UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 7, 2020
(Exact name of Registrant as Specified in Its Charter)
Commission file number: 001-38291
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
(Address of principal executive offices and zip code)
(415 ) 882-7765
(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2. below):
| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |||||
| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |||||
| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |||||
| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | |||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||||||||||||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition.
On December 7, 2020, Stitch Fix, Inc. (the “Company”) announced its financial results for the first quarter of fiscal year 2021 ended October 31, 2020, by issuing a Letter to Shareholders (the “Letter”) and a press release. In the Letter and the press release, the Company also announced that it would be holding a conference call on December 7, 2020, at 2 p.m. Pacific Time to discuss its financial results for the first quarter of fiscal year 2021 ended October 31, 2020. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K (this “Current Report”) and incorporated by reference herein. A copy of the Letter is furnished as Exhibit 99.2 to this Current Report and incorporated by reference herein.
The information included in Item 2.02 of this Current Report and the exhibits attached hereto are being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any other filing under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation language in any such filing.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Appointment of Chief Financial Officer
On December 7, 2020, the Company announced the hiring of Dan Jedda, who will be appointed as Chief Financial Officer of the Company, effective December 9. Mr. Jedda, age 49, joins the Company from Amazon.com, Inc. where he was employed since 2005 in various leadership roles, most recently as Vice President and CFO for Digital Video (including Amazon Studios), Digital Music, and the Advertising and Corporate Development organizations.
In connection with Mr. Jedda’s hiring, the Company and Mr. Jedda entered into an offer letter on October 29, 2020, which provides for the following benefits:
•an annual base salary of $500,000;
•eligibility to participate in the Company’s executive bonus program, with a target bonus of 50% of base salary;
•a signing bonus of $250,000;
•a stock award valued at $6,500,000, 50% to be granted in stock options and 50% to be granted in restricted stock units (RSUs). 1/6th of the stock options will vest upon completion of 6 months of employment at the Company, with the remainder vesting in equal monthly installments over the next 30 months. 1/6th of the RSUs will vest on June 16, 2021, with the remainder vesting in equal quarterly installments over the next 10 quarterly restricted stock unit vesting dates; and
•a stock award valued at $3,250,000, 50% to be granted in stock options and 50% to be granted in restricted stock units (RSUs). 1/36th of the stock options will vest upon completion of 13 months of employment at the Company, with the remainder vesting in equal monthly installments over the next 35 months and 1/12th of the RSUs will vest on December 15, 2021, with the remainder vesting in equal quarterly installments over the next 11 quarterly restricted stock unit vesting dates.
This description of the offer letter is qualified in its entirety by reference to the full text of the offer letter, which will be filed as an exhibit to the Company’s next quarterly report on Form 10-Q.
Other than the offer letter between Mr. Jedda and the Company, there are no arrangements or understandings between Mr. Jedda and any other persons pursuant to which he was selected to serve as Chief Financial Officer. Mr. Jedda has no family relationships with any director, executive officer or person nominated or chosen by the Company to become a director or executive officer of the Company. Mr. Jedda is not a party to any transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K.
A copy of the press release announcing Mr. Jedda’s appointment is furnished as Exhibit 99.3 to this Current Report.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
| Exhibit No. | Description | |||||||
| 99.1 | ||||||||
| 99.2 | ||||||||
| 99.3 | ||||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |||||||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Stitch Fix, Inc. | |||||||||||||||||
| Dated: | December 7, 2020 | By: | /s/ Michael Smith | ||||||||||||||
| Michael Smith | |||||||||||||||||
| President, Chief Operating Officer, and Interim Chief Financial Officer | |||||||||||||||||
Exhibit 99.1
Stitch Fix Announces First Quarter Fiscal Year 2021 Financial Results
SAN FRANCISCO, December 7, 2020 (GLOBE NEWSWIRE) -- Stitch Fix, Inc. (NASDAQ:SFIX), the leading online personal styling service, has released its financial results for the first quarter of fiscal year 2021 ended October 31, 2020, and posted a letter to its shareholders on its investor relations website.
