Q2 2025 Stitch Fix Inc Earnings Call
[music].
Good day and welcome to the second quarter fiscal year 2025, stitch fix earnings call.
At this time all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session.
Speaker Change: I'll ask a question. During this session you will need to press star one on your telephone you will then hear an automated messages advising your hands raised.
Speaker Change: John Your question Press Star one again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your Speaker Ms. Cheryl Valensuela head of Investor Relations. Please go ahead.
Cheryl Valensuela: Thank you for joining us today for the stitch fix second quarter fiscal 2025 earnings call.
Speaker Change: With me on the call are Matt their Chief Executive Officer, and David After Hart Chief Financial Officer, We have posted complete second quarter 2025 financial results in a press release on the quarterly results section of our web site investors that stitch fix dot com a.
Speaker Change: A link to the webcast of today's conference call can also be found on our site.
Speaker Change: On today's call, Matt and David will share their prepared remarks, we will then move to Q&A before concluding with my closing remarks.
Speaker Change: Before we begin we would like to remind everyone that we will be making forward looking statements on this call, which involve risks and uncertainties.
Speaker Change: Actual results could differ materially from those contemplated by our forward looking statements.
Speaker Change: <unk> results should not be considered as an indication of future performance.
Speaker Change: Please review our filings with the SEC for a discussion of the factors that could cause the results to differ.
Speaker Change: Particular, our press release issued and filed today as well as the risk factors sections of our most recent quarterly report on Form 10-Q previously filed with the SEC.
Speaker Change: 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: 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: These non-GAAP measures are not intended to be a substitute for our GAAP results.
Speaker Change: In the first quarter of fiscal 2024, we began to report our U K 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.
Matt: Now, let me turn the call over to Matt.
Matt: Thanks, Sheryl and good afternoon, everyone. Thanks for joining us today.
Matt: Our team delivered another strong quarter as we further advanced our transformation strategy.
Matt: We exceeded our expectations in Q2 with revenue of $312 $1 million and adjusted EBITDA of $15 $9 million.
Matt: The team achieved a 710 basis point sequential improvement in year over year revenue comps and a contribution margin of 33% our fourth consecutive quarter above 30%.
Matt: In addition, both our men's business and our freestyle channel returned to year over year revenue growth.
Matt: We are encouraged by these results and remain focused on the work ahead to return stitch fix to overall revenue growth.
Matt: Based on our current performance. We are also raising our annual guidance for the current year, which David will detail shortly.
Matt: We attribute our progress to a number of improvements we've made to re imagine our client experience.
These include increasing newer more on trend styles in our assortment.
Matt: Expanding fixed flexibility and strengthening clients direct relationships.
Matt: In addition, we're investing in freestyle are.
Matt: Personalized direct e-commerce platform.
Matt: All of these enhancements are resonating with clients let.
Matt: Let me touch on each and the impact we're seeing.
Matt: First the investments we've made to improve the quality of our assortment and ensure a healthy inventory position are working.
Matt: In Q2, we delivered <unk> up 9% year over year, driven by broad based strength in keep rate AUR and items per fix.
Matt: We are seeing particular success with new styles. We finished Q2 with keep rates for new inventory up 7% year over year.
Matt: We also continue to leverage our proprietary AI merchandising tool for improved inventory management.
Matt: As a reminder, this tour utilizes our client transaction and feedback data to predict demand at the individual style in client level. So.
Matt: So that our merchandising team can make buying decisions that are more effective and efficient.
Matt: It also enables our merchants to spend more time on the art of merchandising, including trend identification vendor partnership and private brand development.
Matt: Speaking of our private brands our newest labels.
Matt: Comments and Montgomery posts are performing well with the comments now a top five revenue brand in men's.
Matt: And styles from National brands, such as the Ori Marine layer Rone vineyard buying public rack Verde into stola continue to resonate with our clients.
Matt: In terms of category performance for our women's clients dresses and denim led category growth.
Matt: Denim sales as a percentage of our overall women's business increased from Q2 of last year.
Matt: And within dresses workwear addresses generated a positive year over year sales comp of more than 60%.
Matt: Meanwhile, the standouts in men's wear cashmere and performance workwear up year over year by over 400% and nearly 150% respectively.
