Q3 2025 Stitch Fix Inc Earnings Call
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Speaker Change: Good day and thank you for standing by welcome to the Q3 FY 'twenty five stitch fix earnings conference call. At this time all participants are in a listen only mode. Please be advised that today's conference is being recorded after the speaker's presentation there'll be a question and answer session to ask a question. Please press star one.
Speaker Change: One one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again I would now like to hand, the conference over to your speaker today, Cheryl balance whaler head of Investor Relations.
Speaker Change: Thank you for joining us today for the stitch fix third quarter fiscal 2025 earnings call.
Speaker Change: With me on the call are that their chief Executive Officer, and David After Hart Chief Financial Officer.
Speaker Change: We have posted third quarter 2025 financial results in a press release on the quarterly results section of our website investors <unk> com.
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 co, creating with math 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: For a discussion of the factors that could cause our results to differ. Please review our press release issued and filed today as well as the risk factors sections of our most recent quarterly report on Form 10-Q, and subsequent periodic reports 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 statement, except as required by law.
Speaker Change: 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.
In the first quarter of fiscal 'twenty 'twenty four 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: Thank you Sheryl and good afternoon, everyone.
Matt: I'm proud to share the strong results we've achieved this quarter.
Matt: Highlighted by a return to year over year revenue growth.
Matt: Q3 revenue was $325 million and adjusted EBITDA was $11 million.
Matt: In the quarter, our women's business and overall fixed channel returned to revenue growth.
Matt: For the second consecutive quarter, our men's business and freestyle channel revenue grew.
Matt: In addition, <unk>.
Matt: <unk> grew 10% with items per fix keep rate and AUR all up year over year for the second straight quarter.
Matt: Based on this strong performance and our ongoing momentum we are increasing our annual guidance for the current year, which David will detail shortly.
Matt: These results reflect the strength of stitch fix this value proposition and the disciplined execution of our three phased transformation strategy.
Matt: Over the last two years, we have worked through the first two phases of our strategy rash.
Matt: Rationalize and build.
Matt: And fundamentally reshape how we operate.
Matt: We've strengthened the foundation of our business incorporating retail best practices in strategic areas, such as pricing warehouse optimization and inventory management.
Matt: That enable us to operate more efficiently.
Matt: We've also brought to life more modern and dynamic stitch fix you our refreshed brand identity and the progress we have made re imagining our client experience.
Matt: The improvements to our client experience include four areas of focus enhancing.
Matt: Enhancing client engagement features deepening client stylus relationships, introducing increased flexibility to our service and.
Matt: And operating a stronger assortment with more fresh and new styles.
Matt: The latter two in particular contributed to our strong results in the quarter.
Matt: First our clients are responding positively to the increased flexibility we provide.
Matt: Larger, Texas, which offer up to eight items has helped our existing clients better refresh their closet seasonally explore current trends and update their wardrobes for big and small life moment.
Matt: Larger, Texas have directly contributed to our growth.
Matt: We are now testing larger, Texas with first time clients to help us more quickly understand their preferences and serve them better from the start.
Matt: We're also testing team, Texas, which provide clients with selections curated for specific occasions or trends.
Matt: For summer vacations to workwear refreshes.
Matt: Additionally, we're rolling out a new feature that allows clients to start a fix around an item they discover on freestyle.
Matt: This enables clients to take advantage of the discovery on freestyle.
Matt: Still leverage our team of expert stylists to complete a look around their chosen item.
Matt: Second.
Matt: In merchandising, we have strengthened our assortment by offering increased the variety and on trend styles, which are contributing to higher fixed <unk> as well as driving growth in our freestyle channel.
Matt: This quarter at leisure was a notable highlight for our women's and men's clients alike up over 30% year over year.
Matt: In addition, our women's business, our strength and wildlife denim and spring transitional sweaters.
Matt: Whereas our metals business or demand for fleece and knit tops.
Matt: We have also further expanded our assortment within adjacent categories, such as footwear accessories and jewelry.
Matt: And we are offering more complete outfitting solutions that are resonating with our clients.
Matt: As an example, we continue to see increased demand for footwear across all lines of business with.
Matt: With sneakers up 35% year over year.