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 Katrina Lake said, “In Q1, we delivered $490 million in net revenue, reflecting 10% year-over-year growth, and grew our active client count to nearly 3.8 million, reflecting 10% year-over-year growth. This quarter we are proud to have achieved several multi-year highs, including our highest sequential client addition on record and the highest level of successful first Fixes in the past five years. Our powerful personalization engine is evolving, and innovations in our Fix and direct buy offerings will expand our addressable market, deepen client engagement and grow wallet share over time. We're excited about the momentum in our business, confident in the future ahead, and we expect to deliver between 20% and 25% growth for the full year.”
Please visit the Stitch Fix investor relations website at https://investors.stitchfix.com to view the financial results included in the letter to shareholders. The Company intends to continue to make future announcements of material financial and other information through its investor relations website. The Company will also, from time to time, disclose this information through press releases, filings with the Securities and Exchange Commission (the “SEC”), conference calls, or webcasts, as required by applicable law.
Conference Call and Webcast Information
Katrina Lake, Founder and Chief Executive Officer of Stitch Fix, Mike Smith, President, Chief Operating Officer, and interim Chief Financial Officer of Stitch Fix, and Elizabeth Spaulding, President of Stitch Fix, will host a conference call at 2:00 p.m. Pacific Time today to discuss the Company’s financial results and outlook. A live webcast will be accessible on Stitch Fix’s investor relations website at investors.stitchfix.com. Interested parties can also access the call by dialing 800-458-4121 in the U.S. or 323-794-2093 internationally, and entering conference code 1665713.
A telephonic replay will be available through Monday, December 14, 2020, at 888-203-1112 or 719-457-0820, passcode 1665713. An archive of the webcast conference call will be available shortly after the call ends at https://investors.stitchfix.com.
About Stitch Fix, Inc.
Stitch Fix is an online personal styling service that is reinventing the shopping experience by delivering one-to-one personalization to our clients through the combination of data science and human judgment. Stitch Fix was founded in 2011 by CEO Katrina Lake. Since then, we’ve helped millions of women, men, and kids discover and buy what they love through personalized selections of apparel, shoes, and accessories, curated by Stitch Fix stylists and algorithms. For more information about Stitch Fix, please visit https://www.stitchfix.com.
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 SEC. Further information on these and other factors that could cause our financial results, performance, and achievements to differ materially from any results, performance, or achievements anticipated, expressed, or implied by these forward-looking statements is included in filings we make with the SEC from time to time, including in the section titled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended August 1, 2020. These documents are available on the SEC Filings section of the Investor Relations section of our website at: https://investors.stitchfix.com. We undertake no obligation to update any forward-looking statements made in this press release to reflect events or circumstances after the date of this press release or to reflect new information or the occurrence of unanticipated events, except as required by law. The achievement or success of the matters covered by such forward-looking statements involves known and unknown risks, uncertainties, and assumptions. If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, our results could differ materially from the results expressed or implied by the forward-looking statements we make. You should not rely upon forward-looking statements as predictions of future events. Forward-looking statements represent our management’s beliefs and assumptions only as of the date such statements are made.
Stitch Fix, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share and per share amounts)
| October 31, 2020 | August 1, 2020 | |||||||||||||
| 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, $0.00002 par value | 1 | 1 | ||||||||||||
| Class B common stock, $0.00002 par value | 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 | ||||||||||
Stitch Fix, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
(In thousands, except share and per share amounts)
| For the Three Months Ended | ||||||||||||||
| October 31, 2020 | November 2, 2019 | |||||||||||||
| 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 | ||||||||||||
Stitch Fix, Inc.
Condensed Consolidated Statements of Cash Flow
(Unaudited)
(In thousands)
| Three Months Ended | ||||||||||||||
| October 31, 2020 | November 2, 2019 | |||||||||||||
| 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 the United States (“GAAP”). However, management believes that certain non-GAAP financial measures provide users of our financial information with additional useful information in evaluating our performance. We believe that adjusted EBITDA is frequently used by investors and securities analysts in their evaluations of companies, and that this supplemental measure facilitates comparisons between companies. We believe free cash flow is an important metric because it represents a measure of how much cash from operations we have available for discretionary and non-discretionary items after the deduction of capital expenditures. These non-GAAP financial measures may be different than similarly titled measures used by other companies.
