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Stitch Fix Charts Path to Recovery with New Client-Centric Strategies

Innovative Offerings Enhance Client Flexibility

Stitch Fix is enhancing its apparel selections while introducing more flexibility for clients. In a recent update, the company announced the opportunity for clients to receive up to eight items in a Fix, moving beyond the traditional five-item offering. This change allows clients to explore current trends and prepare for significant events in their lives. Clients opting for this expanded assortment are requesting nearly 40% more items on average and see approximately 50% higher average order values compared to the standard five-item Fix.

Targeted Marketing Strategies Drive Engagement

The company’s approach is not solely about increasing volume; it focuses on deeper client engagement. Over the past year, Stitch Fix has built its promotional capabilities to ensure that marketing efforts enhance client value while maintaining profitability. These refined strategies have positioned Stitch Fix favorably for the holiday shopping season.

Seasonal styles are being introduced alongside diverse holiday promotions, enabling a tailored styling experience for clients. In Q1, both the Freestyle and Fix avenues experienced higher client engagement levels. The Freestyle service saw improved year-over-year comparisons, showcasing the company’s dedication to capturing a larger share of clients’ spending.

Brand Revitalization and Enhanced Client Experience

For the first time in over three years, Stitch Fix saw an increase in clients opting for recurring shipments. In conjunction with this growth, the company rolled out a refreshed brand identity and launched a marketing campaign named “Retail Therapy.” This initiative aims to address common shopping and style challenges, highlighting Stitch Fix’s leadership in personalized styling. As a result, the company has recorded a lower cost of acquiring clients and higher conversion rates through TV and similar channels.

Awareness of the brand has grown within target demographics, achieving the highest figures in two years for women’s offerings. To deepen clients’ connection with the brand, Stitch Fix introduced StyleFile, a personalized description of each client’s unique style personality. Additionally, stylist profiles—created by the stylists themselves—help clients better understand their stylist’s background and fashion preferences.

Financial Performance and Growth Outlook

Chief Financial Officer David Aufderhaar expressed optimism about the company’s trajectory, stating that they expect to return to revenue growth by the end of FY ’26. For Q1, net revenue reached $318.8 million, down 13% year over year but remaining consistent quarter over quarter. Importantly, revenue exceeded expectations due to increased average order values, which grew by 6% year over year.

As of the end of the quarter, Stitch Fix had 2.4 million net active clients—a decline that was the smallest in two years. For Q1, revenue per active client was recorded at $531, representing a 5% increase year over year. Gross margin improved to 45.4%, indicating effective management of product margins and transportation costs.

Future Projections and Financial Guidance

The organization anticipates total revenue for FY ’25 to range between $1.14 billion and $1.18 billion, with adjusted EBITDA projected between $25 million and $36 million. Although the company expects positive cash flow for the year, a temporary negative cash flow is anticipated in Q2 due to inventory-related expenses. Specifically, Q2 revenue is expected to fall between $290 million and $300 million, with adjusted EBITDA between $8 million and $13 million.

The company remains committed to maximizing its gross margin, projected at approximately 44% to 45% for the full year, while maintaining advertising expenditures at the upper end of the previous guidance range, reflecting strategic reinvestment.

Stitch Fix Q1 Results Exceed Expectations: Growth Driven by Strategic Enhancements

Positive Momentum and Confidence in Future Performance

In a recent earnings call, Matt Baer, the Chief Executive Officer of Stitch Fix, articulated the company’s robust financial results for the first quarter. The performance surpassed expectations in both revenue and EBITDA, prompting an upgrade in the full-year projections. This reflects a strategic focus on providing a personalized shopping experience for clients.

Employee Appreciation and Team Dedication

Baer took a moment during the earnings call to recognize the efforts of Stitch Fix employees. He expressed gratitude for their dedication to improving the company’s mission and enhancing the customer experience.

Interactive Q&A Session with Analysts

The next part of the earnings call included questions from analysts. The operator encouraged participants to limit their inquiries to one question and a subsequent follow-up, ensuring everyone had an opportunity to ask.

Analyzing Spending Trends and Company Strategy

Maria Ripps, an analyst from Canaccord, initiated the discussion by congratulating the team on their strong performance and inquiring about the main drivers of increased customer spending. She noted the emphasis on flexible pricing and product assortment, asking how sustainable these trends might be.

