: Hey, Ed I appreciate the question.
Ed: As I understood. The first part it's about how we continue to drive engagement with our current clients.
And it's something that we've talked about in prior calls.
Speaker Change: We're continuing to improve and focus on our ability to acquire new clients judiciously, whereas similarly, working to ensure that we're doing a better job engaging our current clients in order to fend off dormancy proactively.
Speaker Change: And we're very mindful in terms of the retention and reactivation campaigns.
Speaker Change: I do feel that the team is extremely well dialed in and has the right amount of focus on this week.
Matt Baer: We continue to have pockets of success or continue to have success around that re-engagement. And we're going to continue to also invest in our CRM capabilities so that we can better understand who our clients are, what the right message is to deliver to them, and what the right time is to deliver that right message. And we feel like through these investments, we'll continue to keep that engagement open. And over a longer period of time, this speaks to the second part of the re-imagination of the experience. It's really important.
Speaker Change: We continue to have pockets of success or continue to have success around that reengagement and we're going to continue to also invest within our CRM capabilities. So that we can better understand who our clients are what the right messages to deliver them. What the right time is to deliver that right message and we feel like through these investments we will continue to keep.
Speaker Change: That engagement open and over a longer period of time.
Speaker Change: Speak to the second part of the re imagination of the experience. That's really important is what we're going to start to really focus on what are those experiences that can deepen engagement with our current clients and how can we make sure that we're giving them a reason to come back in to visit us on a more frequent basis and as we do that we feel confident.
Matt Baer: We're going to start to really focus on what are those experiences that can deepen engagement with our current clients and how can we make sure that we're giving them a reason to come back and visit us on a more frequent basis. And as we do that, we feel confident that we'll continue to be a part of their shopping journeys, and we'll continue to take a greater wallet share over time. And that's why that's such an important part of the investment in terms of the re-engagement of the experience there. In terms of the second part of the question around clearance, I'll answer it and allow David to jump in with a little bit of additional color there.
Speaker Change: We will continue to be a part of their shopping journey, we will continue to take a greater wallet share over time and that's why that's such an important part of the investment in terms of the reengagement of the experience there.
Speaker Change: In terms of.
Speaker Change: The second part of the question around clearance.
Speaker Change: I'll answer it and allow David to jump in with a little bit of additional color there.
Matt Baer: One of the things that's really important is that we continue to invest in our pricing science there. We want to make sure that we're getting smarter about our pricing intelligence. That will help ensure that we've got the right markdown cadence so that we can drive the right sell-through, so that we can ensure that we have the right keep rates. And as inventory ages, then, you know, we'll be able to make sure that we have less and less as a percentage of our total retail that needs to go to clearance. I feel good about our level of investment there.
David: One of the things that's really important is that we continue to invest in our our pricing science. There we want to make sure that we're getting smarter about our pricing intelligence that will help ensure that we've got the right markdown cadence. So that we can drive the right sell through so that we can ensure that we have the right keep rates.
David: And as inventory ages, then we'll be able to make sure that we have less and less as a percentage of our total retail that needs to.
David: Go to clearance I feel good about our level of investment there I feel good about.
Matt Baer: I feel good about, you know, some of the initial results that we've seen from this increased focus on pricing science. And it's also just a phenomenal example of our continued focus on retail best practices and the outsized impact that it can have on our overall business performance. And I think, finally, you know, our ability to do that speaks a lot to what David was talking about, too, in terms of getting leverage out of the business so that we can further invest in growth initiatives over time. And Ed, just to add to that, on the clearance side, one of the other aspects that certainly has been a benefit for us is freestyle, where we can use freestyle in a lot of the ways that Matt was just describing around And so that has certainly helped us from an inventory health standpoint. Thank you so much.
David: Some of the initial results that we've seen from this increased focus and pricing science and it's also just a phenomenal example of our continued focus on retail best practices and the outsized impact that it can have on our overall business performance and I think finally, our ability to do that speaks a lot to what David was.
David: Talking about too in terms of getting leverage out of the business. So that we can further invest in growth initiatives over time.
David: And Ed just to just to add on that on the clearance side one of the other aspects that certainly has been a benefit for US is free style, where we can use free style and a lot of the ways that.
Ed: Matt was just describing around targeted promotions and in sales and using that as an avenue from a clearance perspective, and so that has certainly helped us from an inventory health standpoint.
Speaker Change: Thanks, so much.
Ed Yruma: Thanks, Ed. Please stand by for our next question. Our next question comes from the line of Kunal Madhukar with UBS.
Thanks, Ed.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Kunal medical.
Kunal Madhukar: Your line is open. Hi, thank you for taking my questions. I guess a lot of the questions are coming in because, especially about growth, because there seems to be some kind of a dichotomy between, you know, what you profess and the numbers that we see. So if the user experience is so much better than what their current experience is with other retailers, why is it that the active client base is, you know, back to the January 2018 kind of level? And then when you're thinking about wallet share, what percentage of wallet share do you currently have from the existing client?
Kunal: Your line is open.
Kunal: Alright. Thank you for taking my questions I guess on all of the questions are coming in because.
Kunal: Especially about growth coming in because.
There seems to be some dichotomy between.
Kunal: What you profess.
Kunal: And the numbers that we see.
Kunal: So the user experience is so much better than what the current experiences with other retailers.
Kunal: Why is that the active client basis back to the January 2018 kind of levels.
