Stitch Fix Announces Third Quarter of Fiscal Year 2023 Financial Results
June 6, 2023
Third Quarter Key Metrics and Financial Highlights
- Net revenue of
$394.9 million , a decrease of 20% year over year - Active clients of 3,476,000, a decrease of 431,000 or 11% year over year
- Net revenue per active client (RPAC) of
$502 , a decrease of 9% year over year - Net loss of
$21.8 million and diluted loss per share of$0.19 - Adjusted EBITDA of
$10.1 million
Key Business Updates
- Fiscal Q3 results exceeded expectations: Delivered revenue of approximately
$395 million , which is at the high end of our guidance range. - Continuing to realize the benefits of tight cost controls: Adjusted EBITDA of
$10.1 million , exceeding our guidance range. - Further balance sheet strengthening: Once again we generated positive free cash flow this quarter, delivering
$21.9 million and ended the quarter with$244 million of cash and investments, and no bank debt.
Strategic Business Review
In Q3 we undertook a review of our operations and processes with a view to improving efficiencies, maintaining profitability and cash flow as well as identifying opportunities to enhance the client experience.
- First, with our renewed focus on our styling first model we have identified an opportunity to optimize our operations while enhancing the client experience. By moving to a three distribution center network, from our current five distribution center network, we will have greater depth and breadth of inventory available for our stylists to serve clients. Therefore, we will not be renewing the lease on our
Bethlehem distribution center when it expires later this year and also plan to close ourDallas distribution center next calendar year. - Second, since we entered the
UK market four years ago, the macroeconomic environment and our business have changed. In addition to a strategic refocusing on our styling first business in the US, and despite ongoing efforts to control costs and increase efficiencies across the company, we have concluded the need to explore exiting theUK market in FY24.
Financial Outlook
Our financial outlook for the fourth quarter of fiscal 2023, which ends on
| Q4’23 |
||||
| Net Revenue | (24)% - (22)% YoY decline | |||
| Adjusted EBITDA | 0% - 3% margin | |||
Conference Call and Webcast Information
To access the call by phone, please register at the following link:
Dial-In Registration: https://register.vevent.com/register/BIa7204e4c7858409e9d0fca86e1b180fc
Upon registration, telephone participants will receive the dial-in number along with a unique PIN number that can be used to access the call. A replay of the webcast will also be available for a limited time, at https://investors.stitchfix.com.
About
Forward-Looking Statements
This press release, the related conference call, and webcast 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 expectations for future financial performance, including our profitability and long-term targets; guidance on financial results and metrics for the fourth quarter and full fiscal year of 2023; our ability to achieve our goals of liquidity and profitability; that our investments in personalization and artificial intelligence will maximize our long-term potential; that our inventory will be better optimized across a three fulfillment center network in the
| Condensed Consolidated Balance Sheets | ||||||||
| (Unaudited) | ||||||||
| (In thousands, except share and per share amounts) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 193,575 | $ | 130,935 | ||||
| Short-term investments | 50,139 | 82,049 | ||||||
| Inventory, net | 151,612 | 197,251 | ||||||
| Prepaid expenses and other current assets | 33,406 | 39,456 | ||||||
| Income tax receivable | 27,012 | 27,561 | ||||||
| Total current assets | 455,744 | 477,252 | ||||||
| Long-term investments | — | 17,713 | ||||||
| Income tax receivable, net of current portion | — | 26,091 | ||||||
| Property and equipment, net | 86,557 | 103,375 | ||||||
| Operating lease right-of-use assets | 113,605 | 132,179 | ||||||
| Other long-term assets | 4,064 | 7,925 | ||||||
| Total assets | $ | 659,970 | $ | 764,535 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 124,932 | $ | 143,934 | ||||
| Operating lease liabilities | 32,704 | 29,014 | ||||||
| Accrued liabilities | 81,378 | 94,416 | ||||||
| Gift card liability | 10,899 | 10,551 | ||||||
| Deferred revenue | 13,564 | 14,441 | ||||||