Matt Baer responded, highlighting improvements in inventory management and product offerings. He noted that the introduction of trendy seasonal items, particularly since mid-September, led to strong sales in items like sweaters and jackets. This strategy helped boost the average spend per customer significantly. Additionally, the flexibility in the shopping experience has encouraged higher order values for clients.

Enhancements in Pricing and Inventory Management

Baer continued by explaining the strategic review of pricing architecture, which allowed the company to capture more value through initial pricing adjustments. He underscored the importance of engaging clients consistently, utilizing the Freestyle channel to boost sales frequency. This comprehensive approach has contributed to the increased spending patterns observed.

Discussing the sustainability of these trends, Baer mentioned that while they have made impressive strides, there is still work to be done, particularly in expanding the variety of products offered. The company plans to triple the number of new items available throughout the fiscal year, with a current 40% increase already achieved. Baer expressed optimism about their ability to maintain this momentum while ensuring that inventory meets customer needs at the right time.

Insight from the CFO on Financial Performance

David Aufderhaar, the Chief Financial Officer, added more details about the company’s financial success in Q1. He reported a 6% year-over-year increase in average order value (AOV), a significant factor in exceeding forecast expectations. Aufderhaar noted that the successful early arrival of fall and winter inventory played a pivotal role in driving this growth.

He also highlighted a slight increase in active clients, which had originally been expected to decline by over 3% but instead stayed right at that mark. This slight variation contributed to the revised optimistic forecasts for the year.

Encouragement to the Analyst Community

As the Q&A session continued, Maria Ripps expressed gratitude for the insights provided by Baer and Aufderhaar before returning to the queue for further questions. The focused dialogue during the call showcased Stitch Fix’s commitment to innovation and strategic planning, aiming for continued growth in the competitive fashion landscape.

David Aufderhaar concluded the session by thanking Ripps and preparing to address additional queries from other analysts.

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Stitch Fix Sets the Stage for Growth with Focus on Private Brands and Active Clients

Matt Baer — Chief Executive Officer

Jay, I’m glad to expand on this topic. Regarding private and national brands, we anticipate that their sales percentages will shift frequently based on client preferences. We closely monitor these changes on a daily, weekly, and monthly basis. As I mentioned in an earlier discussion, our diverse array of national and private brands strengthens Stitch Fix’s ability to serve clients effectively.

Given the robust contribution margins we’ve talked about, we’re in a strong position to adapt our portfolio to meet client demands profitably. Our decisions are guided by data and client insights, allowing us to adjust our purchasing strategies as necessary. Historically, our private brand offerings account for about 40% to 50% of our total portfolio, and I can confirm that their retention rates and profit margins outperform our national brands. However, our national brands continue to resonate well with our customers. Therefore, we remain committed to ensuring that we provide the best assortment tailored to client needs.

Jay Sole — Analyst

If I could ask one more question before I return to the queue, could you delve into the progress you’re seeing with the active client file? What initiatives have been successful, and what strategies do you plan to implement to continue this positive trend?

Matt Baer — Chief Executive Officer

I’d be happy to discuss both our progress in active clients and our future direction. It’s vital to grow our active client base while ensuring that these clients remain engaged and satisfied. This means paying close attention to the clients we acquire and their ongoing engagement with us to boost our revenue per active client and lifetime value (LTV) over time. We have made significant improvements in our marketing efforts and product experience, particularly in onboarding new clients.

Moreover, I am encouraged by our efforts to reengage previous clients and the positive results we are seeing in this area. Enhancing the experience for existing clients has also led to more frequent interactions and transactions. We remain focused on increasing our active client count and fostering engagement to improve our RPAC and LTV metrics.

David Aufderhaar — Chief Financial Officer

To add on Jay’s question, I’m pleased to report we exceeded our expectations for this quarter. Looking ahead to Q2, we anticipate continued sequential growth. Last quarter we experienced a decline of just over 3%. This quarter, we expect to see a decline of roughly between 2% and 3%

As Matt highlighted, the focus remains on acquiring the right clients, which is reflected in the 90-day LTV figures we’ve recorded recently—these stats are among the highest we’ve seen in nearly three years. This gives us confidence that we will see a quarter-over-quarter increase in active clients in FY ’26.