Matt: These efforts to improve the client experience coupled with our retail therapy brand platform, which demonstrates how stitch fix is the solution to the frustration of traditional apparel shopping are leading to stronger client metrics.
Matt: In terms of overall active clients.
Matt: Q3 marked our lowest quarter or sequential declines in three years.
Matt: And the number of active clients on recurring shipments has grown for three straight quarters.
Matt: With regards to new clients, we've achieved two straight quarters of year over year, new client growth.
Matt: We continue to see new clients spend more as evidenced by 90 day, Ltvs, which are among the highest in three years.
Matt: This demonstrates that we are successfully acquiring higher value clients for whom our service resonate.
Matt: As we move from the build phase in the growth phase of our transformation, we're focused on cementing ourselves as the retailer of choice for apparel and accessories.
Matt: By delivering the most client centric and personalized shopping experience.
Matt: We believe we are well positioned to do this because of the unique value of our service provides.
Matt: We pride ourselves on sending every client optics as unique as they are.
Matt: We do this by leveraging our team of experts stylists as well as our best in class AI and recommendation algorithms built from the billions of insights we have gathered on style and fit.
Matt: This differentiation is key to our gaining market share and based on year to date insights from sarcoma, we are growing faster than the overall apparel market.
Matt: We are successfully transforming our business in fundamental ways.
Matt: At the same time, we are navigating significant external challenges.
Matt: Dynamic macroeconomic environment, a shifting tariff landscape and ongoing pressure on consumers' discretionary spending.
Matt: Against this backdrop, we remain focused on what we can control.
Matt: And we have strong conviction in our path forward.
Matt: Our team is actively working to mitigate tariff related risks and prepare for a broader macro shifts.
Matt: As we look further ahead, we believe the current tariff structure could have a greater impact on FY 'twenty six which for US begins in August.
Matt: However, consistent with our view last quarter.
Matt: We don't expect any significant cost impact from tariffs for the remainder of our fourth quarter.
Matt: In closing.
Matt: We're proud of our accelerated returned to revenue growth.
Matt: We believe our results demonstrate that we have the right strategy the right team and the right operational rigor to continue gaining share.
Matt: By staying relentlessly focus on our clients investing where it matters and executing with discipline. We believe we will not only successfully navigate this uncertain environment, we will emerge as an even stronger company.
Matt: Thank you to the entire stitch fix team for your dedication to our clients and our mission, which is driving our business forward.
Matt: I'd also like to thank our clients partners and long term shareholders for their support.
David: And with that I'll turn it over to David.
David: Thanks, Matt and good afternoon, everyone.
David: As Matt mentioned, we are proud of our return to revenue growth in Q3.
David: This success came as a direct result of focus delivery across all of our teams. We have made deliberate choices about how to operate with more agility drive greater leverage in our cost base and invest in targeted areas to drive growth.
David: At the same time, we recognize the macroeconomic backdrop remains uncertain and we are preparing accordingly.
David: While we haven't seen a pullback in active client spend within our financial results in fiscal 'twenty five to date, we are closely monitoring broader market trends and the impact tariffs may have in the quarters ahead.
David: We are actively scenario planning and maintaining the same disciplined approach that has guided our recent performance.
David: We are confident in the foundation, we have built and remain focused on prudently managing our business through this uncertain environment.
David: Now, let's turn to the numbers.
David: Q3, net revenue reached $325 million.
David: <unk>, 0.7% year over year, and four 1% quarter over quarter.
David: Growth was largely driven by strength in <unk> due to the increased penetration of our larger fixed offerings and our focus on trend and style right assortment.
David: Net active clients ended the quarter at $2 4 million clients down.
David: <unk> 10, 6% year over year.
David: And down <unk>, 8% quarter over quarter, as we continue to narrow losses in active clients.
David: Revenue per active client for the quarter was $542.
David: Up three 2% year over year and up 1% quarter over quarter.
David: Gross margin for the quarter came in at 44, 2% down 130 basis points year over year, and down 30 basis points quarter over quarter.
David: The year over year change was driven primarily by lower product margins as we invest in our client experience through our assortment strategy.
David: Advertising came in at 10, 2% of revenue in Q3 up 130 basis points year over year, and up 240 basis points quarter over quarter as part of our broader reinvestment and growth.