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) | October 31, 2020 | November 2, 2019 | ||||||||||||
| 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) | October 31, 2020 | November 2, 2019 | ||||||||||||
| 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
| October 31, 2020 | August 1, 2020 | May 2, 2020 | February 1, 2020 | November 2, 2019 | ||||||||||||||||||||||||||||
| 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 August 3, 2019. Therefore, net revenue per active client for each quarter ended May 2, 2020, February 1, 2020, and November 2, 2019, includes the impact of the extra week of revenue.
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 | ||||
DECEMBER 7, 2020 Q1 Fiscal 2021 Letter to Shareholders Exhibit 99.2
• We grew our active clients to nearly 3.8 million as of October 31, 2020, an increase of 347,000 or 10.2% year- over-year, and 241,000 quarter over quarter. • We delivered $490.4 million in net revenue, representing 10.3% year-over-year growth and 10.6% quarter- over-quarter, net income of $9.5 million, and adjusted EBITDA1 of $6.9 million. • We generated our highest sequential net client additions in history, multi-year highs in successful first Fix rate, and our highest success rate on record. • We returned to double-digit active client growth year-over-year and expect to accelerate further in fiscal 2021 as we take market share and roll out direct buy to new clients. • We enhanced our direct buy and Fix offerings with the introduction of Shop by Category and Fix Preview, which we expect will expand wallet share and deepen client engagement over time. • We shortened product lead times in Kids as part of our broader focus on quickly adapting our inventory to best meet clients’ changing needs and preferences. Q1 Fiscal 2021 Highlights: Dear Shareholder: 2 Q1’21 Highlights ACTIVE CLIENTS 3.8 million 10.2% YoY growth NET REVENUE $490.4 million 10.3% YoY growth GROSS PROFIT $219.5 million 44.7% of net revenue NET INCOME $9.5 million 1.9% of net revenue ADJUSTED EBITDA1 $6.9 million 1.4% of net revenue We are pleased to share our first quarter results today and highlight three overarching themes that position us to accelerate top line and client growth in the year ahead. First, our business has great momentum and reached several multi-year highs in Q1’21. Second, the secular shift to online shopping and the share gain opportunity we’ve discussed in past quarters is well underway and we expect accelerating active client growth to play a significant role in our full year outlook. Third, we’re enhancing our Fix and direct buy offerings to expand our addressable market, deepen client engagement and grow wallet share over time. For Q1 fiscal 2021, which ended October 31, 2020, we grew active clients to nearly 3.8 million, a 10.2% increase year-over-year, and an increase of 241,000 active clients quarter-over-quarter. We generated net revenue of $490.4 million, a 10.3% increase year-over-year and 10.6% quarter-over- quarter. During the quarter, we generated net income of $9.5 million and diluted earnings per share of $0.09. We also delivered adjusted EBITDA of $6.9 million. Following a very thoughtful and extensive search, we are also excited to announce today the appointment of Dan Jedda as our new Chief Financial Officer. His background and experience is an ideal fit to help us to continue to scale and drive the next phase of Stitch Fix’s growth. For more information, please refer to the announcement press release. 1 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. For more information regarding adjusted EBITDA and other non-GAAP financial measures discussed in this letter, please see the reconciliations of our non-GAAP measurements to their most directly comparable GAAP-based financial measurements included at the end of this letter.
We generated our highest sequential net client additions in history, multi-year highs in successful first Fix rate, and our highest success rate on record. Client Additions Our offering continues to benefit from strong product/market fit. In a time period where many traditional brick and mortar retailers are still experiencing double-digit year over year revenue decreases in their most recent quarter, we delivered an increase of over 240,000 net active clients quarter over quarter, a return to double-digit, year-over-year active client growth, which we expect will increase further this fiscal year. Successful First Fixes In their very first experience with us, our recently acquired Fix customers are demonstrating both strong purchase behavior and satisfaction. We previously shared a measure that we internally refer to as a successful first Fix and we define as the percent of clients who purchase at least one item in their first Fix and look forward to their second Fix. In each of the last two quarters, nearly 80% of our first Fixes met this criteria, which is the highest level we have seen in five years and reflects our ability to not only acquire high-quality clients to form enduring relationships, but also deliver a highly personalized experience that meets their needs and preferences. We have shifted our inventory to meet the customer in the moment, and we’ve improved our recommendations by leveraging our growing data set to bolster our "style graph" and power our algorithmic models. We believe that establishing a favorable first Fix outcome is a strong indicator of future client engagement and retention that will serve as a tailwind in the quarters ahead. Record Success Rate We saw strong client outcomes not only in our new clients but in our broader existing client base in Q1’21. We are pleased to share that – across our entire Fix offering – we have increased success rate every year on record and, in Q1’21, we delivered our highest level yet.2 We believe this strength is driven by our ability to leverage data to generate insights that allow us to relentlessly adapt our inventory assortment and continually strengthen our recommendations. In Women’s, for example, we have grown our athleisure assortment as a percent of our Women’s inventory by over 150% compared to pre-COVID levels, helping us to serve elevated demand for these products and meet our clients’ work- from-home needs. In Kids, we have used sourcing speed to our advantage; we’re now sourcing a meaningful portion of some of our most in-demand styles using a rapid sourcing model where product arrives to our distribution centers in as little as ten weeks. Q1’21 Business Highlights: 3 2 We measure success rate as the percentage of time a given item is purchased by clients. Applied across our entire Fix offering, success rate measures the percentage of time items were purchased in the aggregate.
