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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 30, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number: 001-38291
STITCH FIX, INC.
(Exact name of registrant as specified in its charter)
Delaware
27-5026540
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
1 Montgomery Street, Suite 1500
San Francisco, California 94104
(Address of principal executive offices and zip code)

(415) 882-7765
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Class A common stock, par value $0.00002 per shareSFIXNasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 ☒
Accelerated filer
Non-accelerated filer  
Smaller reporting company
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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of December 3, 2021, the number of outstanding shares of the registrant’s Class A common stock, par value $0.00002 per share, was 83,313,478, and the number of outstanding shares of the registrant’s Class B common stock, par value $0.00002 per share, was 25,486,335.
1



STITCH FIX, INC.
TABLE OF CONTENTS
 
  
Page No.
   
  
  
  
 
  
  
  
  
  
   
  
  
  
  
  
  
  
  
  
 


2


PART I. FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS

Stitch Fix, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share and per share amounts)
October 30, 2021July 31, 2021
Assets
Current assets:
Cash and cash equivalents$249,677 $129,785 
Short-term investments62,438 101,546 
Inventory, net184,129 212,294 
Prepaid expenses and other current assets48,902 50,512 
      Income tax receivable27,624 27,667 
Total current assets572,770 521,804 
Long-term investments88,420 59,035 
Income tax receivable, net of current portion27,054 27,054 
Property and equipment, net98,975 86,959 
Operating lease right-of-use assets136,849 118,565 
Other long-term assets5,354 5,732 
Total assets$929,422 $819,149 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$129,229 $73,499 
Operating lease liabilities25,881 25,702 
Accrued liabilities115,281 99,028 
Gift card liability9,461 9,903 
Deferred revenue16,617 18,154 
Other current liabilities1,764 2,027 
Total current liabilities298,233 228,313 
Operating lease liabilities, net of current portion144,014 121,623 
Other long-term liabilities8,580 8,364 
Total liabilities450,827 358,300 
Commitments and contingencies (Note 6)
Stockholders’ equity:
Class A common stock, $0.00002 par value – 2,000,000,000 shares authorized as of October 30, 2021, and July 31, 2021; 83,193,536 and 76,780,570 shares issued and outstanding as of October 30, 2021, and July 31, 2021, respectively
1 1 
Class B common stock, $0.00002 par value – 100,000,000 shares authorized as of October 30, 2021, and July 31, 2021; 25,601,420 and 31,175,418 shares issued and outstanding as of October 30, 2021, and July 31, 2021, respectively
1 1 
Additional paid-in capital437,246 416,755 
Accumulated other comprehensive income (loss)2,493 3,411 
Retained earnings38,854 40,681 
Total stockholders’ equity478,595 460,849 
Total liabilities and stockholders’ equity$929,422 $819,149 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3


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 30, 2021October 31, 2020
Revenue, net$581,244 $490,423 
Cost of goods sold308,327 270,972 
Gross profit272,917 219,451 
Selling, general, and administrative expenses274,767 238,984 
Operating income (loss)(1,850)(19,533)
Interest income334 1,161 
Other expense, net(109)(205)
Income (loss) before income taxes(1,625)(18,577)
Provision (benefit) for income taxes202 (28,118)
Net income (loss)$(1,827)$9,541 
Other comprehensive income (loss):
Change in unrealized gain (loss) on available-for-sale securities, net of tax(315)(663)
Foreign currency translation(603)(338)
Total other comprehensive income (loss), net of tax(918)(1,001)
Comprehensive income (loss)$(2,745)$8,540 
Net income (loss) attributable to common stockholders:
Basic$(1,827)$9,541 
Diluted$(1,827)$9,541 
Earnings (loss) per share attributable to common stockholders:  
Basic$(0.02)$0.09 
Diluted$(0.02)$0.09 
Weighted-average shares used to compute earnings (loss) per share attributable to common stockholders:  
Basic108,375,911 104,134,850 
Diluted108,375,911 109,477,354 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4