| Other current liabilities | 6,616 | 3,214 | ||||||
| Total current liabilities | 270,093 | 295,570 | ||||||
| Operating lease liabilities, net of current portion | 131,906 | 141,334 | ||||||
| Other long-term liabilities | 4,190 | 4,980 | ||||||
| Total liabilities | 406,189 | 441,884 | ||||||
| Stockholders’ equity: | ||||||||
| Class A common stock, |
1 | 1 | ||||||
| Class B common stock, |
1 | 1 | ||||||
| Additional paid-in capital | 594,207 | 522,658 | ||||||
| Accumulated other comprehensive loss | (632 | ) | (3,527 | ) | ||||
| Accumulated deficit | (309,754 | ) | (166,440 | ) | ||||
| (30,042 | ) | (30,042 | ) | |||||
| Total stockholders’ equity | 253,781 | 322,651 | ||||||
| Total liabilities and stockholders’ equity | $ | 659,970 | $ | 764,535 | ||||
| Condensed Consolidated Statements of Operations and Comprehensive Loss | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| (In thousands, except share and per share amounts) | ||||||||||||||||
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| Revenue, net | $ | 394,914 | $ | 492,941 | $ | 1,262,625 | $ | 1,590,909 | ||||||||
| Cost of goods sold | 227,011 | 282,851 | 733,844 | 875,098 | ||||||||||||
| Gross profit | 167,903 | 210,090 | 528,781 | 715,811 | ||||||||||||
| Selling, general, and administrative expenses | 192,650 | 286,970 | 675,368 | 825,239 | ||||||||||||
| Operating loss | (24,747 | ) | (76,880 | ) | (146,587 | ) | (109,428 | ) | ||||||||
| Interest income | 2,609 | 194 | 4,088 | 699 | ||||||||||||
| Other income (expense), net | 685 | (942 | ) | 53 | (1,096 | ) | ||||||||||
| Loss before income taxes | (21,453 | ) | (77,628 | ) | (142,446 | ) | (109,825 | ) | ||||||||
| Provision for income taxes | 372 | 412 | 868 | 954 | ||||||||||||
| Net loss | $ | (21,825 | ) | $ | (78,040 | ) | $ | (143,314 | ) | $ | (110,779 | ) | ||||
| Other comprehensive income (loss): | ||||||||||||||||
| Change in unrealized gain (loss) on available-for-sale securities, net of tax | 732 | (1,283 | ) | 1,487 | (2,252 | ) | ||||||||||
| Foreign currency translation | 519 | (2,384 | ) | 1,408 | (3,835 | ) | ||||||||||
| Total other comprehensive income (loss), net of tax | 1,251 | (3,667 | ) | 2,895 | (6,087 | ) | ||||||||||
| Comprehensive loss | $ | (20,574 | ) | $ | (81,707 | ) | $ | (140,419 | ) | $ | (116,866 | ) | ||||
| Net loss attributable to common stockholders: | ||||||||||||||||
| Basic | $ | (21,825 | ) | $ | (78,040 | ) | $ | (143,314 | ) | $ | (110,779 | ) | ||||
| Diluted | $ | (21,825 | ) | $ | (78,040 | ) | $ | (143,314 | ) | $ | (110,779 | ) | ||||
| Loss per share attributable to common stockholders: | ||||||||||||||||
| Basic | $ | (0.19 | ) | $ | (0.72 | ) | $ | (1.26 | ) | $ | (1.02 | ) | ||||
| Diluted | $ | (0.19 | ) | $ | (0.72 | ) | $ | (1.26 | ) | $ | (1.02 | ) | ||||
| Weighted-average shares used to compute loss per share attributable to common stockholders: | ||||||||||||||||
| Basic | 115,445,285 | 108,759,202 | 113,911,089 | 108,771,065 | ||||||||||||
| Diluted | 115,445,285 | 108,759,202 | 113,911,089 | 108,771,065 | ||||||||||||
| Condensed Consolidated Statements of Cash Flow | ||||||||
| (Unaudited) | ||||||||
| (In thousands) | ||||||||
| For the Nine Months Ended | ||||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ | (143,314 | ) | $ | (110,779 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Change in inventory reserves | (12,152 | ) | 2,301 | |||||
| Stock-based compensation expense | 80,217 | 96,305 | ||||||
| Depreciation, amortization, and accretion | 32,275 | 27,185 | ||||||
| Asset impairment | 16,874 | — | ||||||
| Other | 1,517 | 52 | ||||||
| Change in operating assets and liabilities: | ||||||||
| Inventory | 58,080 | (3,922 | ) | |||||
| Prepaid expenses and other assets | 10,070 | (11,386 | ) | |||||
| Income tax receivables | 26,640 | 1,069 | ||||||
| Operating lease right-of-use assets and liabilities | (1,333 | ) | 4,492 | |||||
| Accounts payable | (18,700 | ) | 72,966 | |||||
| Accrued liabilities | (15,513 | ) | 15,058 | |||||
| Deferred revenue | (883 | ) | (916 | ) | ||||
| Gift card liability | 347 | 1,190 | ||||||
| Other liabilities | 2,617 | 840 | ||||||
| Net cash provided by operating activities | 36,742 | 94,455 | ||||||
| Cash Flows from Investing Activities | ||||||||
| Proceeds from sale of property and equipment | 842 | — | ||||||
| Purchases of property and equipment | (15,624 | ) | (38,681 | ) | ||||