This contributed to a strong Back-to-School season in which we grew first Fix shipments by 60% year-over-year. We have also reacted to the current environment by expanding our assortment of more affordably priced products across categories, which have resonated well with Women’s and Men’s clients and led to outsized success rates. As we look ahead, we have growing confidence that our track record of strengthening personalization capabilities paired with our nimble supply chain will allow us to deliver better client and business results. In Q1’21, the combination of record quarterly client additions, strong auto-ship retention, multi-year highs in successful first Fix rate, and our highest success rate to date demonstrated the resonance of our offering and the power of the personalization engine that fuels our business. We returned to double-digit active client growth year-over-year and expect to accelerate further in fiscal 2021 as we take market share and roll out direct buy to new clients. While the apparel industry is currently contracting, we expect to take share and drive higher new client sign-ups as the relevance of our model of personalized discovery and convenience grows. In Q1’21, even as we proactively shifted some Fixes out a quarter, from Q1’21 to Q2’21 as we chased into inventory, we still delivered first Fix growth exceeding 25% year over year. As the large majority of our new clients choose to receive Fixes on a recurring cadence, we expect this will drive strong engagement and repeat purchase behavior in upcoming quarters. In addition, we shared in September our plan to hire over 2,000 stylists outside of California and we are pleased to share that, due to such strong demand for our styling role, we have already met this hiring target and feel well positioned to serve higher Fix demand in the remainder of fiscal 2021. In addition to our strong outlook for Fix demand, we believe that direct buy will serve as another catalyst as we attract new clients, convert prospective clients, and reactivate lapsed clients. We have continued to see direct buy’s penetration grow across our Men’s and Women’s client base, and we plan to introduce it to new and prospective clients later this fiscal year. We enhanced our direct buy and Fix offerings with the introduction of Shop by Category and Fix Preview, which we expect will expand wallet share and deepen client engagement over time. Our goal has always been to deliver the most personalized shopping experience to every client, and what has enabled us to do this so well is the nearly ten-year advantage we have building an algorithmically-driven engine, and exceptional data, for highly personalized apparel-based shopping. We’re currently in the midst of further enhancing our core Fix experience, which has generated billions of dollars in revenue since the company’s inception. In addition, we have embarked on our next form factor, direct buy, which we expect will expand our addressable market, deepen client engagement and grow wallet share over time. 4
Shop by Category In November, we expanded our direct buy capabilities with the beta launch of Shop by Category, which leverages our rich Style Shuffle data, as well as the valuable insights we have learned about our clients over time, to create a highly personalized digital shopping feed for each client. Underlying these distinctive data assets is a proprietary “style graph” that we leverage for each individual client. Each category shop is built around specific themes like “athleisure”, “sweaters”, or “seasonal staples” which are curated using each client’s specific Style Shuffle likes along with algorithmically generated recommendations inspired by these likes. Through this item-based format, clients now have the ability to purchase specific items they see in Style Shuffle. Over time, we intend to algorithmically generate a wide array of categories relevant to each individual client based on signals we gather from them across various facets of our experience. While still early and available to a limited number of clients, we’ve seen strong client traction with Shop by Category to-date, with approximately 80% of clients who have engaged with the offering completing at least one style quiz, demonstrating how fun and relevant this personalized shopping experience can be. It also complements “Trending For You”, our outfit-based recommendation feed, enabling higher intent purchase occasions for specific items. Since its launch, Style Shuffle has proven to be a highly engaging experience – we’ve collected over six billion ratings with millions of clients having played. During Q1’21, we have seen, on average, more than 50% of our app-engaged users playing daily. With such strong client engagement, Style Shuffle has evolved into a key vehicle for data collection that has strengthened our algorithms and allowed us to build enhanced features that improve client outcomes. We think