Stitch Fix Announces First Quarter Fiscal Year 2021 Financial Results
December 7, 2020
First quarter highlights
- Net revenue of
$490.4 million , an increase of 10% year over year - Active clients of nearly 3.8 million, an increase of 347,000 or 10% year over year, and 241,000 clients quarter over quarter
- Net revenue per active client of
$467 , a decrease of 4% year over year - Net income of
$9.5 million and diluted earnings per share of$0.09 - Adjusted EBITDA of
$6.9 million
Stitch Fix Founder and CEO
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Conference Call and Webcast Information
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About
Forward-Looking Statements
This press release, the related conference call and webcast, and the letter to shareholders contain forward-looking statements within the meaning of the federal securities laws. All statements other than statements of historical fact could be deemed forward looking, including but not limited to statements regarding our future financial performance, including our profitability; guidance on financial results for the second quarter and full year of 2021; the momentum of our business and improving trends; the impact of the COVID-19 pandemic on consumer purchasing behavior; the secular shift to online shopping and market share gains that we expect; acceleration of active client growth, continued increases in active clients and higher new client sign-ups; our ability to serve higher Fix demand in fiscal year 2021; our ability to adapt quickly to new and changing consumer demands, including shifting our inventory mix to meet consumer demand; the enhancements of our Fix and direct buy offerings to expand our addressable market, deepen client engagement and grow client wallet share; whether favorable first Fix outcomes indicate future client behavior; the continued success of our direct-buy functionality and plans for its expansion, and whether direct-buy becomes the growth vector we think it represents to acquire new clients, convert prospective clients and reactivate lapsed clients; whether newly launched direct-buy capabilities, such as “Trending For You” or “Shop by Category” will be as successful as we expect, including whether they elevate client engagement and create opportunities; our plans to expand our “Fix Preview” initiative and its impact on client satisfaction, retention, keep rate and average order value; our ability to attract high-quality clients and to convert our large prospect population; our ability to leverage our engineering and data science capabilities to drive efficiencies in our business and enhance our ability to personalize our service and offerings for individual clients; our plans to increase marketing spend to capitalize on market share shifts and improving consumer optimism in the quarters ahead; whether our marketing investments and initiatives to create personalized advertising will be effective in acquiring, engaging and retaining clients; improvements in marketing efficiencies, including decreases in CPAs and our ability to determine optimal marketing and advertising methods; and the resilience of our warehouse network and whether we will be able to operate uninterrupted by the COVID-19 pandemic. These statements involve substantial risks and uncertainties, including risks and uncertainties related to the ongoing COVID-19 pandemic, our responses to the pandemic, the responses of our clients, competitors, and suppliers, and the responses of governmental authorities and public health officials; our ability to generate sufficient net revenue to offset our costs; the growth of our market and consumer behavior; our ability to acquire, engage, and retain clients; our ability to provide offerings and services that achieve market acceptance; our data science and technology, stylists, operations, marketing initiatives, and other key strategic areas; risks related to international operations; and other risks described in the filings we make with the
Condensed Consolidated Balance Sheets (Unaudited) (In thousands, except share and per share amounts) |
||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 200,346 | $ | 143,455 | ||||
| Short-term investments | 187,979 | 143,037 | ||||||
| Inventory, net | 156,786 | 124,816 | ||||||
| Prepaid expenses and other current assets | 52,322 | 55,002 | ||||||
| Total current assets | 597,433 | 466,310 | ||||||
| Long-term investments | 41,592 | 95,097 | ||||||
| Property and equipment, net | 71,275 | 70,369 | ||||||
| Operating lease right-of-use assets | 135,561 | 132,615 | ||||||
| Other long-term assets | 34,363 | 5,038 | ||||||
| Total assets | $ | 880,224 | $ | 769,429 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 129,547 | $ | 85,177 | ||||
