Stitch Fix Reports Strong Q2 Growth Amid Transformation Strategy

Prominent national brands like Vuori, Marine Layer, Rhone, Vineyard Vines, Public Rec, Faherty, and Pistola continue to resonate with our clients. For our women’s clients, dresses and denim led the category growth. Notably, denim sales accounted for a higher percentage of our overall women’s business compared to Q2 of last year.

In the dress category, workwear dresses achieved an impressive year-over-year sales increase of over 60%. For men’s apparel, cashmere and performance workwear shone brightly, registering year-over-year gains of more than 400% and nearly 150%, respectively. As previously mentioned, the men’s category returned to revenue growth in Q2, indicating that our clients have responded positively to the improvements in our offerings and targeted marketing strategies. Although men’s apparel represents a smaller portion of our portfolio, we are optimistic about its potential as a consistent growth driver moving forward.

Additionally, we have broadened our focus on newness by expanding our non-apparel categories across various lines of business, providing comprehensive outfitting solutions. This strategy has yielded favorable results in sneakers, jewelry, and accessories, all of which experienced positive revenue growth in the quarter. Our enhanced flexibility has also been well-received, with clients enthusiastically adopting the option to receive up to eight items in a Fix.

We believe this increased flexibility is crucial as it helps clients navigate seasonal transitions, outfit choices, and shifts in their fit profiles, making it a key factor for long-term engagement. Furthermore, the strong connections between clients and stylists remain a cornerstone of our personalized shopping experience. Since our inception, we have combined expert stylists with advanced algorithms and data science to deliver customized style recommendations. In Q2, we introduced enhancements to our models that improve stylist recommendations, thereby ensuring clients receive suitable apparel and accessories tailored to their individual preferences.

Our investments in client-stylist relationships are paying off, as evidenced by the rising percentage of clients requesting the same stylist for their next Fix, which has reached its highest level in nearly five years. We continue to invest in Freestyle as a complementary channel to our Fix offering. While Fix remains the majority of our business, our most engaged clients utilize both services.

In Q2, we launched dedicated campaigns to position Stitch Fix as a destination for holiday shopping for the first time. Moreover, we implemented advanced data-driven forecasting tools that expanded our shoppable selection by more than 20% without increasing inventory ownership. These initiatives contributed to Freestyle experiencing year-over-year growth in Q2, with potential for further improvements in performance.

We are also making strides toward increasing active client growth, with year-over-year gains in new clients joining Stitch Fix. Q2 marked our smallest sequential decline in active client count over the past three years. Since introducing our initial changes to the client experience in August, each new monthly cohort has outperformed similarly timed cohorts from the previous two years in terms of spending, which positively impacts our 90-day lifetime value (LTV).

Encouragingly, we have seen an uptick in clients enabling recurring shipments. The strong performance of these cohorts reinforces our confidence to invest further in engaging existing clients and attracting new ones. Our efforts will revolve around our retail therapy brand platform, aimed at addressing common shopping challenges related to fit and style. We have optimized our channel-specific media strategies and launched segmented onboarding experiences tailored to various client needs.

It is important to acknowledge that this earnings call coincides with uncertainties in the macroeconomic environment, particularly regarding tariffs. Our team has a strong track record of effectively managing tariffs and we do not anticipate any adverse impacts on client pricing or margins in the second half of the fiscal year. Our primary focus remains on delivering the best experience and value to our clients daily.

In summary, Q2 was a robust quarter that highlights the progress of our transformation strategy. Our team is committed to executing our plan to unlock market opportunities, and we believe our recent performance reflects our well-placed investments as we move into a growth phase. With our expert stylists, curated assortment of private and national brands, top-notch AI algorithms, and comprehensive customer data, Stitch Fix stands out as a superior alternative to traditional shopping methods. We continually assess how to best meet our current and prospective clients’ apparel and accessory needs, ensuring we remain their retailer of choice.

I would also like to extend my gratitude to the entire Stitch Fix team for their dedication and hard work toward achieving this goal. Now, I will turn the call over to David to provide further details about our financial results and outlook.