these elevated levels of engagement showcase the opportunity we have to create a powerful feed-based commerce experience that allows clients to become a partner and co-creator in designing their personalized Stitch Fix storefront. Shop by Category is just one example of how we are leveraging our data flywheel to create a differentiated and personalized shopping experience through which clients are excited to increasingly engage. The offering addresses a broader range of clients’ shopping needs and occasions, and marks an important next step in our evolution of direct buy as we move closer to using it as a vehicle for client acquisition in the quarters ahead. Specifically, we believe this new category-based shopping experience will provide a compelling gateway for the cold start experience where we can provide relevant, personalized recommendations to clients as they enter Stitch Fix for the first time. 5
Fix Preview With our Fix form factor, we are enhancing the client experience by leveraging our differentiated styling team to deliver stronger client outcomes. From a survey of our prospective clients – those who have completed our style profile but not yet converted to ordering a Fix – approximately 45% responded that they would convert if they had the ability to “preview” what they might receive from our stylist-based experience. Based on this insight, and the magnitude and potential this prospect base represents, we recently rolled out an initiative in the U.K. called “Fix Preview” where we show clients proposed items for their next Fix. This new experience enables clients to engage more directly with their Fix before it ships and have more agency in selecting the items they receive. We began testing this feature in August and recently introduced it to 50% of U.K. clients based on strong early results that demonstrated higher client satisfaction and retention, as well as improvements in keep rate and average order value. Based on this early success, we plan to roll out this Fix preview capability to 100% of U.K. clients and have begun testing it with U.S. clients with the intent to learn and scale in the quarters ahead. We believe Fix preview appeals to an even broader set of clients and allows us to drive customer confidence by efficiently showcasing our ability to pair them with the products they will love. As a result, we believe that Fix Preview, along with our ongoing momentum in direct buy, will allow us to not only attract high-quality clients but to also convert our large prospect population that we estimate is in the millions, who are at the precipice but have not yet converted to Stitch Fix. We shortened product lead times in Kids as part of our broader focus on quickly adapting our inventory to best meet clients’ changing needs and preferences. To more effectively serve our clients and quickly adapt to changing preferences, we have focused on shortening product lead times across our business. In our Kids category specifically, we have partnered closely with vendors to significantly shorten sourcing timelines for both market and exclusive brands. In Q1’21, nearly one quarter of total Kids units and over 40% of our Exclusive Brand assortment were ordered and received at one of our distribution centers in less than ten weeks. By shortening product lead times, we have been able to shift our Kids assortment in response to demand and client behaviors. With more clients staying at home in this new normal, we quickly adapted our inventory to include more athleisure, sleep, and loungewear, which in turn contributed to a strong Back-to-School season with Kids’ first Fix growth of approximately 60% during the period. In addition, Kids’ success rates remained at record highs in Q1’21 and contributed to our highest average order values to-date. These results demonstrate our ability to continually innovate within our offerings to more effectively serve our clients, and we look forward to applying these learnings across categories over time. 6
Active Clients We grew our active client count to nearly 3.8 million as of October 31, 2020, an increase of 347,000 or 10.2% year over year. 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 he or she indicates which items he or she is keeping through our mobile app or website. We consider each Men’s, Women’s, or Kids account as a client, even if they share the same household. Net Revenue In Q1’21, we generated net revenue of $490.4 million, compared to $444.8 million in Q1’20, an increase of 10.3% year over year, and 10.6% quarter over quarter. Net revenue per active client for the period ended October 31, 2020 was $467, or 3.7% lower than the prior year. As a reminder, net revenue per active client is based on net revenue over the last four fiscal quarters divided by the ending number of active clients in the most recent quarter. During periods of elevated growth from clients who are early in their spending journey with us, revenue per client may be temporarily lower until these new cohorts of clients have more time on our platform. In addition, the trailing four quarter calculation includes the impact of our Q3’20 COVID trough, which will be lapped later this year. Gross Margin Q1’21 gross margin was 44.7%, compared to 45.3% in Q1’20, a decrease of 60 basis points. This was primarily driven by higher shipping expense, partially offset by lower inventory reserves and clearance rates. 