Stitch Fix, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(In thousands, except share amounts)
For the Three Months Ended October 30, 2021
 Common StockAdditional
Paid-In
Capital
Accumulated Other Comprehensive Income (Loss)Retained
Earnings
Total
Stockholders’
Equity
 SharesAmount
Balance as of July 31, 2021
107,955,988 $2 $416,755 $3,411 $40,681 $460,849 
Issuance of common stock upon exercise of stock options91,394 — 1,054 — — 1,054 
Issuance of common stock upon settlement of restricted stock units, net of tax withholdings747,574 — (14,752)— — (14,752)
Stock-based compensation— — 34,189 — — 34,189 
Net income (loss)— — — — (1,827)(1,827)
Other comprehensive income (loss), net of tax— — — (918)— (918)
Balance as of October 30, 2021
108,794,956 $2 $437,246 $2,493 $38,854 $478,595 
For the Three Months Ended October 31, 2020
 Common StockAdditional
Paid-In
Capital
Accumulated Other Comprehensive Income (Loss)Retained
Earnings
Total
Stockholders’
Equity
 SharesAmount
Balance as of August 1, 2020
103,755,507 $2 $348,750 $2,728 $49,557 $401,037 
Issuance of common stock upon exercise of stock options525,316 — 5,106 — — 5,106 
Issuance of common stock upon settlement of restricted stock units, net of tax withholdings440,918 — (7,002)— — (7,002)
Stock-based compensation— — 20,906 — — 20,906 
Net income (loss)— — — — 9,541 9,541 
Other comprehensive income (loss), net of tax— — — (1,001)— (1,001)
Balance as of October 31, 2020
104,721,741 $2 $367,760 $1,727 $59,098 $428,587 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5


Stitch Fix, Inc.
Condensed Consolidated Statements of Cash Flow
(Unaudited)
(In thousands)
 For the Three Months Ended
 October 30, 2021October 31, 2020
Cash Flows from Operating Activities  
Net income (loss)$(1,827)$9,541 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:  
Change in inventory reserves(2,763)(1,343)
Stock-based compensation expense32,323 19,925 
Depreciation, amortization, and accretion8,335 6,961 
Other(923)271 
Change in operating assets and liabilities: 
Inventory30,806 (30,665)
Prepaid expenses and other assets6,035 (9,503)
Income tax receivables
43 (18,796)
Operating lease right-of-use assets and liabilities101 (225)
Accounts payable55,352 44,609 
Accrued liabilities16,193 32,237 
Deferred revenue(1,532)1,906 
Gift card liability(442)(271)
Other liabilities(45)2,712 
Net cash provided by operating activities141,656 57,359 
Cash Flows from Investing Activities  
Purchases of property and equipment(16,392)(5,985)
Purchases of securities available-for-sale(52,435)(41,307)
Sales of securities available-for-sale2,160 16,193 
Maturities of securities available-for-sale59,130 32,800 
Net cash provided by (used in) investing activities(7,537)1,701 
Cash Flows from Financing Activities  
Proceeds from the exercise of stock options, net1,054 5,106 
Payments for tax withholdings related to vesting of restricted stock units(14,752)(7,002)
Net cash used in financing activities(13,698)(1,896)
Net increase in cash and cash equivalents120,421 57,164 
Effect of exchange rate changes on cash(529)(273)
Cash and cash equivalents at beginning of period129,785 143,455 
Cash and cash equivalents at end of period$249,677 $200,346 
Supplemental Disclosure  
Cash paid for income taxes$190 $38 
Supplemental Disclosure of Non-Cash Investing and Financing Activities:  
Purchases of property and equipment included in accounts payable and accrued liabilities$4,394 $4,880 
Capitalized stock-based compensation$1,866 $981 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6