Matt: As mentioned our men's category returned to revenue growth in Q2, and we believe our men's clients have responded well to the enhancements to our assortment entered a more precise and segmented marketing we've applied.
Matt: While a smaller percentage of our portfolio today, we are encouraged by the growth inflection and remain confident and can be a durable growth engine for us going forward.
Matt: I'll also note that as part of our broader focus on newness, we've expanded our non apparel categories across lines of business to deliver full outfitting solutions.
Matt: We have seen favorable results in sneakers jewelry and accessories with.
Matt: With each category delivering positive revenue comps within the quarter.
Matt: Second the enhanced flexibility we are building into our experience has been well received with our clients respond surpassing our initial expectations.
Matt: Note we're.
Matt: We're seeing increased adoption and greater <unk> with clients embracing the ability to receive up to eight items and FX.
Matt: We believe that offering this increased level of flexibility helps our clients navigate seasonal transitions outfitting solutions and changes in their fit profile and that this change will become an important driver of long term engagement.
Matt: Third deep client stylus connections are an essential part of the highly personalized shopping experience. We are known for and we've made ongoing investments to strengthen those relationships.
Matt: Since <unk> inception, we've combined expert stylists with best in class algorithms and advanced data science to deliver tailored style recommendations.
Matt: In Q2, we launched enhancements to our models that deliver better stylus recommendations. So that they in turn can deliver the right apparel and accessories to each individual client.
Matt: Our broader investments in these relationships, which also include the launch of stylus profiles. So clients can better know who is dialing them are resonating.
Matt: In Q2, the percentage of clients requesting the same stylus for their next fix hit the highest level in nearly five years.
Matt: I also mentioned that we are continuing to invest in freestyle as a complement to our fixed offering.
Matt: While fixed remains the majority of our business are healthy it's clients or those who utilize both channels.
In Q2, we ran dedicated campaigns to drive awareness and consideration of stitch fix as a destination for holiday shopping for the first time.
Matt: In addition, we adopted more advanced data driven forecasting tools, which expanded our shopper both selection by more than 20% without any increase in inventory ownership.
Matt: Initiatives such as these contributed to freestyle returning to year over year growth in Q2, and we see more runway to improve future performance.
Matt: In aggregate, we are seeing the impact of the changes we've made to our experience in our client metrics.
Matt: We are making progress towards active client growth clients, new to <unk> increased year over year, and importantly, Q2 marked our smallest sequential decline in active client count in three years.
Matt: Since August when we introduced the first set of changes to our client experience. Each monthly cohort. We've acquired has spent more than cohorts from the same month in the previous two years contributing to ongoing strength in 90 day LTV.
Matt: We're also pleased to see further increases in clients, who have enabled recurring shipments.
Matt: The performance of these cohorts gives us the confidence to invest further in both engaging our existing clients and acquiring new ones.
To achieve this we are building upon our retail therapy brand platform that exploit a stitch fix help solve our biggest shopping fit and style challenges people face.
Matt: We have also optimized our channel specific media and overall media mix as well as launch segmented onboarding experiences that speak to distinct needs of different clients.
Speaker Change: I'd also like to recognize that this earnings call is happening during a time of uncertainty with respect to the macroeconomic environment and in particular the impact of tariffs.
Matt: Our team and partners had a history of managing tariffs, while and have confidence will continue to do so.
Matt: We currently do not expect that tariffs will impact client prices or margins in the second half.
Matt: We remain focused on our clients and we will continue to work hard to deliver the best experience and value to them every day.
Matt: To wrap up Q2 was a strong quarter and demonstrates the undeniable progress of our transformation strategy.
Our team remains focused on execution to unlock our market opportunity and we believe our recent performance shows we are making the right investments as we look ahead to the growth phase of our transformation.
Matt: With our expert stylus curated assortment of private and National brands Best in class AI and recommendation algorithms and in depth customer data I believe more than ever that stitch fix offers a superior alternative to traditional shopping and we constantly challenge ourselves on how best to serve our current and prospective.
Matt: Lions for all of their apparel and accessories needs. So that we are their retailer of choice.
Matt: I also wanted to take a moment to recognize the entire stitch fix team and thank them for their dedication and hard work in service of this goal.
David: With that I'll turn the call over to David to share more details of our financial results and outlook.
David: Thanks, Matt.