3 Discounts, sales tax, and estimated refunds are deducted from revenue to arrive at net revenue. Q1’21 Financial Highlights: 7 3,416 3,465 3,418 3,522 3,763 Q1'20 Q2'20 Q3'20 Q4'20 Q1'21 ACTIVE CLIENTS (000s) $444.8 $451.8 $371.7 $443.4 $490.4 Q1'20 Q2'20 Q3'20 Q4'20 Q1'21 NET REVENUE ($M)3 43.7% 44.6% 44.1% 45.3% 44.7% FY'18 FY'19 FY'20 Q1'20 Q1'21 GROSS MARGIN (%)
Selling, General & Administrative Expenses Q1’21 SG&A was $239.0 million, or 48.7% of net revenue, compared to Q1’20 SG&A of $201.1 million, or 45.3% of net revenue, an increase of 340 basis points. This increase was driven by ongoing investments in technology talent and the associated stock-based compensation, or SBC, expense as well as higher marketing expenses year over year. Advertising. Q1’21 advertising expense increased year over year to $51.4 million from $50.7 million in Q1’20. Advertising as a percentage of net revenue was 10.5% in Q1’21 compared to 11.4% in the same period in the prior year.4 Net Income and Earnings Per Share Q1’21 net income was $9.5 million, or 1.9% of net revenue, compared to Q1’20 net loss of $0.2 million, or (0.0)% of net revenue. Q1’21 diluted earnings per share was $0.09. In Q1’20, diluted earnings per share was $(0.00).5 On March 27, 2020, the U.S. enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which permits net operating loss (“NOL”) carryovers and carrybacks to offset 100% of taxable income for tax years beginning before 2021 and allows NOLs incurred in 2018, 2019 and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. In Q1’21, our net income included a tax benefit from the NOL carryback provisions of the CARES Act. Adjusted EBITDA Q1’21 adjusted EBITDA was $6.9 million, or 1.4% of net revenue, compared to Q1’20 adjusted EBITDA of $17.3 million, or 3.9% of net revenue. This reflects solid revenue growth, and lower inventory reserves and clearance rates, offset by higher shipping and marketing expenses. As a reminder, we no longer include stock-based compensation in our adjusted EBITDA calculation. Balance Sheet and Cash Flow In Q1’21, we delivered free cash flow7 of $51.4 million, reflecting our strong sales and margin performance, timing of payments, and our capital light model. We ended the quarter with no debt and $429.9 million in cash, cash equivalents, and highly rated securities. During this period, our capital expenditures totaled $6.0 million, or 1.2% of net revenue. 4 Advertising expenses include the costs associated with the production of advertising, television, radio, and online advertising. 5 All earnings (loss) per share figures reflect amounts attributable to common stockholders. 6 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. 7 We define free cash flow as cash flows provided by operating activities reduced by purchases of property and equipment that are included in cash flows provided by (used in) investing activities. 8 $69.0 $74.8 $38.4 $17.3 $6.9 FY'18 FY'19 FY'20 Q1'20 Q1'21 ADJUSTED EBITDA ($M)6 40.2% 43.1% 47.1% 45.3% 48.7% FY'18 FY'19 FY'20 Q1'20 Q1'21 SG&A (%) $44.9 $36.9 ($67.1) ($0.2) $9.5 FY'18 FY'19 FY'20 Q1'20 Q1'21 NET INCOME (LOSS) ($M)
Guidance: Our robust demand trends along with our improved supply-side position give us greater visibility and confidence to reinstate our quarterly guidance and share our full-year outlook. While we have planned for a wide range of scenarios, one note of caution, our guidance today does reflect that our fulfillment centers will continue to remain fully operational and will not face any significant disruption from potential government-related COVID mandates. Our financial outlook for Q2’21, which ends on January 30, 2021, and for fiscal 2021, which ends on July 31, 2021, is as follows: We expect Q2’21 net revenue growth to be fueled by active client growth. In addition, in past Q2 periods, we have traditionally pulled back on advertising during the holiday season given that clients tend to be focused more on intent-based purchases and gifting to others and, as a result, we saw lower marketing efficiencies. However, with our direct buy offering, we now can play a greater role with clients’ intent-based shopping during the holiday season. As such, we plan to lean in and anticipate that advertising as a percent of revenue will be between 11 and 13% in the quarter. We will continue to take a disciplined approach to our marketing strategy, focused on achieving a positive return on investment across a diverse mix of channels, and