Stitch Fix, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 
1.    Description of Business
Stitch Fix, Inc. (“we,” “our,” “us” or the “Company”) delivers personalization to our clients through the pairing of data science and human judgment. Currently, clients can engage with us in one of two ways that, combined, form an ecosystem of personalized experiences across styling, shopping and inspiration: (1) by receiving a personalized shipment of items informed by our algorithms and sent by a Stitch Fix stylist (a “Fix”); or (2) by purchasing directly from our website or mobile app based on a personalized assortment of outfit and item recommendations (“Freestyle”). Clients can choose to schedule automatic shipments or order a Fix on demand after they fill out a style profile on our website or mobile app. After receiving a Fix, our clients purchase the items they want to keep and return the other items, if any. Freestyle utilizes our algorithms to recommend a personalized assortment of outfit and item recommendations that will update throughout the day and will continue to evolve as we learn more about the client. We are incorporated in Delaware and have operations in the United States and the United Kingdom (“UK”).
COVID-19 Update
There continues to be uncertainty around the COVID-19 pandemic as the Delta variant of COVID-19, which appears to be the most transmissible and contagious variant to date, has caused an increase in COVID-19 cases globally. The full impact of the COVID-19 pandemic on our business will depend on factors such as the length of time of the pandemic; how federal, state and local governments are responding, the impact of the Delta variant, the Omicron variant, and other variants that may emerge; vaccination rates among the population; the efficacy of the COVID-19 vaccines against the Delta variant, Omicron variant, and other variants that may emerge; the longer-term impact of the pandemic on the economy and consumer behavior; and the effect on our clients, employees, vendors, and other partners.
We believe our financial resources will allow us to manage the impact of COVID-19 on our business and operations. We believe our existing cash, cash equivalents, short-term investment balances, and the borrowing available under our credit agreement with Silicon Valley Bank and other lenders (the “2021 Credit Agreement”), if needed, will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months.
We also do not anticipate any impairments with respect to long-lived assets or short-term and long-term investments that would have a material impact on our financial statements.
2.    Summary of Significant Accounting Policies
Basis of Presentation
Our fiscal year is a 52-week or 53-week period ending on the Saturday closest to July 31. The fiscal years ending July 30, 2022 (“2022”), and July 31, 2021 (“2021”), consist of 52 weeks.
The unaudited condensed consolidated financial statements include the accounts of Stitch Fix, Inc. and our wholly owned subsidiaries, and have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and the requirements of the U.S. Securities and Exchange Commission (the “SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted. These financial statements have been prepared on the same basis as our annual consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for the fair statement of our financial information. These interim results are not necessarily indicative of the results to be expected for the fiscal year ending July 30, 2022, or for any other interim period or for any other future year. All intercompany balances and transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the fiscal year ended July 31, 2021, included in our Annual Report on Form 10-K filed with the SEC on September 27, 2021 (the “2021 Annual Report”).
Reclassification
Certain items in the prior year’s consolidated financial statements have been reclassified to conform to the current year presentation reflected. Specifically, the Company reclassified $18.8 million previously included in “Prepaid expenses and other assets” into “Income tax receivables” on the Condensed Consolidated Statement of Cash Flow for the quarter ended October 31, 2020, to conform to the current year presentation.
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Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in our condensed consolidated financial statements and accompanying footnotes.
Significant estimates and assumptions are used for inventory, stock-based compensation expense, income taxes, and revenue recognition. Actual results could differ from those estimates and such differences may be material to the condensed consolidated financial statements.
We have considered the impact of the COVID-19 pandemic on significant estimates and judgments used in applying accounting policies. While there is a greater degree of uncertainty in applying these judgments in light of this pandemic, we believe reasonable estimates have been used in preparing the unaudited condensed consolidated financial statements.
Change in Accounting Principle
Effective August 1, 2021, we completed the implementation of a new inventory management process and system, which enhances our procure-to-pay processes. In connection with this implementation, we changed our inventory costing method from specific identification to the first-in-first-out (“FIFO”) method. We believe this change in accounting principle is preferable because it streamlines our inventory accounting process, is generally consistent with the physical flow of our inventories, and is more consistent with the inventory costing method used by industry peers. This change in accounting principle did not have a material effect on inventory, net or cost of goods sold for all periods presented; therefore, prior comparative financial statements have not been restated.
Short-Term and Long-Term Investments
Our short-term and long-term investments have been classified and accounted for as available-for-sale securities. We determine the appropriate classification of our investments at the time of purchase and reevaluate the classification at each balance sheet date. Available-for-sale securities with maturities of 12 months or less are classified as short-term and available-for-sale securities with maturities greater than 12 months are classified as long-term. Our available-for-sale securities are carried at fair value, with unrealized gains and losses, net of taxes, reported within accumulated other comprehensive income (loss) (“AOCI”) in stockholders’ equity. The cost of securities sold is based upon the specific identification method.