David: To reiterate we're encouraged with the momentum we're building the team delivered a strong Q2, which gives us greater confidence in a return to overall revenue growth during FY 'twenty six.
David: We can see the impact of our transformation strategy across the P&L are.
David: Our year over year revenue comps continue to improve each quarter.
David: And while they are currently smaller areas of our business the return to growth in men's and freestyle indicates that we are on the right path, we're making the right investments and we have the right team in place to deliver on our commitments.
David: We are applying learnings from the success of these two areas across our entire business.
David: Now, let's dive into the results.
David: Q2, net revenue came in at $312 1 million down five 5% year over year and 2% quarter over quarter.
David: Revenue was above our guidance range due to sustained strength in <unk>.
David: Which was up 9% year over year, and 4% quarter over quarter.
David: January was a particularly positive month for us as we were well positioned from an assortment perspective to better meet our clients' apparel needs.
David: As Matt noted the AAV upside in the quarter was driven by higher keep rate.
David: And items per fix.
David: This contrast, with last quarter's growth, which was primarily due to AUR.
David: This quarter, we saw strength across all three of these drivers.
David: <unk> has now increased year over year for the last six quarters, which is encouraging and we believe there is additional opportunity.
David: On the client side active clients ended the quarter at $2 4 million down 16% year over year and down two 6% quarter over quarter in line with our expectations.
David: Returning to client growth is a big opportunity and one we're focused on the progress may not be linear and we still have work to do to get there.
David: Within the context of our active client declines it's important to note that our recent increases could present more challenging revenue growth comps in the future and.
David: And Thats a factor we're considering as we look ahead to FY 'twenty six.
David: Revenue per active client or our pack for the quarter was $537.
David: Up 4% year over year and relatively flat on a sequential basis.
David: Gross margin for Q2 came in at 44, 5% up 110 basis points year over year, driven primarily by ALG upside and improved product margins.
David: Our contribution margin in Q2 was 33% our fourth consecutive quarter above our historical range of 25% to 30%.
David: Our warehouses styling teams continue to drive leverage and we believe this new cost structure is sustainable going forward.
David: It's because of the great work our teams have done in building and maintaining a strong foundation for our business that we can continue to lean in and invest.
David: In areas, such as inventory assortment and marketing.
David: In advertising, we came in slightly below our estimated range at seven 8% of revenue in Q2 down 160 basis points quarter over quarter.
David: We consistently bring a disciplined ROI lens to our marketing spend and the holiday period tends to be a more expensive time to acquire new clients.
David: With our focus on long term durable growth, we adjust our AD spend regularly aiming for efficiency an acceptable ROI.
David: We ended Q2 with net inventory of $109 6 million.
Speaker Change: Down, 13% year over year, and down 8% quarter over quarter due to our improved inventory management, which as Matt mentioned is aided by AI tools that help us maintain healthy levels across our assortment to meet client needs and balanced risk.
Speaker Change: Q2, adjusted EBITDA was $15 9 million or five 1% margin.
Speaker Change: Up 380 basis points year over year, and up 90 basis points quarter over quarter.
Speaker Change: Free cash flow was negative $19 million in Q2 in line with our expectations.
Speaker Change: As I said last quarter.
Speaker Change: We anticipated Q2 would be negative due to the timing of working capital requirements related to inventory purchases.
Speaker Change: We ended the quarter with $230 million in cash cash equivalents and investments.
Speaker Change: And no debt.
Speaker Change: Turning to our outlook.
Speaker Change: As a result of the strength we saw this quarter, we are raising our annual revenue and EBITDA guidance.
Speaker Change: Today's update reflects our current expectation that tariffs will not impact client prices or margins in the second half of this fiscal year.
Speaker Change: We will continue to monitor the potential impact of tariffs as well as the increased uncertainty in macroeconomic conditions and consumer sentiment.
Speaker Change: For full year FY 'twenty five we expect total revenue to be between one to $2 5 billion and $1 two 4 billion.
Speaker Change: We expect total adjusted EBITDA for the year to be between $40 million and $47 million.
Speaker Change: This guidance still assumes will be free cash flow positive for the full year.
Speaker Change: For Q3, we expect total revenue to be between $311 million and $316 million.
We expect Q3, adjusted EBITDA to be between $7 million and $10 million.