David Aufderhaar — Chief Financial Officer

Thank you, Matt. To reiterate, we are encouraged by the momentum we are building. The team delivered a strong Q2, which strengthens our confidence in achieving overall revenue growth during FY ’26. We are seeing the positive effects of our transformation strategy across the income statement.

Our year-over-year revenue comparisons continued to improve each quarter. Although men’s and Freestyle categories presently represent smaller portions of our business, their resurgence indicates we are on the right track, making sound investments, and have the right team in place to fulfill our commitments. We are applying insights from the success of these two areas across our entire business. Now, let’s dive into the results.

Q2 net revenue was $312.1 million, down 5.5% year-over-year and 2% quarter-over-quarter. This revenue exceeded our guidance range thanks to sustained strength in average order value (AOV), which rose 9% year-over-year and 4% quarter-over-quarter. January was notably strong as we effectively met our clients’ apparel needs through our assortment. As Matt pointed out, the increase in AOV this quarter was driven by higher keep rates, average unit retail (AUR), and items per Fix.

This growth contrasts with the previous quarter’s AOV increase, which was chiefly attributed to AUR. This time, we observed strength across all three drivers of AOV. Our AOV has now risen year-over-year for the last six consecutive quarters.

Stitch Fix Q2 Results Indicate Strategic Progress Amid Client Challenges

In the recent quarter, Stitch Fix reported active clients totaling 2.4 million, reflecting a 16% decline year over year and a 2.6% decrease quarter over quarter. This trend aligns with our earlier expectations. The path toward returning to client growth presents significant opportunities, although we acknowledge potential challenges in achieving this growth consistently.

Despite the decline in active clients, we see that recent increases in Average Order Value (AOV) could pose tougher comparisons for revenue growth moving forward. As we plan for fiscal year 2026, this factor is significant. The revenue per active client (RPAC) for the quarter stood at $537, which is a 4% increase from a year ago and has remained stable sequentially. Our gross margin for Q2 was reported at 44.5%, an increase of 110 basis points year over year, primarily attributed to improvements in AOV and product margins.

Additionally, our contribution margin reached 33% in Q2, marking the fourth consecutive quarter above our historical range of 25% to 30%. We attribute this success to the efficiencies our warehouse and styling teams have implemented, and we believe this enhanced cost structure can be maintained. The strong foundation that our teams have established enables us to invest strategically in areas such as inventory assortment and marketing.

In advertising, our spending was slightly lower than anticipated, comprising 7.8% of revenue in Q2, down 160 basis points quarter over quarter. We maintain a disciplined approach to our marketing expenditures, especially since the holiday season generally incurs higher costs for client acquisition. Given our focus on sustainable long-term growth, we continually adjust our advertising strategies to ensure efficiency and a favorable return on investment.

We concluded Q2 with a net inventory of $109.6 million, which is a 13% decrease year over year and an 8% decrease quarter over quarter. This improvement is largely due to enhanced inventory management, supported by AI tools that help us maintain optimal inventory levels across our assortment, aligning with client demand while mitigating risks.

Our Q2 adjusted EBITDA was $15.9 million, yielding a 5.1% margin—an improvement of 380 basis points year over year and 90 basis points quarter over quarter. Free cash flow was negative $19 million, as expected, primarily due to the timing of working capital related to inventory purchases. We ended the quarter with $230 million in cash, cash equivalents, and investments, with no outstanding debt.

Updated Outlook for FY ’25 and Q3

Given the strength observed this quarter, we are raising our annual revenue and EBITDA guidance. This update reflects our current expectation that tariffs will not adversely affect client prices or margins in the second half of the fiscal year. However, we will continue to monitor the potential impact of tariffs as well as broader macroeconomic uncertainties and shifts in consumer sentiment.