For debt securities with an amortized cost basis in excess of estimated fair value, we determine what amount of that deficit, if any, is caused by expected credit losses. The portion of the deficit attributable to expected credit losses is recognized in other (income) expense, net on our condensed consolidated statements of income. During the three months ended October 30, 2021, we did not record any expected credit losses on our available-for-sale debt securities.
We have elected to present accrued interest receivable separately from short-term and long-term investments on our condensed consolidated balance sheets. Accrued interest receivable was $0.7 million at both October 30, 2021, and October 31, 2020, and was recorded in prepaid expenses and other current assets. We have also elected to exclude accrued interest receivable from the estimation of expected credit losses on our available-for-sale securities and reverse accrued interest receivable through interest income (expense) when amounts are determined to be uncollectible. We did not write off any accrued interest receivable during the three months ended October 30, 2021.
Inventory, net
Inventory, net consists of finished goods which are recorded at the lower of cost or net realizable value using the first-in-first-out (FIFO) method. Gross inventory costs include both merchandise costs and in-bound freight costs. Inventory, net includes reserves for excess and slow-moving inventory we expect to write off based on historical trends, damaged inventory, and shrinkage. We estimate and accrue shrinkage as a percentage of inventory out to the client and damaged items at 100% of cost.
Leases
Our leasing portfolio consists of operating leases, which include lease arrangements for our corporate offices, fulfillment centers, and, to a lesser extent, equipment. Operating leases with a term greater than one year are recorded on the consolidated balance sheets as operating lease right-of-use assets and operating lease liabilities at the commencement date. These balances are initially recorded at the present value of future minimum lease payments calculated using our incremental borrowing rate and expected lease term. Certain adjustments to our operating lease right-of-use assets may be required for items such as initial direct costs paid or incentives received.
In November 2020, we entered into an agreement to lease approximately 700,000 square feet of space to be used as a fulfillment center in Salt Lake City, Utah. This lease commenced in August 2021 and was classified as an operating lease with an initial lease liability of $28.8 million and a right-of-use asset of $24.6 million.
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Foreign Currency
The functional currency of our international subsidiary is the British pound sterling. For that subsidiary, we translate assets and liabilities to U.S. dollars using period-end exchange rates, and average monthly exchange rates for revenues, costs, and expenses. We record translation gains and losses in AOCI as a component of stockholders’ equity. Net foreign exchange transaction gains and losses resulting from the conversion of the transaction currency to functional currency are recorded in other income, net in the condensed consolidated statements of operations and comprehensive income.   
Revenue Recognition
We generate revenue primarily from the sale of merchandise in a Fix and from Freestyle purchases. Clients create an online account on our website or mobile app, complete a style profile, and order a Fix or merchandise to be delivered on a specified date.
Each Fix represents an offer made by us to the client to purchase merchandise. The client is charged a nonrefundable upfront styling fee before the Fix is shipped. As an alternative to the styling fee, we offer select clients the option to purchase a Style Pass. Style Pass clients pay a nonrefundable annual fee for unlimited Fixes that is credited towards merchandise purchases. If the offer to purchase merchandise is accepted, we charge the client the order amount for the accepted merchandise, net of the upfront styling fee or Style Pass annual fee. For each Fix, acceptance occurs when the client checks out the merchandise on our website or mobile app. We offer a discount to clients who purchase all of the items in the Fix.
We recognize revenue through the following steps: (1) identification of the contract, or contracts, with the customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when, or as, we satisfy a performance obligation.
Both our styling fee and Style Pass arrangements consist of one performance obligation, which is the option to purchase merchandise. The upfront styling fee is not a performance obligation as the styling activity is not distinct within the context of the contract. Similarly, the right to receive multiple options under Style Pass does not provide the customer with material stand-alone value and therefore does not give rise to a separate performance obligation. Both the upfront styling fee and Style Pass annual fee are included in deferred revenue until the performance obligation is satisfied when the client exercises his or her option to purchase merchandise (i.e., upon checkout of a Fix) or when the option(s) to purchase merchandise expire(s).
Revenue is recognized when control of the promised goods is transferred to the client. For a Fix, control is transferred when the client accepts or rejects the offer to purchase merchandise. Upon acceptance by purchasing one or more items within the Fix at checkout, the total amount of the order, including the upfront styling fee, is recognized as revenue. If none of the items within the Fix are accepted at checkout, the upfront styling fee is recognized as revenue at that time. The Style Pass annual fee is recognized at the earlier of (i) the time at which a client accepts and applies the Style Pass fee to an offer to purchase merchandise or (ii) upon expiry of the annual period. Under Style Pass arrangements, if a client does not accept any items within the Fix, the annual fee will continue to be deferred until it is applied to a future purchase or upon expiry of the annual period. If a client would like to exchange an item, we recognize revenue at the time the exchanged item is shipped, which coincides with the transfer of control to the customer. For a Freestyle purchase, control is transferred and revenue is recognized upon shipment to the client.