Speaker Change: We expect both Q3 and full year gross margin to be approximately 44% to 45%.
Speaker Change: And we continue to expect full year advertising to be at the high end of the 8% to 9% range, we provided last quarter.
Speaker Change: In closing our first half results and second half outlook demonstrate that we are making clear and measurable progress across many areas.
Speaker Change: We're methodically executing on our strategic priorities with financial discipline, and striking a healthy balance by maintaining a lean cost structure and a strong balance sheet.
Speaker Change: While making disciplined investments that aimed to fuel future sustainable profitable growth.
Speaker Change: And with that I will turn the call over to the operator for questions.
Speaker Change: Thank you as a reminder to ask a question. Please press star one 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 to 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.
Speaker Change: Questions.
Speaker Change: One moment for your first question.
Speaker Change: Yes.
Speaker Change: And that will come from the line of Alicia Chairman with Bernstein. Your line is open.
Alicia Chairman: Thank you so much for taking my question.
Alicia Chairman: Matt and David I was wondering if you could start by telling us reminding us a little bit about your customer demographics in terms of household income and any other demographic features do you think are relevant given the current changes in consumer sentiment across income bands.
Alicia Chairman: And then I have a follow up regarding.
Alicia Chairman: Some of the comments that you've made previously and it in your presentation around market size.
Alicia Chairman: You're under 1% of the total accessible market as you defined it in U S apparel.
Alicia Chairman: Do you think that you need freestyle in order to expand that Tam.
Alicia Chairman: Or do you think there is continued opportunity for expanded Tam with just the fixed model in terms of driving brand awareness and.
Speaker Change: <unk> penetration. Thank you so much.
Matt: In Asia, It's Matt I appreciate the question.
Speaker Change: First in terms of who our clients are we really think about our clients from more of a added to another behavioral standpoint.
Speaker Change: See that client base really spanned across all different levels of household income.
Speaker Change: And what's really important and noteworthy within our client base is why they come to stitch fix and why our core value proposition is built uniquely to serve them. So our clients are coming to us theyre looking for help or advice or solutions or additional convenience when it comes to shopping for apparel and accessories when it comes to understanding.
Speaker Change: What is in styler on trend when they need help putting together outfits and one of the things that's really exciting and compelling about the stitch fix value proposition is that the majority of this country. When you look at the data that exists out there and there was a recent article in the Wall Street Journal actually only about 10% of U S consumers.
Speaker Change: That is filed with the in store shopping experience for apparel right now and similarly, and along those lines about 90% of people feel stress when deciding either what to buy or what to wear when theyre getting dressed each day and that stress and anxiety.
Speaker Change: Coupled with the challenges that they have with the alternative shopping method is why the core value proposition of stitch fix is one that resonates so strongly.
Speaker Change: We're able to provide that.
Speaker Change: The service that we offer that's what makes it possible for these folks to really find the styles that match their style preferences, that's what enables us to service them within their value proposition.
Speaker Change: It's also what enables us to make sure that the apparel that we send them it's going to fit.
Speaker Change: And you really compare that against the alternative shopping methods that they have.
Speaker Change: And those clients they really don't prefer to spend hours traversing around a department store, we're trying on clothes and into shuffled or poorly lit dressing room. There also not interested in browsing endlessly online seeing products that don't match their style preference or it's more expensive than the budget at the time were so cheap a question the authenticity.
Speaker Change: To your value of the garment.
Speaker Change: And then of course, they do buy online you're going to get boxes piling up at their house and often very little of that assortment is ultimately going to fit them.
Speaker Change: We provide a solution for all of that we make it easy for those folks.
Speaker Change: We do that through our deep understanding of each individual client that's powered by our AI driven insights proprietary algorithms as well as the skills and the expertise of our human stylist.
Speaker Change: And in a period in time in which the consumer it.
Speaker Change: Might be.
Speaker Change: More tight with their discretionary income we also feel like we have a competitive advantage in that situation. The relationship that our clients have with stitch fix is one that is enduring.
Speaker Change: Come to understand and appreciate the additional convenience and a solution orientation of our service. The fact that we make it really easy for them to get their needs met we also through our the recurrence of our relationship with them in our business model is such that our product ends up in a consumer's home they can to try it on within their own closet.