For the full fiscal year 2025, we now project total revenue to fall between $1.225 billion and $1.240 billion, while adjusted EBITDA is expected to range from $40 million to $47 million. This guidance continues to assume we will achieve free cash flow positivity for the entire year. For Q3, we anticipate revenue between $311 million and $316 million and adjusted EBITDA in the range of $7 million to $10 million. We expect Q3 and full-year gross margin to remain approximately 44% to 45%, with full-year advertising likely at the upper end of the 8% to 9% range provided last quarter.

In conclusion, our results from the first half and the outlook for the second half demonstrate measurable progress across multiple fronts. We remain committed to executing our strategic priorities with financial discipline—maintaining a lean cost structure and a robust balance sheet while strategically investing to foster sustainable, profitable growth. I will now turn the call over to the operator for questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from Aneesha Sherman with Bernstein. Your line is open.

Aneesha Sherman — AllianceBernstein — Analyst

Thank you for taking my question. Matt and David, could you start by sharing details about your customer demographics, such as household income and other relevant characteristics, especially considering the shifting consumer sentiment across different income levels? I also have a follow-up on your comments regarding market size. You mentioned being under 1% of the total accessible market in U.S. apparel. Do you believe Freestyle is necessary to expand that total addressable market (TAM), or is there still growth potential with just the Fix model in terms of increasing brand awareness and market penetration? Thank you.

Matt Baer — Chief Executive Officer

Thanks for the questions, Aneesha. Regarding our clients, we approach this from an attitudinal and behavioral perspective. Our client base is diverse, encompassing various household income levels. What stands out is why clients choose Stitch Fix—primarily for assistance, advice, and convenience in shopping for apparel and accessories, as well as for understanding current trends and assembling outfits.

Notably, a significant portion of the U.S. population identifies with these needs. A recent Wall Street Journal article indicated that only about 10% of consumers are satisfied with in-store shopping experiences for apparel. Additionally, around 90% feel stressed about making decisions on what to purchase or wear each day. This stress, coupled with challenges from traditional shopping methods, underscores the strength of Stitch Fix’s value proposition. We simplify the shopping process, matching apparel to clients’ style preferences while ensuring proper fit—unlike the hassle of navigating crowded department stores or the overwhelming nature of online browsing.

Many potential clients prefer not to spend excessive time searching through stores or wading through online options that may not meet their needs or budgets. Furthermore, those who do shop online often deal with the disappointment of receiving unsuitable items. Stitch Fix offers a solution, providing ease through our personalized service and AI-driven insights that enhance the client experience.

Stitch Fix CEO Discusses Strategies to Navigate Consumer Challenges

Stitch Fix’s approach combines proprietary algorithms with the expertise of human stylists. As consumers manage tighter discretionary income, the company believes it has a competitive edge. The enduring relationship clients have with Stitch Fix shows that they appreciate the convenience and solutions the service provides. Clients can try on items in their own homes, eliminating the need for traditional shopping trips, whether via app or in-store.

The company feels it is strategically positioned to succeed even in a tough economic climate. Recent results indicate this: January was notably strong, and performance continued to be robust throughout February and March. This favorable trend supported a significant increase in the full-year guidance, reflecting Stitch Fix’s confidence in serving clients across diverse income levels and demographics.

Addressing the impact of the Freestyle shopping feature, CEO Matt Baer emphasized its significance for both the business and its clients. Freestyle allows customers to shop between their scheduled Fix deliveries. For instance, if a client loves a polo shirt from their Fix, they can quickly reorder it in multiple colors, integrating seamlessly back into the Stitch Fix ecosystem. This feature is enhanced with leading personalization technologies, empowering clients to build outfits around items they have already purchased.

Since launching the StyleFile, Stitch Fix has tailored individual shopping experiences even further. Clients resonate with this customization, and it enhances the Freestyle offering, making it a complementary service to the Fix experience. This strategy aims to increase wallet share and position Stitch Fix as the preferred retailer for clients’ apparel and accessory needs.