David: We ended Q3 with net inventory of $114 $4 million flat year over year and up four 4% quarter over quarter.
David: Our inventory turns were up both year over year and sequentially, reflecting both higher demand and better inventory management.
David: Q3, adjusted EBITDA was $11 million or approximately three 4% margin.
David: 130 basis points year over year, and down 170 basis points quarter over quarter.
David: We generated $16 million of free cash flow in Q3 and ended the quarter with $242 million in cash cash equivalents and investments and no debt.
David: Turning to our outlook for Q4 and FY 'twenty five.
David: Like to offer a few thoughts to frame our updated guidance.
David: First with respect to revenue, we exceeded expectations in Q3, and we are projecting a stronger Q4 than previously anticipated.
David: Both of these are reflected in our increased full year revenue outlook.
David: This means that excluding last year's 50, <unk> week, we expect to see a second consecutive quarter of top line growth.
David: Consistent with what we shared on our last earnings call, we still expect active clients to decline sequentially in Q4.
David: As for adjusted EBITDA, we are tightening our FY 'twenty five guidance, which largely reflects strategic investments, we're making in client acquisition and re engagement as well as strengthening our assortment.
David: We believe these are thoughtful long term investments to support sustainable growth.
David: As a result for full year FY 'twenty five we now expect total revenue to be between one to $5 4 billion and.
David: And $1 to $5 9 billion.
David: We expect total adjusted EBITDA for the year to be between $43 million and $47 million.
David: This guidance still assumes will be free cash flow positive for the full year.
David: And for Q4, we expect total revenue to be between $298 million and $303 million.
David: We expect Q4, adjusted EBITDA to be between $3 million and $7 million.
David: As a result of the factors I mentioned earlier, we expect Q4 gross margin to be at the lower end of our 44% to 45% range and full year FY 'twenty five gross margin to be in the middle of that same range.
David: We expect full year advertising to be at the high end of the 8% to 9% range, we provided last quarter.
David: Looking further ahead, we are in the early stages of the planning process for FY 'twenty six and as such we will provide actual guidance during our next earnings call.
David: As we move through the planning process, we're mindful that three overarching impacts may put pressure on our financial results.
David: First based on current tariff rates, we expect our cost to increase in FY 'twenty six.
David: We're closely monitoring the situation and proactively working with our suppliers.
David: Second broader macro uncertainty and market conditions may put increased pressure on discretionary spending in FY 'twenty six.
David: And third as we called out last quarter continued active client the clients creates tougher year over year revenue growth comparisons.
David: We will continue to monitor each of these as we progress through the planning process.
David: I want to reiterate that we'll manage the business with the goal of driving long term profitable and sustainable growth that includes growth in both active clients and revenue per active client.
David: While the macroeconomic environment is out of our control how we plan and execute is in our hands and that is where our focus continues to be.
David: We're operating at scale with a strong financial foundation, and a uniquely agile business model.
David: Anchored by a debt free balance sheet proprietary data science, and AI and the ability to quickly adapt our marketing merchandising and pricing levers.
David: We believe these attributes put us in a position to navigate challenges and continue to deliver strong results.
David: With that operator, we can open the line for Q&A.
David: Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment for questions.
Speaker Change: Our first question comes from Dana Telsey with Telsey Advisory Group you May proceed.
Dana Telsey: Hi, nice to see the progress as you think about the current quarter that just ended with the women's and six channel returning to growth along with mens and freestyle continuing to grow what did you see in the core consumer what did you see in terms of keep rates.
Dana Telsey: As you think about the go forward into the fourth quarter guidance that you. Just gave have you seen any shifts in terms of consumer behavior and in product categories.
Speaker Change: And then just lastly on the gross margin where you described the fourth quarter gross margin at the lower end of the range can you just go through the puts and takes and also what could tariff implications for you. Thank you.
Speaker Change: Hey, Dan its Matt I'll speak a little bit about the performance from Q3 as well as the factors the Q4 guide.
David: I'll, let David.
David: Give some additional context.
David: And also speak to the gross margin question.
David: And then I'll come back to lead to an answer on your third question about tariffs.
David: But we're really proud of the accelerated returned to year over year growth that we just delivered this quarter.
David: Also confident in the Q4 guide that we gave that shows that will have a can second consecutive quarter of growth and it reflects the residents of our core value proposition and it also represents the disciplined execution of our transformation strategy.