Speaker Change: <unk>.
Speaker Change: And they don't they are thinking about reducing their shopping journey, whether that's opening the shopping app are driving to a mall, we basically circumvent that based on a really strong relationship and in recurring shipment dynamic that we have with them. So we feel that we're strategically really well placed defined success, even in a tougher consumer environment.
Speaker Change: I think a lot of that can also be seen by our more recent results.
Speaker Change: As David noted in his prepared remarks January was a particularly strong month for US we continue to see strength in our business performance through February we continue to see strength in our business performance in March and I think that should be clearly evident in the significant raise that we had in the full guidance for this fiscal year.
Speaker Change: So we feel like we're really well positioned to serve clients no matter. What their household income is no matter what demographic they have because of the compelling value proposition.
Speaker Change: The unparalleled service.
Speaker Change: Stitch fix provides for us provides for clients rather.
Speaker Change: On the second question in terms of the role of freestyle, how freestyle helps us too.
Speaker Change: Really address the larger market for us I think the freestyle plays a critical role for us and for our clients.
Speaker Change: That enabled.
Speaker Change: Our clients are shop in between fixes. It also enables it is declining for example get to polo shirt within their bags and they love how it looks they love how it how it feels and the price is right. They can jump right back into the <unk> ecosystem and by that same polo shirt in multiple colors, which makes it I think tremendous sense. We also have all of the same.
Speaker Change: Leading personalization technologies built into our free style experience so that when clients. After a fixed experienced they can come in if they really like to particular item. They are then able to jump into the freestyle experiencing build outfits around that specific item that they kept within their fixed.
Speaker Change: And since the launch of our style file as well of the individual style persona that every client has you also have personalized shopping and tailored to your style file which clients have really resonated with.
Speaker Change: And it really appreciated since we launched that last year. So the freestyle business. What it does it really serves complementary to our fixed experience. It helps us capture greater wallet share for our clients. It helps ensure that when a client anytime they have an apparel and accessories need stitch fix will be the retailer.
Speaker Change: Of choice for them.
Speaker Change: So as it helps us increase our wallet share with each individual client. It will also help us expand our penetration of the total addressable market.
Speaker Change: Really helpful. Thank you.
Speaker Change: Youre welcome.
Speaker Change: Thank you one moment our next question.
Speaker Change: And that will come from the line of Dana Telsey with Telsey Advisory Group. Your line is open.
Dana Telsey: Hi, Good afternoon, everyone as you think about it.
Speaker Change: Mcauliffe cash that Ryan how are you thinking of that impact on your pricing and owned brands versus National brands and then as you've expanded the number of brands that you carry.
Speaker Change: What categories are you seeing that are performing what categories are being adjusted.
Speaker Change: Yes.
Speaker Change: Hey, Dan I appreciate the questions. The first question really around tariffs I think the second in terms of.
Speaker Change: The mix within our.
Speaker Change: Within our different brand portfolios and then also in terms of the category penetration that were seeing.
Speaker Change: I think.
Speaker Change: Talked about it a little bit in the prepared remarks, and happy to share a little bit more details in terms of.
Speaker Change: How we are approaching the current environment with the reality of tariffs and the continued kind.
Speaker Change: Kind of volatility of what tariffs might be in the future. So we have a tariff task force in place. This is a team of folks that have a proven track record of doing a really good job mitigating the impact of tariffs previously.
Speaker Change: And they put together I think are really good tariff mitigation strategy that will enable us to protect the profitability within our private brands our private brand.
Speaker Change: Brand portfolio consists of several vendors many of those vendors have production across multiple countries, where it gives us optionality to be very strategic if necessary in order to reduce what would be a longer term financial impact from tariffs.
It's a bit of an overlap with the second part of your question, but it's a multi brand retailer. We also really benefit from the vast matrix of national and market brands. In addition to our private brands. So if necessary in order again to mitigate any potential impact from tariffs, we're able to shift within that portfolio or within that matrix of brand.
Speaker Change: <unk>.
Speaker Change: I think really strategically as well.
Speaker Change: And I think ultimately.
Speaker Change: To reiterate what we said in the prepared remarks that is we're looking at the balance of this fiscal year, we're not currently anticipating any impact to our margin or any required.