Jay Sole — Analyst

Thank you for the insights.

David Aufderhaar — Chief Financial Officer

Thank you.

Operator

Next, we have Dylan Carden from William Blair. Please go ahead with your question.

Dylan Carden — Analyst

Thank you, and great progress presented here. I’m curious about your improved ROAS. Are you leveraging your extensive data to enhance customer engagement? It seems that AI is currently focused on inventory, but are you applying it to customer retention and engagement as well?

Matt Baer — Chief Executive Officer

Dylan, I appreciate your question. Could you please repeat it briefly?

Dylan Carden — Analyst

Sure! I’m asking if you’re utilizing AI in any way to enhance customer engagement or retention through your data sets.

Matt Baer — Chief Executive Officer

Of course. AI is integrated throughout our operations at Stitch Fix and has been since the beginning. It is not a new development for us. Instead, it’s a fundamental part of our business model. We actively use our AI and data science resources to efficiently boost engagement and re-engagement with various client segments. This capability has enabled us to enhance our promotional efforts, driving an increase in average order value (AOV) and overall engagement while maintaining high profit margins as a public company.

We will continue to leverage this integration, reinforcing our competitive advantage.

Dylan Carden — Analyst

Great, and I noticed you mentioned several brands in your earlier remarks. Are those brands new to you, and how are you capturing greater relevance or access to them?

Matt Baer — Chief Executive Officer

Thank you for your inquiry. The selection of market brands we choose to include in our offerings is driven by a client-focused approach. We pay attention to market trends and listen to our clients to ensure we bring in brands that meet their demands…

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Stitch Fix Reports Strong Client Engagement and Opportunities for Growth

Analyzing Future Brand Partnerships and Client Reactivation

Stitch Fix is actively exploring opportunities to better serve its clients, focusing on which brands will effectively meet their specific needs. With a robust private brand lineup, the company recognizes that many client preferences may vary by brand. In certain cases, there are gaps in their current offerings that could be filled by introducing market brands. This approach unlocks significant potential for partnerships with these brands.

Stitch Fix boasts a highly engaged client base, aided by its distinctive service model that delivers exceptional convenience and satisfaction. This sets the stage for market brands to connect with both existing customers and new audiences outside their traditional reach. The company’s proactive strategy of deepening partnerships with current market brands and attracting new ones is receiving positive feedback.

Dylan Carden — Analyst

Thank you for the update.

Operator

Thank you. [Operator instructions] Our next question comes from Simeon Siegel from BMO Capital Markets. Please go ahead.

Unknown speaker** — BMO Capital Markets — Analyst

This is Dan on behalf of Simeon. Congrats on the positive developments! You mentioned earlier the potential of client reactivation. Can you share how reactivations are performing in relation to your expectations and what future opportunities you see?

Thank you.

Matt Baer — Chief Executive Officer

Hi Dan, great to hear from you again, and thank you for your kind words. We are seeing strong progress in our efforts to reengage clients. We have a considerable number of active clients along with many former customers. As we refine our product offerings and enhance the overall client experience—especially through AI engagement—we’re succeeding in attracting those past clients back. They appreciate the ease of our services and the quality of our style and fit, and our improvements have yielded promising feedback.

David Aufderhaar — Chief Financial Officer

To add some numbers to Matt’s insights, we are indeed optimistic about client reengagement metrics. In fact, this focus allowed us to slightly exceed our expectations for active clients this quarter. Notably, reactivations have increased by 17% year-over-year, marking the second consecutive quarter of growth in this area. This positive trend is a testament to the hard work of our teams.

Unknown speaker — BMO Capital Markets — Analyst

Thank you for the insights, and happy holidays.

David Aufderhaar — Chief Financial Officer

Thank you.

Operator

Thank you. This concludes our question-and-answer session. [Operator signoff]

Call Participants:

Lilly Bindley — Investor Relations

Matt Baer — Chief Executive Officer

David Aufderhaar — Chief Financial Officer

Maria Ripps — Analyst

Jay Sole — Analyst

Dylan Carden — Analyst

Unknown Speaker — BMO Capital Markets — Analyst

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