David: As we've shared previously in August we introduced a set of changes to our client experience and also a new brand identity for the business and as we shared previously as well. Since then nearly every initiative that we've introduced as part of that re imagination of the client experience has performed well and exceeded expectations.
David: So the performance for Q3 and the guide for Q4 are largely driven by similar factors specifically.
David: Specifically a primary driver of growth in Q3 was the continued strength in average order value average order value was up 10% year over year that was the seventh consecutive quarter of average order value growth for us.
Speaker Change: And we also shared that we saw strength across both more items for fixed keep rate in AUR. The.
Speaker Change: The drivers of those metrics is the introduction of the greater flexibility in our fixed option as shared in the prepared remarks, particularly the larger fixes that now have up to eight items in them, it's clearly resonating with our clients and.
Speaker Change: And it is helping to drive engagement with them and stronger business results.
Speaker Change: Another factor is how we've continued to infuse newness into our assortment. We've also expanded more into non apparel categories. These are paying off and leading to better keep rates and higher AUR. As you asked we are also seeing strength as you noted across all almost all of our lines of business the positive year over year revenue comps for women.
Speaker Change: And men's and in addition to our fixed channel returning to growth the freestyle channel grew again for a second consecutive quarter.
Speaker Change: And finally, I think it's really important to also take note that we've achieved a second consecutive quarter of year over year year over year growth in new clients and those new clients are spending more and opting into recurring shipments at a higher rate and that speaks to the increasing client satisfaction and engagement is driven in large part by the retail therapy brand platform.
Speaker Change: <unk> that we launched and we've spoken about previously we're doing a really good job at targeting clients, where charge service will resonate best with and by doing so we're focusing on the quality of that client acquisition not just the quantity of the new clients that we bring into their service.
Speaker Change: And these aren't one off wins. These improvements are deeply rooted in the fundamental reshaping of our operations the strategic investments that we've made during the rationalize and build phases of our transformation.
Speaker Change: We're carrying over that momentum, which we believe will endure as we transition into that growth phase of our transformation.
Speaker Change: David If you want to add additional color on anything on gross margin. Yeah. Just just one more point on the quarters like when we think about Q4 one of the other callout. So I think we called out last time is there is just normal seasonality inactive clients and so what Matt was calling out is really important that there is both sort of the active client side and the client engagement side.
Speaker Change: And so we expect.
Speaker Change: Just from a seasonality standpoint to have a slightly higher sequential loss in the quarter. This quarter, we were down quarter over quarter of about 1%.
Speaker Change: Roughly we expect next quarter to be around down, 2%, but still really confident in the continued growth from a revenue standpoint, and that's because of what Matt was alluding to the strength that we've seen this quarter is something that we're very confident in and we actually see that strength continuing in may and so.
Speaker Change: That's definitely something that's encouraging that we're seeing.
Speaker Change: From a gross margin perspective.
Speaker Change: Definitely gross margin. It was 44, 2% this quarter, it's a little bit down quarter over quarter.
Speaker Change: <unk> margins are going to fluctuate quarter over quarter, as we mix shift between market brands and private brands, Matt touched on leaning into newness in some of those non apparel categories. Some of that mix shift might have an impact on gross margin.
Speaker Change: But.
Speaker Change: I think it's also really important to callout contribution margin and that's one of the reasons, we've been talking about that a lot. The last couple of quarters is really driving leverage in our operations contribution margin was above 33% again this quarter and that really gives us the flexibility to be able to do what's client right from an assortment standpoint.
Speaker Change: And if that has a little bit of a headwind on gross margin and that's what's included in our in our guide for the quarter.
Speaker Change: Yes, and Dana on the third question, we're taking a proactive approach and we're facing external headwinds.
Speaker Change: Our view is that you don't win market share by playing it safe.
Speaker Change: And we will continue to closely track any changes in trade policy, we're going to adjust as needed in order to mitigate any risks to our business and if current rates persists. It will create headwinds, but as noted I am confident that we are well prepared to navigate this and to even strengthen our market position through that process.
Speaker Change: I believe this for a few reasons. The first is that our value proposition resonates even in a challenging macro environment clients come to stitch fix for the personalized styling the convenience the discovery of the items that they love and.