Speaker Change: Kris in cost client facing and I think that gives us a really nice competitive advantage relative to the position that others might find themselves in this situation and credit to the team for their really sound strategy and the execution of that.
Speaker Change: When it comes to the matrix between our national brands and our private brands. We've talked about this before I. Appreciate the question because it's really important I think for us to reiterate we're going to continue to be client led we're going to continue to focus on what client demand is telling us.
Speaker Change: And that will that will help us determine what is that right balance between private brands and national brands we.
Speaker Change: We have a really strong portfolio of private brands as noted in the prepared remarks. We've recently launched two new private brands that are resonating really well with our clients. It was awesome to see the comments pop up to be one of the top brands in our entire men's portfolio after launching so recently.
Speaker Change: And I think we're going to continue to find success as we continue to invest in the value proposition within those private brands.
Speaker Change: If you recall some of the conversations that we were having last fiscal year and even earlier, we did a lot of work earlier in my tenure to really edit within our overall assortment to make sure that the national brands. We are carrying are ones that added incremental value and differentiated us both with our clients and differentiate us from what we are already offering with our private brand portfolio.
Speaker Change: Folio that great work from our merchant organization is what's enabled US now to go back out into market and to reinvest and to bring in new national brands that are highly coveted within the consumers that we're serving today and thats really strengthened.
Speaker Change: Our overall assortment matrix I believe that investment in newness across our assortment that recalibration of where we sit within the style and trend spectrum has really helped us drive a lot of the success that we've been speaking to in terms of keep rate in <unk> at our items per fix.
Speaker Change: And we're going to continue to lean in there it's really critical that it's in apparel and accessories retailer, we're standing behind all of the assortment that we're bringing in and all of that assortment in place a really important role within the overall matrix of it.
Speaker Change: And then I think the final piece in terms of categories.
Speaker Change: We've always historically been really do a really good job in our tops and bottoms business and we continue to invest there and we continue to maintain our market share within those categories, what I love about how our merchant team has responded to the challenge, particularly over the last nine months is how do we continue to lean in.
Speaker Change: And ensure that we're capturing our fair share in all of our other categories. So we've seen a lot of success across the board as we're looking to building out additional categories and growing our market share and capturing the wallet share at a consumer level within each of them.
Speaker Change: One thing that I will note and it has been a continued focus as mentioned in the prepared remarks is our particular emphasis within the non apparel categories. It's great to see sneakers and accessories become growing categories for us and we will continue to invest in that.
Speaker Change: Other thing that I believe is really important when you're thinking about our category expansion and deepening our market share within each category is the continued penetration and adoption of the flexibility that we've built within our fix experience consumers and our clients absolutely love that we're allowing them to choose <unk>.
Speaker Change: Eight items within a particular fix.
Speaker Change: Every time, we look at the data the adoption rate continues to exceed our updated expectations.
Speaker Change: And in a really exciting way too we continue to see even better order economics. The more items. The decline is selecting within their fixed and thats, what gives us that ability to really lean into that category expansion and ensure that expanding into new categories doesn't in any way cannibalize. The historical success that we've had in tops and bottoms. So.
Speaker Change: Category expansion will be a key driver of our wallet share expansion at our market share expansion as we return to growth and Dan I would just add really quickly.
Speaker Change: When we look at that expansion, we look at those investments, it's also really encouraging too.
Speaker Change: To know that we can do that and still maintain the gross margins that we have and that we guided to in our prepared remarks still being in the back half of the year from a full year perspective.
Speaker Change: 44% to 45% and still having really healthy contribution margins you know we had 33% this quarter end and we believe that that's sustainable going forward and so just really encouraged with the leverage that we're driving the business to allow those investments as well.
Speaker Change: Thank you.
Speaker Change: Thank you welcome. Thank you one moment our next question.
Speaker Change: And that will come from the line of Jay sole with.
Speaker Change: With UBS your line is open.
Speaker Change: Hi, this is serious severity check on behalf of Jay.
Speaker Change: Congrats on a nice quarter.
My first question is on gross margins just wondering if you have any outlook for <unk> in Q2, it looks like gross margins expanded about 100 basis points.
Speaker Change: Just wondering what were some of the drivers of that and similarly do you have like what are you expecting to drive gross margin expansion or contraction in <unk>.