| Purchases of securities available-for-sale | (258 | ) | (92,453 | ) | ||||
| Sales of securities available-for-sale | 6,524 | 5,812 | ||||||
| Maturities of securities available-for-sale | 44,056 | 98,308 | ||||||
| Net cash provided by (used in) investing activities | 35,540 | (27,014 | ) | |||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from the exercise of stock options, net | 155 | 1,513 | ||||||
| Payments for tax withholdings related to vesting of restricted stock units | (10,717 | ) | (27,915 | ) | ||||
| Repurchase of common stock | — | (30,042 | ) | |||||
| Other | (117 | ) | — | |||||
| Net cash used in financing activities | (10,679 | ) | (56,444 | ) | ||||
| Net increase in cash and cash equivalents | 61,603 | 10,997 | ||||||
| Effect of exchange rate changes on cash and cash equivalents | 1,037 | (3,061 | ) | |||||
| Cash and cash equivalents at beginning of period | 130,935 | 129,785 | ||||||
| Cash and cash equivalents at end of period | $ | 193,575 | $ | 137,721 | ||||
| Supplemental Disclosure | ||||||||
| Cash paid for income taxes | $ | 787 | $ | 558 | ||||
| Supplemental Disclosure of Non-Cash Investing and Financing Activities: | ||||||||
| Purchases of property and equipment included in accounts payable and accrued liabilities | $ | 1,577 | $ | 3,011 | ||||
| Capitalized stock-based compensation | $ | 4,774 | $ | 5,662 | ||||
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 and other income (expense), net, as these items are not components of our core business;
- adjusted EBITDA does not reflect our provision for income taxes, which may increase or decrease 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
- adjusted EBITDA excludes costs incurred related to discrete restructuring plans and other one-time costs that are fundamentally different in strategic nature and frequency from ongoing initiatives. We believe exclusion of these items facilitates a more consistent comparison of operating performance over time, however these costs do include cash outflows;
- 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 loss excluding interest income, other income (expense), net, provision for income taxes, depreciation and amortization, stock-based compensation expense, and restructuring and other one-time costs. The following table presents a reconciliation of net loss, the most comparable GAAP financial measure, to adjusted EBITDA for each of the periods presented:
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| (in thousands) | ||||||||||||||||
| Net loss | $ | (21,825 | ) | $ | (78,040 | ) | $ | (143,314 | ) | $ | (110,779 | ) | ||||
| Add (deduct): | ||||||||||||||||
| Interest income | (2,609 | ) | (194 | ) | (4,088 | ) | (699 | ) | ||||||||
| Other (income) expense, net | (685 | ) | 942 | (53 | ) | 1,096 | ||||||||||
| Provision for income taxes | 372 | 412 | 868 | 954 | ||||||||||||
| Depreciation and amortization | 9,970 | 9,266 | 29,689 | 25,445 | ||||||||||||
| Stock-based compensation expense | 22,636 | 31,592 | 80,217 | 96,305 | ||||||||||||
| Restructuring and other one-time costs(1) | 2,238 | — | 43,135 | — | ||||||||||||
| Adjusted EBITDA | $ | 10,097 | $ | (36,022 | ) | $ | 6,454 | $ | 12,322 | |||||||
(1) For the three months ended
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 | For the Nine Months Ended | |||||||||||||||
| (in thousands) | ||||||||||||||||
| Free cash flow reconciliation: | ||||||||||||||||
| Cash flows provided by (used in) operating activities | $ | 25,682 | $ | (30,477 | ) | $ | 36,742 | $ | 94,455 | |||||||
| Deduct: | ||||||||||||||||
| Purchases of property and equipment | (3,738 | ) | (7,781 | ) | (15,624 | ) | (38,681 | ) | ||||||||
| Free cash flow | $ | 21,944 | $ | (38,258 | ) | $ | 21,118 | $ | 55,774 | |||||||
| Cash flows provided by (used in) investing activities | $ | 32,330 | $ | 619 | $ | 35,540 | $ | (27,014 | ) | |||||||
| Cash flows used in financing activities | $ | (3,747 | ) | $ | (24,441 | ) | $ | (10,679 | ) | $ | (56,444 | ) | ||||
Operating Metrics
| Active clients (in thousands) | 3,476 | 3,574 | 3,709 | 3,795 | 3,907 |
Active Clients
We define an active client as a client who checked out a Fix or was shipped an item via Freestyle 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 Women’s, Men’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. Net revenue per active client was
| IR Contact: | PR Contact: |
| ir@stitchfix.com | media@stitchfix.com |
Source: Stitch Fix, Inc.