Speaker Change: Currently offers additional value and protect our business from any pure price comparison shopping.
Speaker Change: Further the strong and enduring relationships that a client and stylists have.
Speaker Change: Really allows us to tailor the experience to each individual client and adjust to their budgets at any moment in time.
Speaker Change: The second and as we discussed on the last call as a multi brand retailer we have a significant advantage in navigating any market and policy shifts we can strategically adjust our brand matrix mix to minimize any impacts and what's more our strong private brand portfolio is robust and most of our vendors have.
Speaker Change: <unk> facilities across multiple countries, which allows them to pivot quickly helping to limit any long term effects.
Speaker Change: Third our rich data and advanced AI capabilities also helping form our merchandising strategy helps us predict demand it helps drive our buying decision buying decisions and it also helps improve our private brand design process.
Speaker Change: Finally, we believe that the work we've done in the first two phases of our transformation are really important assets for us we've already driven significant internal operational efficiencies and as David noted with our contribution margin north of 30% for a fifth consecutive quarter. It gives us a lot of flexibility in term.
Speaker Change: Or how we would deal with any macro pressures external pressures. So all of these factors our core value proposition our distinct business model and the work we've done in the first two phases of our transformation that gives us confidence that we can emerge stronger and continue to gain market share.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Lenny Sherman with Bernstein you May proceed.
Lenny Sherman: Thank you and congrats Matt and David.
Speaker Change: Matt I just my first question is a follow up on your comments that you just made you talked about the value proposition resonating in a tougher macro environment.
Speaker Change: Could the current macro via potential share gain opportunity for you and if so what are you doing differently to communicate that value proposition to consumers and kind of take advantage of that opportunity. In this current macro and then a follow up on the tariff side. So you talked about a couple of different levers to mitigate the tariff impact you talked about working with supplier.
Speaker Change: Or is the mix shift in category National brands are you also considering pricing as a potential lever and can you talk a little bit more about that if you are.
Speaker Change: Hany.
Hany: Yeah happy to answer those questions.
Speaker Change: Appreciate the recognition for the return to growth.
Speaker Change: In terms of our approach during the tough environment. We absolutely believe that this is an opportunity for us to gain share.
Speaker Change: This service that we offer is one that we can tailor to the exact needs of an individual at anytime.
Speaker Change: The information that we have in terms of the budget implications for our clients allows us to shift in terms of how we're interacting with them, which are which items of clothing, we're sending how were approaching <unk>.
Speaker Change: Different pricing messages as well.
Speaker Change: With our clients and we also feel really strongly that the relationship with clients and stylists have gives us a leg up over any potential competition in terms of where our clients are going to go when they need their apparel and accessories.
Speaker Change: Someone who style as clients like I do I know just how strong those bonds can become and I know that went in times of need that I feel confident that clients are going to come to us for those needs based on our ability to be adaptive and responsive to them at any given moment.
Speaker Change: What I also know that.
Speaker Change: It's really working well for US is how we've continued to adapt the messaging when we go out to market both to speak for both for new client acquisition as well as to speak to our current clients and we've really made it clear to them the value that we offer in these environments and during this time, we save our clients time, we add convenience back.
Speaker Change: Into their daily lives and we can create value for them both in our assortment and our service. So we are very confident that we can gain share.
Speaker Change: It's more challenging macro environment.
Speaker Change: The quick add on from the question that you had in terms of tariffs.
Speaker Change: We don't anticipate taking any price increases during the balance of our fiscal year.
Speaker Change: We feel really confident in the work that our team has done in order to mitigate any potential cost increases into the future and feel really strong about the resonance of our service such that.
Speaker Change: That's not an expectation for us going forward and we will continue to see where the where the macro environment plays out and we will continue to make sure that what we do is create value for our clients that also enables us to drive positive and strong business results.
Speaker Change: Yes, just to add one point to that in Asia, I mean, I think to Matt's point.
Speaker Change: Under the current tariff conditions, yes, we would expect to see an increase and merchandising costs in FY 'twenty six but as as a multi brand retailer I think we're really well positioned.
Speaker Change: To really work with our partners both from our country of origin diversification as well as just ongoing negotiations to mitigate that as as much as possible and so that's the way that we're looking at it and we'll provide more information next quarter as well.