believe that this investment will attract more active clients to our offering in Q2’21 and also be accretive to our additions in the back half of the year. 9 Q2’21 Net Revenue $506 – $515 million 12% – 14% YoY growth Adj. EBITDA $(6) – $(3) million (1.2)% – (0.6)% margin With the momentum we have seen in our new client sign ups and the expected expansion of our Direct Buy experience, we see further opportunity to take share and drive growth in fiscal 2021. Specifically, we expect our accelerating active client growth will allow us to deliver net revenue growth of 20% to 25% year over year, which implies growth between 29% and 40% year over year, in the back half of fiscal 2021. Given our opportunity to invest to drive growth over the course of this year, we will hold off on providing a specific adjusted EBITDA range for fiscal 2021 at this time and plan to revisit it in future quarters. Fiscal Year 2021 Net Revenue $2.05 – $2.14 billion 20% – 25% YoY growth
10 We have not reconciled our adjusted EBITDA outlook to GAAP net income (loss) because we do not provide an outlook for GAAP net income (loss) due to the uncertainty and potential variability of other income (expense), net, and provision for (benefit from) income taxes, which are reconciling items between adjusted EBITDA metric and GAAP net income (loss). Because such items cannot be reasonably predicted, we are unable to provide a reconciliation of the non-GAAP financial measure outlook to the corresponding GAAP measure. However, such items could have a significant impact on GAAP net income (loss). Closing We will host a conference call and earnings webcast at 2:00pm Pacific time/5:00pm Eastern time today to discuss these results. Interested parties can access the call by dialing 800-458-4121 in the U.S. or 323- 794-2093 internationally, using conference code 1665713. A live webcast will also be available on Stitch Fix’s investor relations website at investors.stitchfix.com. Thank you for taking the time to read our letter, and we look forward to your questions on our call this afternoon. Sincerely, Katrina Lake, Founder and CEO Mike Smith, President, COO and Interim CFO Elizabeth Spaulding, President MEDIA CONTACT media@stitchfix.com INVESTOR RELATIONS CONTACT ir@stitchfix.com For more information regarding the non- GAAP financial measures discussed in this letter, please see "Non-GAAP Financial Measures," below, including the reconciliations of our non-GAAP measures to their most directly comparable GAAP financial measures included at the end of this letter.
Stitch Fix, Inc. Condensed Consolidated Balance Sheets (Unaudited) (In thousands, except share and per share amounts) 11 October 31, 2020 August 1, 2020 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, $0.00002 par value 1 1 Class B common stock, $0.00002 par value 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
Stitch Fix, Inc. Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) (In thousands, except share and per share amounts) 12 For the Three Months Ended October 31, 2020 November 2, 2019 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
Stitch Fix, Inc. Condensed Consolidated Statements of Cash Flow (Unaudited) (In thousands) 13 Three Months Ended October 31, 2020 November 2, 2019 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 the United States (“GAAP”). However, management believes that certain non-GAAP financial measures provide users of our financial information with additional useful information in evaluating our performance. We believe that adjusted EBITDA is frequently used by investors and securities analysts in their evaluations of companies, and that this supplemental measure facilitates comparisons between companies. We believe free cash flow is an important metric because it represents a measure of how much cash from operations we have available for discretionary and non-discretionary items after the deduction of capital expenditures. These non-GAAP financial measures may be different than similarly titled measures used by other companies. 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. 14
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 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: 15 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) October 31, 2020 November 2, 2019 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 For the Three Months Ended (in thousands) October 31, 2020 November 2, 2019 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)
16 Operating Metrics 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. 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. October 31, 2020 August 1, 2020 May 2, 2020 February 1, 2020 November 2, 2019 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 August 3, 2019. Therefore, net revenue per active client for each quarter ended May 2, 2020, February 1, 2020, and November 2, 2019, includes the impact of the extra week of revenue.