| Operating lease liabilities | 25,531 | 24,333 | ||||||
| Accrued liabilities | 110,800 | 77,590 | ||||||
| Gift card liability | 8,319 | 8,590 | ||||||
| Deferred revenue | 14,963 | 13,059 | ||||||
| Other current liabilities | 5,902 | 3,406 | ||||||
| Total current liabilities | 295,062 | 212,155 | ||||||
| Operating lease liabilities, net of current portion | 140,298 | 140,175 | ||||||
| Other long-term liabilities | 16,277 | 16,062 | ||||||
| Total liabilities | 451,637 | 368,392 | ||||||
| Stockholders’ equity: | ||||||||
| Class A common stock, |
1 | 1 | ||||||
| Class B common stock, |
1 | 1 | ||||||
| Additional paid-in capital | 367,760 | 348,750 | ||||||
| Accumulated other comprehensive income (loss) | 1,727 | 2,728 | ||||||
| Retained earnings | 59,098 | 49,557 | ||||||
| Total stockholders’ equity | 428,587 | 401,037 | ||||||
| Total liabilities and stockholders’ equity | $ | 880,224 | $ | 769,429 | ||||
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) (In thousands, except share and per share amounts) |
||||||||
| For the Three Months Ended | ||||||||
| Revenue, net | $ | 490,423 | $ | 444,815 | ||||
| Cost of goods sold | 270,972 | 243,513 | ||||||
| Gross profit | 219,451 | 201,302 | ||||||
| Selling, general, and administrative expenses | 238,984 | 201,142 | ||||||
| Operating income (loss) | (19,533 | ) | 160 | |||||
| Interest (income) expense | (1,161 | ) | (1,653 | ) | ||||
| Other (income) expense, net | 205 | 834 | ||||||
| Income (loss) before income taxes | (18,577 | ) | 979 | |||||
| Provision (benefit) for income taxes | (28,118 | ) | 1,157 | |||||
| Net income (loss) | $ | 9,541 | $ | (178 | ) | |||
| Other comprehensive income (loss): | ||||||||
| Change in unrealized gain (loss) on available-for-sale securities, net of tax | (663 | ) | (172 | ) | ||||
| Foreign currency translation | (338 | ) | 1,755 | |||||
| Total other comprehensive income (loss), net of tax | (1,001 | ) | 1,583 | |||||
| Comprehensive income (loss) | $ | 8,540 | $ | 1,405 | ||||
| Net income (loss) attributable to common stockholders: | ||||||||
| Basic | $ | 9,541 | $ | (178 | ) | |||
| Diluted | $ | 9,541 | $ | (178 | ) | |||
| Earnings (loss) per share attributable to common stockholders: | ||||||||
| Basic | $ | 0.09 | $ | (0.00 | ) | |||
| Diluted | $ | 0.09 | $ | (0.00 | ) | |||
| Weighted-average shares used to compute earnings (loss) per share attributable to common stockholders: | ||||||||
| Basic | 104,134,850 | 101,557,546 | ||||||
| Diluted | 109,477,354 | 101,557,546 | ||||||
Condensed Consolidated Statements of Cash Flow (Unaudited) (In thousands) |
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| Three Months Ended | ||||||||
| Cash Flows from Operating Activities | ||||||||
| Net income (loss) | $ | 9,541 | (178 | ) | ||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
| Deferred income taxes | — | (1,960 | ) | |||||
| Inventory reserves | (1,343 | ) | 1,801 | |||||
| Stock-based compensation expense | 19,925 | 12,126 | ||||||
| Depreciation, amortization, and accretion | 6,961 | 4,652 | ||||||
| Other | 271 | 13 | ||||||
| Change in operating assets and liabilities: | ||||||||
| Inventory | (30,665 | ) | (31,837 | ) | ||||
| Prepaid expenses and other assets | (28,299 | ) | 2,973 | |||||
| Operating lease right-of-use assets and liabilities | (225 | ) | 272 | |||||
| Accounts payable | 44,609 | 21,721 | ||||||
| Accrued liabilities | 32,237 | 16,170 | ||||||
| Deferred revenue | 1,906 | (25 | ) | |||||
| Gift card liability | (271 | ) | (354 | ) | ||||
| Other liabilities | 2,712 | 2,150 | ||||||
| Net cash provided by (used in) operating activities | 57,359 | 27,524 | ||||||
| Cash Flows from Investing Activities | ||||||||
| Purchases of property and equipment | (5,985 | ) | (7,502 | ) | ||||
| Purchases of securities available-for-sale | (41,307 | ) | (67,535 | ) | ||||
| Sales of securities available-for-sale | 16,193 | 5,306 | ||||||
| Maturities of securities available-for-sale | 32,800 | 23,210 | ||||||
| Net cash provided by (used in) investing activities | 1,701 | (46,521 | ) | |||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from the exercise of stock options, net | 5,106 | 518 | ||||||
| Payments for tax withholding related to vesting of restricted stock units | (7,002 | ) | (2,212 | ) | ||||
| Net cash provided by (used in) financing activities | (1,896 | ) | (1,694 | ) | ||||
| Net increase (decrease) in cash and cash equivalents | 57,164 | (20,691 | ) | |||||
| Effect of exchange rate changes on cash | (273 | ) | 1,538 | |||||
| Cash and cash equivalents at beginning of period | 143,455 | 170,932 | ||||||
| Cash and cash equivalents at end of period | $ | 200,346 | $ | 151,779 | ||||
| Supplemental Disclosure | ||||||||