Addressing Tariffs and Brand Strategy

Analyst Dana Telsey inquired about the complex landscape of tariffs and their influence on pricing. Baer outlined the company’s proactive stance, including the establishment of a tariff task force. This team has a strong record in mitigating previous tariff impacts and has implemented a strategy to protect profitability in Stitch Fix’s private brand offerings.

The private brand portfolio includes various vendors, many of which have operations in multiple countries. This versatility enables Stitch Fix to react strategically to tariff changes, potentially lessening long-term financial impacts. As a multi-brand retailer, the company also leverages its broad range of national and market brands, providing additional options to offset any tariff-related challenges.

Looking ahead, Stitch Fix does not anticipate any margin impact or necessary price increases for consumers in response to the current tariff environment. This positions the company advantageously compared to competitors who may face more significant challenges.

Baer reiterated the company’s commitment to being client-led in balancing its private and national brands, guided by consumer demand. The successful launch of two new private brands recently reinforced this strategy, quickly gaining traction within the men’s portfolio. Stitch Fix plans to continue investing in its value proposition to maintain this momentum moving forward.

Aneesha Sherman — AllianceBernstein — Analyst

Really helpful. Thank you.

Matt Baer — Chief Executive Officer

You’re welcome.

Operator

Thank you. One moment for our next question. The next will come from Dana Telsey with Telsey Advisory Group. Your line is open.

# Stitch Fix Strengthens Brand Portfolio and Market Share Growth

In recent discussions, the focus has been on how Stitch Fix has meticulously curated its assortment of national brands and private labels. Reflecting on earlier conversations from last fiscal year, it’s notable how efforts have centered on ensuring that the national brands introduced deliver added value. This strategic refinement not only sets Stitch Fix apart for its clients but also distinguishes it from its private brand offerings. The exemplary work from the merchant organization has opened the door for reinvestment in highly desirable national brands, enhancing the overall product mix.

Investment in new products and recalibrating the company’s position within current style trends has significantly contributed to key performance indicators, such as keep rate and average order value (AOV). As an apparel and accessories retailer, it remains crucial for Stitch Fix to stand firmly behind its offerings. Each item within the assortment plays an integral role in the product matrix. Notably, the company has consistently performed well in its tops and bottoms categories, which continue to grow in market share.

The response from the merchant team to current market challenges has been proactive. Over the past nine months, the team has successfully expanded into new product categories, capturing a greater share of the consumer wallet. An area of particular interest is the non-apparel segment. The company has seen noteworthy success with its sneakers and accessories line and plans to continue investing in these growing categories.

Adopting flexibility within the Fix experience has been essential for category expansion. Clients appreciate the option to choose from six, seven, or eight items in each Fix. Data shows a robust adoption rate, exceeding initial expectations. Additionally, order economics improve as clients select more items, thus providing the company with the leverage to explore new categories while preserving historical successes in its core segments.

David Aufderhaar — Chief Financial Officer

David Aufderhaar noted the importance of maintaining gross margins while pursuing expansion. Current guidance suggests gross margins will remain around 44% to 45% for the fiscal year. In Q2, gross margin expanded by roughly 105 basis points, largely due to seasonal trends. While promotions have impacted margins, the company is optimistic about sustaining performance through the second half of the year.

Serge Severenchuk — UBS — Analyst

Serge Severenchuk posed a question regarding gross margin outlook for Q3, inquiring about its drivers. Aufderhaar reiterated that Q2 performance aligned with typical seasonal patterns, maintaining confidence in gross margin projections moving forward.

Serge Severenchuk — UBS — Analyst

Curious about the trends from quarter-to-date, Severenchuk asked for insights regarding performance in February and March. Was there significant variation compared to Q2?

Matt Baer — Chief Executive Officer

Matt Baer expressed optimism about the current momentum. He highlighted encouraging Q2 results that surpassed expectations and noted a substantial increase in guidance for the latter part of the year. There is hope that this positive trend will not only continue but also gain momentum moving forward. Since the rebranding of Stitch Fix and fresh updates to client experiences last August, client acquisition metrics have notably improved.