17 Forward-Looking Statements This shareholder letter and 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 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 SEC. Further information on these and other factors that could cause our financial results, performance, and achievements to differ materially from any results, performance, or achievements anticipated, expressed, or implied by these forward-looking statements is included in filings we make with the SEC from time to time, including in the section titled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended August 1, 2020. These documents are available on the SEC Filings section of the Investor Relations section of our website at: https://investors.stitchfix.com. We undertake no obligation to update any forward-looking statements made in this press release to reflect events or circumstances after the date of this press release or to reflect new information or the occurrence of unanticipated events, except as required by law. The achievement or success of the matters covered by such forward-looking statements involves known and unknown risks, uncertainties, and assumptions. If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, our results could differ materially from the results expressed or implied by the forward-looking statements we make. You should not rely upon forward-looking statements as predictions of future events. Forward-looking statements represent our management’s beliefs and assumptions only as of the date such statements are made.
18
Exhibit 99.3
Stitch Fix Announces Dan Jedda as New CFO, Joining the Company from Amazon
San Francisco, Calif. (Dec 7, 2020) - Stitch Fix Inc. (NASDAQ: SFIX), the leading online personal styling service, announced that Dan Jedda has joined the company, reporting to Katrina Lake. Jedda will be appointed CFO effective December 9, 2020.
Dan Jedda joins the company from Amazon where he was Vice President and CFO for Digital Video (including Amazon Studios), Digital Music, and the Advertising and Corporate Development organizations. During his 15-year career at Amazon, Jedda enabled explosive growth in these businesses and was with many of them since their inception. He has deep experience identifying and investing in market-defining consumer experiences.
“I’m excited to welcome Dan Jedda to our team,” said Stitch Fix founder and CEO Katrina Lake. “Dan brings extensive experience funding and scaling some of the most innovative businesses at Amazon. Dan will play a critical role in helping us expand our personalization platform to deliver the most relevant, resonant and delightful shopping experiences to consumers everywhere. His insight, energy and vision will be a great asset to our business as we move into the next stage of Stitch Fix’s growth.”
At Stitch Fix, Jedda will lead the Finance team, as well as being deeply involved in expanding the growth opportunities ahead for the business, partnering closely with the rest of the leadership team as Stitch Fix evolves its model to serve more customer needs.
Jedda said, “I am thrilled to be joining Stitch Fix at such an exciting time, when unprecedented consumer shifts to shopping online present such a significant opportunity for the business. I look forward to working with such an innovative company as it serves more consumers in highly personalized, relevant and convenient ways. I can’t wait to join Katrina and the leadership team.”
About Stitch Fix, Inc.
Stitch Fix is an online personal styling service that is reinventing the shopping experience by delivering one-to-one personalization to our clients through the combination of data science and human judgment. Stitch Fix was founded in 2011 by CEO Katrina Lake. Since then, we’ve helped millions of women, men, and kids discover and buy what they love through personalized selections of apparel, shoes, and accessories, curated by Stitch Fix stylists and algorithms. For more information about Stitch Fix, please visit https://www.stitchfix.com.
Forward-Looking Statements
This press release contains 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 Dan Jedda joining as our CFO and our growth opportunities, including expanding our personalization platform and consumer shifts toward online shopping. These statements involve substantial risks and uncertainties, including those described in the filings we make with the Securities and Exchange Commission (“SEC”). Further information on these and other factors that could cause our financial results, performance, and achievements to differ materially from any results, performance, or achievements anticipated, expressed, or implied by these forward-looking statements is included in filings we make with the SEC from time to time, including in the section titled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended August 1, 2020. These documents are available on the SEC Filings section of the Investor Relations section of our website at: https://investors.stitchfix.com. We undertake no obligation to update any forward-looking statements made in this press release to reflect events or circumstances after the date of this press release or to reflect new information or the occurrence of unanticipated events, except as required by law. The achievement or success of the matters covered by such forward-looking statements involves known and unknown risks, uncertainties, and assumptions. If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, our results could differ materially from the results expressed or implied by the forward-looking statements we make. You should not rely upon forward-looking statements as predictions of future events. Forward-looking statements represent our management’s beliefs and assumptions only as of the date such statements are made.