| Cash paid for income taxes | $ | 38 | $ | 7 | ||||
| Supplemental Disclosure of Non-Cash Investing and Financing Activities: | ||||||||
| Purchases of property and equipment included in accounts payable and accrued liabilities | $ | 4,880 | $ | 731 | ||||
| Capitalized stock-based compensation | $ | 981 | $ | 773 | ||||
| Leasehold improvements paid by landlord | $ | — | $ | 7,406 | ||||
Non-GAAP Financial Measures
We report our financial results in accordance with generally accepted accounting principles in
Our non-GAAP financial measures should not be considered in isolation from, or as substitutes for, financial information prepared in accordance with GAAP. There are several limitations related to the use of our non-GAAP financial measures as compared to the closest comparable GAAP measures. Some of these limitations include:
- adjusted EBITDA excludes interest (income) expense and other (income) expense, net, as these items are not components of our core business;
- adjusted EBITDA does not reflect our tax provision, which reduces cash available to us;
- adjusted EBITDA excludes the recurring, non-cash expenses of depreciation and amortization of property and equipment and, although these are non-cash expenses, the assets being depreciated and amortized may have to be replaced in the future;
- adjusted EBITDA excludes the non-cash expense of stock-based compensation, which has been, and will continue to be for the foreseeable future, an important part of how we attract and retain our employees and a significant recurring expense in our business; and
- free cash flow does not represent the total residual cash flow available for discretionary purposes and does not reflect our future contractual commitments.
Adjusted EBITDA
We define adjusted EBITDA as net income (loss) excluding interest (income) expense, provision (benefit) for income taxes, other (income) expense, net, depreciation and amortization, and stock-based compensation expense. The following table presents a reconciliation of net income (loss), the most comparable GAAP financial measure, to adjusted EBITDA for each of the periods presented
| For the Three Months Ended | ||||||||
| (in thousands) | ||||||||
| Net income (loss) | $ | 9,541 | $ | (178 | ) | |||
| Add (deduct): | ||||||||
| Interest (income) expense | (1,161 | ) | (1,653 | ) | ||||
| Provision (benefit) for income taxes | (28,118 | ) | 1,157 | |||||
| Other (income) expense, net | 205 | 834 | ||||||
| Depreciation and amortization | 6,459 | 4,966 | ||||||
| Stock-based compensation expense | 19,925 | 12,126 | ||||||
| Adjusted EBITDA | $ | 6,851 | $ | 17,252 | ||||
Free Cash Flow
We define free cash flow as cash flows provided by (used in) operating activities reduced by purchases of property and equipment that are included in cash flows provided by (used in) investing activities. The following table presents a reconciliation of cash flows provided by (used in) operating activities, the most comparable GAAP financial measure, to free cash flow for each of the periods presented:
| For the Three Months Ended | ||||||||
| (in thousands) | ||||||||
| Free cash flow reconciliation: | ||||||||
| Cash flows provided by (used in) operating activities | $ | 57,359 | $ | 27,524 | ||||
| Deduct: | ||||||||
| Purchases of property and equipment | (5,985 | ) | (7,502 | ) | ||||
| Free cash flow | $ | 51,374 | $ | 20,022 | ||||
| Cash flows provided by (used in) investing activities | $ | 1,701 | $ | (46,521 | ) | |||
| Cash flows provided by (used in) financing activities | $ | (1,896 | ) | $ | (1,694 | ) | ||
Operating Metrics
| Active clients (in thousands) | 3,763 | 3,522 | 3,418 | 3,465 | 3,416 | |||||||||||||||
| Net revenue per active client(1) | $ | 467 | $ | 486 | $ | 498 | $ | 501 | $ | 485 | ||||||||||
| ___________________________ | ||||||||||||||||||||
| (1) Fiscal year 2019 was a 53-week year, with the extra week occurring in the quarter ended |
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Active Clients
We define an active client as a client who checked out a Fix or was shipped an item using our direct-buy functionality in the preceding 52 weeks, measured as of the last day of that period. A client checks out a Fix when she indicates what items she is keeping through our mobile application or on our website. We consider each Men’s, Women’s, or Kids account as a client, even if they share the same household.
Net Revenue per Active Client
We calculate net revenue per active client based on net revenue over the preceding four fiscal quarters divided by the number of active clients, measured as of the last day of the period.
IR Contact:David Pearce ir@stitchfix.com PR Contact:Suzy Sammons media@stitchfix.com
Source: Stitch Fix, Inc.