Historically, new brand launches and significant changes can lead to initial performance setbacks. However, Baer credited the team for its solid strategy and execution, noting the overwhelming success of client initiatives launched during this period.

Stitch Fix Reports Strong Q2 Results, Exceeds Revenue Expectations

In August, Stitch Fix reported that the majority of initiatives aimed at reimagining the client experience have performed exceptionally well, resulting in year-over-year revenue growth for both men’s and Freestyle channels. Significant improvements were also noted in women’s business and the Fix channel. This success stems from a renewed focus on strengthening the business foundation and implementing retail best practices, leading to overall positive trends in the company.

As shared in the conference call, this improved performance is reflected in the raised guidance for the remainder of the fiscal year.

Financial Performance Highlights

David Aufderhaar — Chief Financial Officer

Adding further detail to the financials, Aufderhaar noted a 9% year-over-year increase in Average Order Value (AOV) for the Fix channel, contributing significantly to the company’s outperformance compared to expectations. Factors leading to this increase include a higher-than-expected adoption rate of the Flex Fix offering, which allows for more items to be sent, increasing Fixes by nearly 40% from the end of Q1 to Q2. Additionally, the quarter saw an unexpected rise in the keep rate, aided by efforts from merchandising, technology, and styling teams that led to effective improvements.

To illustrate the growth, in January, AOV was reported to have risen by 16% year-over-year. The company anticipates that this upward trend will influence overall guidance moving forward.

The active client base showed promising trends as well. Despite expectations of a quarter-over-quarter decline of about 1% in Q3, improvements are on the horizon as seasonality factors come into play. Historically, Q3 typically outperforms Q4 for Stitch Fix.

Looking Ahead to Future Quarters

Looking to Q4, Aufderhaar cautions that while a decline in active clients may continue, it is expected to be less severe than the previous year. This observation aligns with seasonal patterns in the business.

Analyst Inquiry and Responses

Serge Severenchuk — UBS — Analyst

Following up on these insights, analyst Dylan Carden of William Blair asked Aufderhaar to clarify potential headwinds regarding AOV’s impact on future growth. Aufderhaar explained that while AOV has seen six consecutive quarters of growth, comping this trend may pose challenges as the company navigates through FY ’26.

Declining active clients, coupled with tougher comparisons in AOV, underscore the cautious outlook, although Aufderhaar noted the company is optimistic about both existing client engagement and attracting new clients going forward.

Dylan Carden — Analyst

This led to further discussion on whether the anticipated growth in the next fiscal year would stem more from active client acquisition or continued enhancements in spending per client. Aufderhaar reiterated that there is potential in both areas, emphasizing the importance of improving client experience as essential for sustainable growth.

Closing Remarks

Matt Baer — Chief Executive Officer

In closing, Baer expressed optimism regarding the company’s recent results, noting that Stitch Fix exceeded its revenue and adjusted EBITDA expectations in Q2 and has raised projected figures for the fiscal year. The success of new client experience initiatives is resonating positively among clients, which aligns with the company’s mission of helping customers discover ideal styles.

Baer underscored that progress is underway in active client growth, along with a return to revenue growth found in the men’s business and the Freestyle channel. Baer praised the team for solidifying the operational foundation vital for driving future growth. Expressing confidence in Stitch Fix’s path forward, he conveyed anticipation for continued progress in upcoming calls.

Operator

Thank you for joining us. If there are no further questions, we will conclude this call.

Duration: 0 minutes

Call Participants:

• Cherryl Valenzuela — Head of Investor Relations
• Matt Baer — Chief Executive Officer
• David Aufderhaar — Chief Financial Officer
• Aneesha Sherman — AllianceBernstein — Analyst
• Dana Telsey — Analyst
• Serge Severenchuk — UBS — Analyst
• Dylan Carden — Analyst

More SFIX analysis

All earnings call transcripts

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content. We encourage you to conduct your own research, including listening to the call and reading the company’s SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool recommends Stitch Fix. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Nasdaq, Inc.