We deduct discounts, sales tax, and estimated refunds to arrive at net revenue. Sales tax collected from clients is not considered revenue and is included in accrued liabilities until remitted to the taxing authorities. All shipping costs are accounted for in cost of goods sold and all handling costs are accounted for as fulfillment costs within selling, general, and administrative expense (“SG&A”), and are therefore not evaluated as a separate performance obligation. Discounts are recorded as a reduction to revenue when the order is accepted. We record a refund reserve based on our historical refund patterns. Our refund reserve, which is included in accrued liabilities in the condensed consolidated balance sheets, was $14.2 million and $11.7 million as of October 30, 2021, and July 31, 2021, respectively.
We have five types of contractual liabilities: (i) cash collections of upfront styling fees, which are included in deferred revenue and are recognized as revenue upon the earlier of application to a merchandise purchase or expiry of the offer, (ii) cash collections of Style Pass annual fees, which are included in deferred revenue and are recognized upon the earlier of application to a merchandise purchase or expiry of the Style Pass annual period, (iii) unredeemed gift cards, which are included in gift card liability and recognized as revenue upon usage or inclusion in gift card breakage estimates, (iv) referral credits, which are included in other current liabilities and are recognized as revenue when used, and (v) cash collections of Freestyle purchases, which are included in deferred revenue and are recognized as revenue upon shipment.
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We sell gift cards to clients and establish a liability based upon the face value of such gift cards. We reduce the liability and recognize revenue upon usage of the gift card. If a gift card is not used, we will recognize estimated gift card breakage revenue proportionately to customer usage of gift cards over the expected gift card usage period, subject to requirements to remit balances to governmental agencies. All commissions paid to third parties upon issuance of gift cards are recognized in SG&A as incurred, as on average, gift cards are used within a one-year period. Similarly, referral credits that are considered incremental costs of obtaining a contract with a customer are recognized in SG&A when issued, as on average, referral credits are used within a one-year period.
We expect deferred revenue for upfront styling fees, Freestyle orders, and Style Pass annual fees to be recognized within one year. On average, gift card liability and other current liabilities are also recognized within one year.
The following table summarizes the balances of contractual liabilities included in other current liabilities, deferred revenue and gift card liability as of the dates indicated:
(in thousands)October 30, 2021July 31, 2021
Deferred revenue
Upfront styling fees$10,869 $11,989 
Style Pass annual fees3,304 3,474 
Freestyle orders2,112 2,691 
Other332 $ 
Total deferred revenue$16,617 $18,154 
Gift card liability$9,461 $9,903 
Other current liabilities
Referral credits$1,224 $1,231 
The following table summarizes revenue recognized during the three months ended October 30, 2021, that was previously included in deferred revenue, gift card liability, and other current liabilities at July 31, 2021:
(in thousands)
Revenue Recognized From Amounts Previously Included in Deferred Balances at July 31, 2021
Upfront styling fees$11,621 
Style Pass annual fees1,956 
Freestyle orders2,341 
Gift card liability1,520 
Referral credits578 
Concentration of Credit Risks
We are subject to concentrations of credit risk principally from cash and cash equivalents and investment securities. The majority of our cash is held by two financial institutions within the United States. Our cash balances held by these institutions may exceed federally insured limits. The associated risk of concentration for cash is mitigated by banking with credit-worthy institutions. The associated risk of concentration for cash equivalents and investments is mitigated by maintaining a diversified portfolio of highly rated instruments. 
No client accounted for greater than 10% of total revenue, net for the three months ended October 30, 2021, and October 31, 2020, respectively.
Recently Adopted Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes. This update amends and simplifies the accounting for income taxes by eliminating certain exceptions in existing guidance related to performing intraperiod tax allocation, calculating interim period taxes, and recognizing deferred taxes for investments. The update also provides new guidance to reduce complexity in certain areas. The Company adopted this guidance on August 1, 2021. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
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3.    Fair Value Measurements
We disclose and recognize the fair value of our assets and liabilities using a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The guidance establishes three levels of the fair value hierarchy as follows:
Level 1: Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;
Level 2: Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and
Level 3: Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.
Our financial instruments consist of cash and cash equivalents, short-term and long-term investments, accounts payable, and accrued liabilities. At October 30, 2021, and July 31, 2021, the carrying values of cash and cash equivalents, accounts payable, and accrued liabilities approximated fair value due to their short-term maturities.
The following table sets forth the amortized cost, gross unrealized gains, gross unrealized losses and fair values of our short-term and long-term investments accounted for as available-for-sale securities as of October 30, 2021, and July 31, 2021:
October 30, 2021July 31, 2021
(in thousands)Amortized CostGross Unrealized GainsGross Unrealized LossesFair ValueAmortized CostGross Unrealized GainsGross Unrealized LossesFair Value
Financial Assets:
Investments:
U.S. Treasury securities$37,960 $ $(42)$37,918 $42,009 $35 $ $42,044 
Certificates of deposit2,200   2,200 1,500   1,500 
Commercial paper10,197   10,197 10,192   10,192 
Asset-backed securities11,246 9 (14)11,241 10,393 18 (9)10,402 
Corporate bonds89,430 24 (152)89,302 96,347 103 (7)96,443 
Total$151,033 $33 $(208)$150,858 $160,441 $156 $(16)$160,581 