Speaker Change: Yes, so thanks for thanks for the question.
Speaker Change: Q2, it was it was really more about typical seasonality.
Speaker Change: And gross margin, we tend to see a quarter over quarter decline between Q1, and Q2, certainly promotions play a part in that.
Speaker Change: But we're still very comfortable with a <unk>, 44% to 45% that we have for the full year guide and I think thinking about the back half I would still think about the back half and then in that same range.
Speaker Change: Got it got it and then just one more quick one if I can.
Speaker Change: Briefly mentioned that March was strong, but just wondering if you can give any more color on sort of bi.
Speaker Change: Quarter to date trends.
Speaker Change: Anything youre seeing in February and March is it similar to what you were seeing in <unk> is there is it a little stronger.
Speaker Change: Yes, maybe I'll jump in at a very high level and David If you want to follow up with a little bit of details here Tonight to chat again.
Speaker Change: Look I mean, we're just incredibly encouraged by the momentum that we're seeing we're really encouraged by the results that we had in Q2 that exceeded our expectations.
Speaker Change: The initial.
Speaker Change: Responses.
Speaker Change: Based on the very significant increase in our guidance over the back half of the year, we're looking to see that momentum not just continue but also accelerate over time, which I think is just a really good way to be thinking about what that performance wise in February and what we've seen March to date.
Speaker Change: The piece that I think is also maybe worth just reiterating a bit from the prepared remarks.
Speaker Change: I chair that since August when we both launched a rebrand of stitch fix as well as the first set of changes around our client experience or the re imagination of that client experience.
Speaker Change: We just continue to see tremendous success with all of the clients that we have been acquiring over that period of time.
Speaker Change: And normally when you launch a rebrand and <unk> launch.
Speaker Change: So many net new updates to.
Speaker Change: Your client experience.
Speaker Change: Often you actually see a bit of a short term setback in your performance metrics.
Speaker Change: And then often also some initiatives will take root and perform while others.
Speaker Change: Might not take root or might not perform to expectations.
Speaker Change: I think.
Speaker Change: In credit to the team for having the right strategy and credit to the team for really great execution of that strategy.
Speaker Change: Since that moment in August nearly every initiative that we've introduced as part of that re re imagination of the client experience has performed well.
Speaker Change: And nearly every initiative has also exceeded our expectations.
Speaker Change: That performance is what enabled us to achieve year over year revenue growth in mens.
Speaker Change: That is what has enabled us to achieve year over year revenue growth in our freestyle channel and although not noted in the prepared remarks I think it also really important to share that Thats also what enabled us to drive significant improvement in trend in our women's business and it's also what enabled us to drive significant improvement in trend.
Speaker Change: Within the fixed channel so I think ultimately.
Speaker Change: We've really focused on strengthening the foundation of our business and instituting retail best practices across the board and now with the re imagination of the client experience layered on top of that we're really starting to see that outsized improvement in trend in our business overall, and we expect that momentum to continue and as I noted.
Speaker Change: I believe that should be quite evident.
In the raised guidance that we shared for the balance of the fiscal year.
Speaker Change: Yes, sorry, just to just add a little bit more detail around around some of the numbers for this quarter, we saw a 9% year over year increase.
Speaker Change: The increase in fixed <unk> and that was a big part of the outperformance and certainly the performance versus expectations.
Speaker Change: And there were a couple of things going on there first we saw higher than expected adoption of that flex fix offering which increases the average number of items and effects.
Speaker Change: Fixes with that extra flexibility increase as a percentage of total fixtures by almost 40% from the end of Q1 to the end of Q2.
Speaker Change: We also saw higher than expected keep rate in the quarter historically we've.
Speaker Change: We've seen a pretty significant decline in keep rate coming out of the holidays, but.
Speaker Change: But the teams the merchandising teams the technology teams or styling teams.
Speaker Change: Took a number of actions to make sure that improved this year and we saw that come through when we saw it build throughout the quarter.
Stats just to sort of show that builders.
Speaker Change: And in January was 16% year over year, and so just a really strong quarter and to Matt's point. We played forward some of that upside and also some of the volume.
Speaker Change: Benefits, we've been seeing recently.
Speaker Change: And play that forward and our overall guidance for the year.