Kunal: And.
Kunal: And then when Youre thinking about wallet share what percentage of wallet share.
Kunal: Do you currently have.
Kunal: From the existing clients.
Kunal Madhukar: And a follow-up question would be, you talked about having a more personalized experience with the stylist. So what does that mean in terms of stylist headcount? and the amount of time that stylists will spend with individual clients. And then, you know, the follow-up to that would be, what would be the cost of having a more personalized experience? Thank you. All right, thank you, Kunal. I heard three questions. I'll do my best to take them in order.
Kunal: And a follow up would be you talked about having a more personalized experience with like the stylists.
Kunal: What does that mean in terms of stylist head count.
Kunal: The amount of time that the <unk>.
Kunal: Phyllis will spend with with individual clients.
Kunal: And then Dave.
Kunal: The follow up to that would be what would be the cost.
Kunal: Having a more personalized experience. Thank you.
Speaker Change: Alright, Thank you can all.
Speaker Change: I heard three questions I'll I'll do my best to take them in order.
Matt Baer: The first is in terms of, you know, why I continue to have such confidence in the future success of Stitch Fix versus what the numbers that you're looking at are demonstrating. And, you know, I think, based on what I've, you know, continued to say, is that our core differentiator and our core capability is how well we know our clients and how well we know our clients from that very first interaction. Our opportunity going forward is how we further capitalize on that information and how we continue to build and reimagine the experience around that. So that confidence is speaking to that future growth opportunity. And as I noted earlier, we're in the midst of a transformation, and those transformations do take time.
Speaker Change: The first is in terms of.
Speaker Change: Why I continue to have such confidence in the future success of stitch fix versus what the numbers that youre looking at are demonstrating and I think based on what I've continued to say.
Speaker Change: Is.
Speaker Change: Our core differentiator in our core capability is how well we know our clients and how well we know clients from that very first interaction our opportunity going forward is how we further capitalize on that information and how we continue to build and re imagine the experience around that so that confidence.
Speaker Change: Speaking to that future growth opportunity and as I noted earlier, we're in the midst of a transformation and those transformations do take time.
Matt Baer: On the second question, in terms of wallet share, we're very methodical in terms of the different client segments that we're targeting. And within those client segments, we're also filling very different needs for each of those clients. And as a result, we have a very different wallet share with each of those different client bases.
Speaker Change: On the second question in terms of wallet share.
Speaker Change: Methodical in terms of the different client segments that we're targeting and within those client segments were also feeling very different needs for each of those clients and as a result, we have a very different wallet share with each of those different client bases and the teams are very focused on making sure that we continue to develop build and message.
Matt Baer: And the teams are very focused on making sure that we continue to develop, build, and message to those clients in those different segments to meet those needs and gain as much wallet share as possible. On the third question, in terms of the future of the client-stylist relationship and how we want to build out a more personalized experience and what that means for the cost basis on stylists, I think what's really important there is that we're driving more meaningful interactions between clients and stylists, ones that continue to add value, and ones that create experiences that are differentiated and personalized for each client. While some clients may rely on our service to continue to keep their wardrobe replenished and refreshed over time and require minimal interaction with stylists, you might actually see less interaction with stylists.
Speaker Change: Those clients in those different segments to meet those needs and gain as much wallet share as possible.
Speaker Change: On the third question in terms of the future of the claw.
Speaker Change: Client stylus relationship and how we want to build out a more personalized experience and what that means for the cost basis on stylus I think what's really important there is that we are driving more meaningful interactions between client and stylists want to continue to add value and ones that create and create experiences that are differentiated and <unk>.
Personally is for each client while some clients may rely on our service to continue to keep their wardrobe replenished and refreshed over time and require minimal interaction with stylists, you might actually see less interaction with stylus. Other clients have been very vocal and I've heard in many of the client focus groups that I have it.
Matt Baer: Other clients have been very vocal, and I've heard in many of the client focus groups that I've attended, that they want to have a deeper and more meaningful interaction with their stylists, and then to be looking for help, you know, getting dressed or finishing out their closet in a much more dynamic and engaged way. So in terms of what it means from an expense basis, I think, you know, it'd be one where we're not anticipating any increase on that, because we're going to be able to tailor that experience to the individual, where some clients are going to want a deeper or more constant engagement with stylists, and others are going to be utilizing the power of our data science and our technology in order to keep their wardrobe refreshed, keep them on style and on trend, potentially with less experience.
Speaker Change: Tended that they want to have a deeper and more meaningful interaction with their stylists and then you'd be looking for help getting dressed or finishing out their closet in a much more dynamic and engaged way. So in terms of what it means from an expense basis I think I think.
Speaker Change: It would be one where we were not anticipating any increase on that because we're going to be able to tailor that experience to the individual where some clients are going to want a deeper more constant engagement with stylus and others are going to be utilizing the power of our data science and our technology in order to keep their wardrobe refresh keep them on style and on trend potentially with.
Matt Baer: So net-net, I think it'll balance over time. Thank you. With that, I see no further questions in the queue. Thank you for participating in today's conference. That does conclude the program. You may all disconnect. Have a great day. Hats Freewide
Speaker Change: Less experience so net net I think it will balance overtime.
Speaker Change: Thank you.
Speaker Change: With that I see no further questions in the queue.
Speaker Change: Thank you for participating in today's conference that does conclude the program you may all disconnect have a great day.
Speaker Change: Okay.
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