The following table sets forth the fair value of available-for-sale securities by contractual maturity as of October 30, 2021, and July 31, 2021:
October 30, 2021July 31, 2021
(in thousands)One Year or LessOver One Year Through Five YearsOver Five YearsTotalOne Year or LessOver One Year Through Five YearsOver Five YearsTotal
Financial Assets:
Investments:
U.S. Treasury securities$6,391 $31,527 $ $37,918 $41,633 $411 $ $42,044 
Certificates of deposit2,200   2,200 1,500   1,500 
Commercial paper10,197   10,197 10,192   10,192 
Asset-backed securities3,049 8,192  11,241 29 10,373  10,402 
Corporate bonds40,601 48,701  89,302 48,192 48,251  96,443 
Total$62,438 $88,420 $ $150,858 $101,546 $59,035 $ $160,581 
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The following table sets forth our cash equivalents, and short-term and long-term investments accounted for as available-for-sale securities that were measured at fair value on a recurring basis based on the fair value hierarchy as of October 30, 2021, and July 31, 2021:
 October 30, 2021July 31, 2021
(in thousands)Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Financial Assets:        
Cash equivalents:
Money market funds$20,569 $ $ $20,569 $10,728 $ $ $10,728 
Investments:
U.S. Treasury securities37,918   37,918 42,044   42,044 
Certificates of deposit 2,200  2,200  1,500  1,500 
Commercial paper 10,197  10,197  10,192  10,192 
Asset-backed securities 11,241  11,241  10,402  10,402 
Corporate bonds 89,302  89,302  96,443  96,443 
Total$58,487 $112,940 $ $171,427 $52,772 $118,537 $ $171,309 
There were no transfers of financial assets or liabilities into or out of Level 1, Level 2, or Level 3 for the three months ended October 30, 2021, and October 31, 2020.
4.    Accrued Liabilities
Accrued liabilities consisted of the following:
(in thousands)October 30, 2021July 31, 2021
Compensation and related benefits$20,692 $13,645 
Advertising14,379 12,649 
Sales taxes10,705 9,937 
Shipping and freight16,343 6,209 
Accrued accounts payable8,720 5,804 
Inventory purchases20,233 30,384 
Sales refund reserve14,194 11,704 
Other10,015 8,696 
Total accrued liabilities$115,281 $99,028 
5.    Credit Agreement
In June 2021, we entered into an amended and restated credit agreement with Silicon Valley Bank and other lenders (the “2021 Credit Agreement”), to provide a revolving line of credit of up to $100.0 million, including a letter of credit sub-facility in the aggregate amount of $30.0 million, and a swingline sub-facility in the aggregate amount of $50.0 million. We also have the option to request an incremental facility of up to an additional $150.0 million from one or more of the lenders under the 2021 Credit Agreement.
Under the terms of the 2021 Credit Agreement, revolving loans may be either Eurodollar Loans or ABR Loans. Outstanding Eurodollar Loans incur interest at the Eurodollar Rate, which is defined in the 2021 Credit Agreement as LIBOR (or any successor thereto), plus a margin of 2.25%. Outstanding ABR Loans incur interest at the highest of (a) the Prime Rate, as published by the Wall Street Journal, (b) the federal funds rate in effect for such day plus 0.50%, and (c) the Eurodollar Rate plus 1.00%, in each case plus a margin of 1.25%. We are charged a commitment fee of 0.25% for committed but unused amounts. The revolving line of credit under the 2021 Credit Agreement will terminate on May 31, 2024, unless the termination date is extended at the election of the lenders.
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Our obligations under the 2021 Credit Agreement and any hedging or cash management agreements entered into with any lender thereunder are secured by substantially all of our current and future property, rights, and assets, including, but not limited to, cash, inventory, equipment, contractual rights, financial assets, and intangible assets. The 2021 Credit Agreement contains covenants limiting the ability to, among other things, dispose of assets, undergo a change in control, merge or consolidate, make acquisitions, incur debt, incur liens, pay dividends, repurchase stock, and make investments, in each case subject to certain exceptions. The 2021 Credit Agreement also contains financial covenants requiring us to maintain minimum free cash flow and an adjusted current ratio above specified levels, measured in each case at the end of each fiscal quarter. The 2021 Credit Agreement contains events of default that include, among others, non-payment of principal, interest, or fees, breach of covenants, inaccuracy of representations and warranties, cross defaults to certain other indebtedness, bankruptcy and insolvency events, and material judgments.
As of October 30, 2021, we did not have any borrowings outstanding under the 2021 Credit Agreement and we were in compliance with all financial covenants.
6.    Commitments and Contingencies
Contingencies
We record a loss contingency when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We also disclose material contingencies when we believe a loss is not probable but reasonably possible. Accounting for contingencies requires us to use judgment related to both the likelihood of a loss and the estimate of the amount or range of loss. Although we cannot predict with assurance the outcome of any litigation or tax matters, we do not believe there are currently any such actions that, if resolved unfavorably, would have a material impact on our operating results, financial position, and cash flows.