Speaker Change: Yeah.
Speaker Change: Thank you that's helpful.
Speaker Change: Yes. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Dylan Carden with William Blair You May proceed.
Dylan Carden: Thanks, I'm just curious if you've spoken historically about kind of a lag effect in your business as you acquire customers and.
Speaker Change: Repeat over a period of time.
Speaker Change: The line of sight can you share anything as the line of sight that you have at this point as you start to grow new customers as to when you might start growing total active customers. Thanks.
Don: Yes, Don I appreciate the question.
Speaker Change: I'll answer and David if you want to add any additional context to that.
Speaker Change: For us.
Speaker Change: We've approached how we go out to market to acquire new clients.
Speaker Change: We're very much focused on quality over quantity, we're really focused on clients that are going to deliver a high lifetime value for us that help us ensure that the investments that we're making into acquisition have the highest possible return on investment.
Speaker Change: That's why we're really proud about.
Speaker Change: Lifetime value that we're seeing in the first 90 days from new clients that we acquire and the strength that we continue to see and that being some of the highest metrics the highest performance over the last three years.
Speaker Change: Even though we have a focus on quality, we still delivered new client growth over the last few quarters. We've also continued to see strength in reengagement.
Speaker Change: <unk> had a lot of success re engaging clients that were previously.
Speaker Change: Customers of stitch fix which continues to pay dividends for us and we're also seeing strength in terms of our dormancy rate as well so feel really confident that in the future. We will return to active client growth. Our focus right now is making sure that we have the best quality clients that we have that we're maximizing wallet share with our current clients.
Speaker Change: And that we're delivering the highest lifetime value with those clients and you see that with the engagement metrics and the really strong performance and I think ultimately manifest in both the return to growth in our third quarter as well as our guide to continued growth in the fourth quarter.
Speaker Change: And then Dylan just to add a couple of points.
Speaker Change: Yes.
Speaker Change: For FY 'twenty six outside of macro impacts, we would still expect a quarter over quarter increase in active clients at some point in FY 'twenty six and to Matt's point that continues to be our focus.
Speaker Change: With that said macro uncertainty in market conditions may create some headwinds and we'll provide more of an update.
Speaker Change: On the other part of your question around sort of the lagging part we used to talk about this where revenue can sometimes lag client growth.
Speaker Change: And certainly as we get to that inflection point, that's certainly going to be a tailwind where.
Speaker Change: Revenue in our client within maybe the first quarter that we have them isn't as high as that sort of recurring second shipment in third shipment and so you tend to see more of that value over time, what's been interesting over the last year, though that I think we've been talking about more and more is both sides of the equation from a revenue standpoint is yes.
Speaker Change: <unk> long term sustainable growth is both about active client growth and revenue per active client.
Speaker Change: But what we've been seeing the last few quarters.
Speaker Change: It's been really a lot of strength in that client engagement with AOE up.
Speaker Change: <unk> for the past seven quarters and so.
Speaker Change: Really getting to both of those things continues to be our focus.
Speaker Change: Awesome. Thank you very much.
Speaker Change: I don't think.
Speaker Change: Thank you and as a reminder to ask a question. Please press star one on your telephone. Our next question comes from David Bellinger with Mizuho you May proceed.
Speaker Change: Hey, Matt David Thanks for the question I wanted to follow up on I think you meant.
Speaker Change: Is it up 10% in the quarter, unlike seven consecutive quarters of growth.
Speaker Change: Could you just unpack that a little bit for us.
Speaker Change: <unk> broader increases across the business or is this a structural shift where youre seeing more units per se.
Speaker Change: Just trying to unpack it.
Speaker Change: Can you talk to the sustainability of these <unk> increases over the next several quarters or even into next year.
Speaker Change: Hey, David I. Appreciate the question David you want to go ahead, and I'll add any additional context, yes. Thanks, David a couple of callouts certainly in this quarter a big part of the <unk> increase is those larger fixes that we've talked about.
Speaker Change: Those are really resonating with our clients, where we're adding the flexibility to offer them not just five items and affects about six seven or eight items and and Thats really really resonating with our clients from from Q1 to Q3, the penetration of our fixes that have.
Speaker Change: <unk> has more than doubled.