Speaker Change: The other thing I would call out as sort of the active client side, we're definitely encouraged with what we're seeing from an active client standpoint, and when you play that out into future quarters for Q3, we expect active clients to be.
Speaker Change: Quarter over quarter, but improving from last quarter. So so roughly sort of approximately about 1% down quarter over quarter.
Speaker Change: Call out there is there is seasonality to active clients as well and so Q4 Q.
Speaker Change: Q3 tends to be a stronger quarter than Q4 for us and so because of that we probably expect Q4 to be down slightly more quarter over quarter than Q3, but still much better than what we saw last last year.
Speaker Change: Thank you Brett.
Speaker Change: Thank you one moment our next question.
Speaker Change: And that will come from the line of Dylan Carden with William Blair. Your line is open.
Speaker Change: Thanks, maybe David just following from that line of thought the comments that <unk> go forward might present kind of a headwind to growth can you just unpack that a little bit.
<unk>.
Speaker Change: Thanks.
Speaker Change: Yes definitely thanks for thanks for the question John I mean basically.
Speaker Change: <unk> has been a really strong thing for US you know AAV has been up six quarters in a row.
Speaker Change: And really as.
Speaker Change: You start comping that and if you think about the two year stacks I mean in Q2. This quarter. It was 9% up. This this Q2 last Q2 was up 4% so thats.
Speaker Change: A 13% stack comp over the last two years and so what I was alluding to is with those increases certainly comping that go into next year, just creates a little bit more of a challenge and.
Speaker Change: And certainly in the environment that we just described around active clients as well active clients we.
Speaker Change: We do expect active clients to continue decline into FY, 'twenty, six and that along with sort of harder comps from an <unk> perspective, or just things that we're certainly taking into account as we start looking at FY 'twenty six.
Speaker Change: Okay.
Speaker Change: Got it and so I guess.
Speaker Change: Outside of that is that the growth that youre kind of forecasting at some point next fiscal year.
Speaker Change: It's more of an active client growth story than kind of continuing to push on spend per.
Speaker Change: Yes.
Speaker Change: I think I think we've actually talked about this the last couple of quarters as I think we have opportunity in both areas and certainly what we're seeing right now is strength in existing client engagement and really offering them a lot more value and different ways to engage and so we've been seeing that but I think what we've said.
Speaker Change: Historically is that we really want to see both to talk about long term sustainable growth. So I think there's a path to growth.
Speaker Change: Without that inflection active clients, but certainly when you have both that's when you get to that sustainable long term growth that we are that we're really driving towards.
Speaker Change: Got it thank you Bob.
Speaker Change: Yes, thanks, Doug. Thank you I'm showing no further questions in the queue. At this time I would now like to turn the call back over to Matt <unk> for any closing remarks.
Speaker Change: Okay. Thank you.
Speaker Change: To recap I think just want to reiterate how encouraged I am by our recent results for.
Speaker Change: For the second quarter, we exceeded our expectations for both revenue and adjusted EBITDA and we also raised our full year outlook for both metrics and that momentum that we're seeing in our business that momentum is undeniable. The improvements our team has made to our client experience are clearly resonating.
Speaker Change: We're getting great feedback from our clients on these changes and our clients are telling us that we are increasingly delivering on our mission to mission to help them discover the styles. They will love it fit perfectly so they always look and feel their best.
Speaker Change: Importantly, we're also making progress toward active client growth and we've already returned topline revenue growth in both our men's business and our freestyle channel.
Speaker Change: And all of this progress wouldn't be possible without our team and the team continued to build a stronger operational foundation for our business to grow upon that foundation will enable us to scale and move towards the growth phase of our transformation I continue to believe that a judicious and disciplined transformation as one that will lead to profitable and sustainable growth.
Speaker Change: In the future.
Speaker Change: Given stitch fix is a compelling value proposition, which we just discussed the innate strength of the business model and all that we've accomplished in the first half of fiscal 2025, I'm more confident than ever in stitch fix its future and our ability to be the retailer of choice for an expanded base of clients. We very much appreciate your interest in stitch fix and look forward to sharing.
Speaker Change: Our continued progress with you on our next call.
Speaker Change: Okay.
Speaker Change: Thank you for participating in today's conference. This does conclude the program you may all disconnect have a great day.
Speaker Change: Okay.
[music].
Speaker Change: Yes.