On October 11, 2018, October 26, 2018, November 16, 2018, and December 10, 2018, four putative class action lawsuits alleging violations of the federal securities laws were filed in the U.S. District Court for the Northern District of California, naming as defendants us and certain of our officers. The four lawsuits each make the same allegations of violations of the Securities Exchange Act of 1934, as amended, by us and our officers for allegedly making materially false and misleading statements regarding our active client growth and strategy with respect to television advertising between June 2018 and October 2018. The plaintiffs seek unspecified monetary damages and other relief. The four lawsuits have been consolidated and a lead plaintiff has been appointed. On September 18, 2019, the lead plaintiff in the consolidated class action lawsuits (the “Class Action”) filed a consolidated complaint for violation of the federal securities laws. On October 28, 2019, we and other defendants filed a motion to dismiss the consolidated complaint. The lead plaintiff filed an opposition to the motion to dismiss on December 9, 2019, and we and the other defendants filed our reply in support of our motion to dismiss on December 30, 2019. The court granted our motion to dismiss on September 30, 2020 but allowed the lead plaintiff to file an amended complaint. On November 6, 2020, the lead plaintiff filed his amended complaint. We filed a motion to dismiss the amended complaint on December 7, 2020. The lead plaintiff filed an opposition to the motion to dismiss on January 8, 2021, and we filed our reply in support of our motion to dismiss on January 22, 2021. The court granted our motion to dismiss on October 1, 2021. On October 29, 2021, the plaintiffs filed a notice of appeal.
On December 12, 2018, a derivative action was filed against our directors in the same court, alleging the same violations of securities laws as alleged in the Class Action and breach of fiduciary duties. The derivative action has been stayed pending the outcome of the motion to dismiss in the Class Action pursuant to the parties’ stipulation. On December 12, 2019, a second derivative action was filed against our directors in the same court, alleging the same violations of securities laws and breach of fiduciary duties as the other derivative action. The second derivative action has also been stayed pending the outcome of the motion to dismiss in the Class Action pursuant to the parties’ stipulation. The two derivative actions have been related to each other and to the Class Action, and all the related cases are now proceeding before a single judge in the U.S. District Court for the Northern District of California.
There have been no other material changes to our commitments and contingencies disclosed in our 2021 Annual Report.
Indemnifications
In the ordinary course of business, we may provide indemnifications of varying scope and terms to vendors, directors, officers and other parties with respect to certain matters. We have not incurred any material costs as a result of such indemnifications and have not accrued any liabilities related to such obligations in our condensed consolidated financial statements.
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7.    Accumulated Other Comprehensive Income (Loss)
The following tables present the changes in AOCI by component and, if applicable, the reclassifications out of AOCI for the periods presented:
For the Three Months Ended October 30, 2021For the Three Months Ended October 31, 2020
(in thousands)Available-for-sale SecuritiesForeign Currency TranslationTotalAvailable-for-sale SecuritiesForeign Currency TranslationTotal
Beginning balance$(290)$3,701 $3,411 $1,213 $1,515 $2,728 
Other comprehensive income (loss) before reclassifications(1)
(315)(603)(918)(548)(338)(886)
Amounts reclassified from AOCI   (115) (115)
Net change in AOCI(315)(603)(918)(663)(338)(1,001)
Ending balance$(605)$3,098 $2,493 $550 $1,177 $1,727 
 (1) There was no associated income tax effect for gains/ losses on available-for-sale securities for the three months ended October 30, 2021 or October 31, 2020 , as we have recorded a valuation allowance against these deferred tax balances.
8.    Stock-Based Compensation
2011 Equity Incentive Plan
In 2011, we adopted the 2011 Equity Incentive Plan (the “2011 Plan”). The 2011 Plan provided for the grant of stock-based awards to employees, directors, and nonemployees under terms and provisions established by the board of directors.
The 2011 Plan allowed for the grant of incentive stock options or nonqualified stock options as well as restricted stock units, restricted stock, and stock appreciation rights. Only incentive and nonqualified stock options were granted under the 2011 Plan. Employee stock option awards generally vest 25% on the first anniversary of the grant date with the remaining shares subject to the option vesting ratably over the next three years. Options generally expire after 10 years. Effective upon our initial public offering in 2017, the 2011 Plan was replaced by the 2017 Incentive Plan.
2017 Incentive Plan
In November 2017, our board of directors and stockholders adopted our 2017 Incentive Plan (the “2017 Plan”). The remaining shares available for issuance under our 2011 Plan became reserved for issuance under the 2017 Plan. Our 2017 Plan provides for the grant of Class A incentive stock options to employees, including employees of any parent or subsidiary, and for the grant of nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards (“RSU”), performance stock awards, performance cash awards, and other forms of stock awards to employees, directors, and consultants, including employees and consultants of our subsidiaries. Employee stock option awards generally vest 25% on the first anniversary of the grant date with the remaining shares subject to the option vesting ratably over the next three years. Options generally expire after 10 years. RSU awards generally vest ratably on a quarterly basis over four years. The number of shares authorized for issuance under the 2017 Plan was 32,793,232 as of October 30, 2021.
