Stitch Fix, Inc. Q1 FY2025 earnings call

• The company had a strong start to the fiscal year, exceeding expectations in Q1 with net revenue of $318.8 million, a 570 basis point improvement in year-over-year comps from Q4 (adjusted for the 53rd week).
• Adjusted EBITDA was $13.5 million, and contribution margin was approximately 34%, resulting from the execution of the transformation strategy.
• Inventory quality, freshness, and assortment health continued to improve. Newness penetration in inventory increased over 40% in the quarter, driving improved results in multiple categories.
• Introduced more personalized marketing and engagement tactics to increase client visits, drive sales across fixed and freestyle channels, and improve acquisition economics. Fixed business saw a sequential increase in clients who have enabled recurring shipments for the first time in over three years.
• Private brands The Commons and Montgomery Post delivered encouraging early results. National brands showed positive comps.
• Launched a rebrand and the 'Retail Therapy' marketing campaign, resulting in lower cost per acquisition and higher conversion in TV and related channels, and improved brand awareness among target demographics.
• Launched Style File and Stylist Profiles to enhance the client experience.

In the first quarter of fiscal 2025, Stitch Fix achieved net revenue of $318.8 million. Adjusted EBITDA was $13.5 million, and the contribution margin was approximately 34%. Net active clients ended the quarter at 2.4 million clients. Revenue per active client for the quarter was $531, up 5% year-over-year. Gross margin for the quarter came in at 45.4%, up 180 basis points year-over-year and 80 basis points quarter-over-quarter. Adjusted EBITDA in Q1 was $13.5 million, or approximately 4.2% margin, up 180 basis points year-over-year and 120 basis points quarter-over-quarter. Inventory freshness improved, with newness penetration increasing more than 40% in the quarter. Private brands like The Commons in men's business and Montgomery Post in women's workwear showed positive early results. National brands such as Vuori, Marine Layer, etc., delivered positive comps.

• For full year FY25, total revenue is expected to be between $1.14 billion and $1.18 billion, and total adjusted EBITDA is expected to be between $25 million and $36 million.
• For Q2, total revenue is expected to be between $290 million and $300 million, and adjusted EBITDA is expected to be between $8 million and $13 million.
• Both Q2 and full year gross margin is expected to be approximately 44% to 45%.
• Full year advertising is now expected to be at the high end of the 8% to 9% range, reflecting ongoing focus on reinvesting EBITDA upside when seeing right ROIs.

Q: Maria Ripps from Canaccord asked about key contributors to stronger than expected spend per client this quarter and the sustainability of dynamics.

A: Matt Baer and David Aufderhaar responded that contributors included improved inventory and assortment, expansion of fixed flexibility, pricing architecture optimization, and increased client engagement. They expressed confidence in the sustainability of these efforts as they continue to work on increasing newness penetration, ensuring Flex Stitch optionality is client-right, and continuing to leverage pricing capabilities.

Q: Jay Sole from UBS asked about the impact of private brands on the business.

A: Matt Baer said private brand composition is around 40% to 50% of the total portfolio, keep rate and margins outperform market brands, and the company will continue to use a data-driven approach to adjust the portfolio profitably to meet client needs.

Q: Dylan Carden from William Blair asked about the use of AI in engaging and retaining customers and about brands.

A: Matt Baer stated AI is integrated into every aspect of the business and used to drive engagement and re-engagement. Regarding brands, it's client-led and based on understanding client needs and market trends, with a strong value proposition for market brands.

Q: Dan from BMO Capital Markets asked about the trend of reactivations.

A: Matt Baer and David Aufderhaar said they continue to see strength in re-engagement efforts, with reactivations up 17% year-over-year in Q1 and it being a big focus, and they expect continued improvement in reactivations.