Speaker Change: So that's been a big part of the <unk> increases.
Speaker Change: And we do see that momentum continuing into may and so we do believe that there is continued upside and gaining wallet share from our existing clients. It continues to be a focus both for our marketing teams for our product teams for our stylists to make sure that we're providing different touch points with every client to <unk>.
Speaker Change: Drive value and Thats really why we see that.
Speaker Change: The increase from an <unk> perspective.
Speaker Change: The one call out I would say is as we go into FY 'twenty six certainly this strength will create tougher comps in FY, 'twenty and probably create tougher comps as we move through <unk>.
Speaker Change: 26, just because of the strength that we've seen this year like if you think about this quarter.
Speaker Change: Not just about the 10% increase this quarter if you get like if you look at a two year stack of Q3, it's a 17% increase in IOP and so definitely more upside that we're that we're driving towards but some tougher comps next year.
Speaker Change: Okay got it that's very helpful. And then I wanted to follow up too on the AD spend so the increase as a percentage of sales this quarter I think on.
Speaker Change: On a year over year growth.
Speaker Change: Right. The dollar basis was up double digits, you still got active customers down.
Speaker Change: Can you tell us is it getting more expensive to keep your customer base and what do you need or should we see another step up in AD standard a different channel mixers, what do you need exactly to drive that new customer growth again.
Speaker Change: Yes, David I'll start and then Matt if you want to provide any color.
Speaker Change: First I don't think we need to increase AD spend to get to an active client growth I think we've touched on this maybe two quarters ago, where we definitely see some some good signs from our new client acquisition. It's the second quarter in a row that new client acquisition is up we see client Reengagement is up again and it is.
Speaker Change: A very healthy place and even on the dormancy side. Those are the three components to active clients in dormancy trends are getting better as well and so.
Speaker Change: With our existing product roadmap and existing marketing levels of investment.
Speaker Change: We feel comfortable outside of obviously the macro uncertainty that we see an inflection point in FY 'twenty six and so.
Speaker Change: I don't think we need to increase AD spend that the caveat to that is one that I used to say I think almost every quarter, which is.
Speaker Change: We have a methodology around our AD spend and where we see opportunity to lean in.
Speaker Change: We do we have a CAC to LTV certainly with the health of our clients recently LTV is up and that makes us feel more comfortable about leaning in I think the other callout for AD spend as there is seasonality there and that's where it gets a little bit lumpy, where Q1 and Q3 tend to be stronger quarters from a client acquisition standpoint for us and so we tell.
Speaker Change: To lean in a little bit more from a percent of revenue in those quarters.
Speaker Change: Than we do in Q2 and Q4.
Speaker Change: Great. Thank you both.
Speaker Change: Thank you.
Matt: Thank you I would now like to turn the call back over to Matt <unk> for any closing remarks.
Speaker Change: Okay. Thank you.
Speaker Change: So to close I wanted to reiterate just how proud I am of the results that the team delivered this quarter.
Speaker Change: Including our return to year over year revenue growth, that's a significant milestone in stitch fix is transformation.
Speaker Change: We know many people are dissatisfied with retail today traditional apparel shopping it's broken.
Speaker Change: And stitch fix has always been focused on fixing it and our transformation is always be correct has always been grounded on fully realizing that vision.
Speaker Change: And is the return to growth this quarter demonstrates its working and.
Speaker Change: We've improved our business in fundamental ways through the rationalize and build phase of our transformation.
Speaker Change: As part of this we've created a much more modern and dynamic client experience and we're seeing the results of our collective efforts in our numbers and how we are gaining share in the market.
Speaker Change: We believe these improvements we've made will also enable us to successfully navigate an increasingly challenging macro environment.
Speaker Change: As we entered the growth phase, we will continue to operate with rigor and an unrelenting focus on delivering the best possible experience for our clients.
Speaker Change: In doing so we aim to cement ourselves as the retailer of choice for both our current clients as well as a far larger base than we currently reach today.
Speaker Change: The momentum of the stitch fix business is undeniable I'm more confident than ever in our future I. Appreciate your interest in our business and I look forward to sharing our continued progress in the future.
Speaker Change: Thank you.
Speaker Change: Thank you. This concludes the conference. Thank you for your participation you may now disconnect.
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