2019 Inducement Plan
In October 2019, our board of directors adopted our 2019 Inducement Plan (the “2019 Plan”). Our 2019 Plan provides for the grant of Class A nonqualified stock options and RSU awards to individuals who satisfy the standards for inducement grants under the relevant Nasdaq Stock Market rules. The number of shares authorized for issuance under the 2019 Plan was 4,750,000 shares of Class A common stock as of October 30, 2021.
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Stock option activity under the 2011 Plan, 2017 Plan, and 2019 Plan is as follows:
 Options Outstanding
Number of
Options
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Life (in Years)
Aggregate
Intrinsic
Value
(in thousands)
Balance – July 31, 2021
3,650,482 $25.47 7.40$106,490 
Granted  
Exercised(91,394)11.83 
Cancelled(59,861)40.47 
Balance – October 30, 2021
3,499,227 $25.57 7.18$45,379 
The aggregate intrinsic value is the difference between the current fair value of the underlying common stock and the exercise price for in-the-money stock options.
The following table summarizes the RSU award activity under the 2017 Plan and 2019 Plan:
Unvested RSUs
 Class A Common StockWeighted-
Average
Grant Date
Fair Value
Unvested at July 31, 2021
10,264,925 $31.35 
Granted1,558,890 39.51 
Vested(747,574)24.30 
Forfeited(970,720)26.63 
Unvested at October 30, 2021
10,105,521 $33.59 
Stock-Based Compensation Expense
Stock-based compensation expense for employees was $32.3 million for the three months ended October 30, 2021 and $19.9 million for the three months ended October 31, 2020. Stock-based compensation expense is included in selling, general, and administrative expenses in our condensed consolidated statements of operations and comprehensive income.
As of October 30, 2021, the total unrecognized compensation expense related to unvested options and RSUs, net of estimated forfeitures, was $309.1 million, which we expect to recognize over an estimated weighted average period of 2.1 years.
We record stock-based compensation of stock options granted to employees by estimating the fair value of stock-based awards using the Black-Scholes option pricing model and amortizing the fair value of the stock-based awards granted over the applicable vesting period of the awards on a straight-line basis. During the three months ended October 30, 2021, no options were granted to employees. The weighted-average grant date fair value of options granted during the three months ended October 31, 2020, was $17.70 per share. For the three months ended October 31, 2020, the fair value of stock options granted to employees was estimated at the grant date using the Black-Scholes option-pricing model with the following assumptions:
 For the Three Months Ended
 October 31, 2020
Expected term (in years)
5.5
Volatility
55.9%
Risk free interest rate
0.3%
Dividend yield %
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9.    Income Taxes
The following table summarizes our effective tax rate from income for the periods presented:
 For the Three Months Ended
(in thousands)October 30, 2021October 31, 2020
Income (loss) before income taxes$(1,625)$(18,577)
Provision (benefit) for income taxes202 (28,118)
Effective tax rate(12.4)%151.4 %
We are primarily subject to income taxes in the United States and the United Kingdom. Our effective tax rate for the three months ended October 30, 2021, differs from the federal statutory income tax rate primarily due to the full valuation allowance recorded on our net federal and state deferred tax assets. The tax provision for the three months ended October 30, 2021, is comprised of state taxes and income taxes in foreign jurisdictions.
Our effective tax rate for the three months ended October 31, 2020, differed from the federal statutory income tax rate primarily due to the net operating loss carryback provisions of the CARES Act, partially offset by certain nondeductible expenses.
We continue to monitor the progress of ongoing discussions with tax authorities and the impact, if any, of the expected expiration of the statute of limitations in various taxing jurisdictions.
10.    Earnings (Loss) Per Share Attributable to Common Stockholders
Basic and diluted earnings (loss) per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities: Class A and Class B common stock. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting, conversion, and transfer rights. Each share of Class A common stock is entitled to one vote per share and each share of Class B common stock is entitled to ten votes per share. Each share of Class B common stock is convertible at any time at the option of the stockholder into one share of Class A common stock.
Basic net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period.
For the calculation of diluted earnings (loss) per share (“EPS”), net income (loss) attributable to common stockholders for basic EPS is adjusted by the effect of dilutive securities. Diluted net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding, including all potentially dilutive common shares. The undistributed earnings are allocated based on the contractual participation rights of the Class A and Class B common shares as if the earnings for the year have been distributed. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis. The computation of the diluted net income (loss) per share of Class A common stock assumes the conversion of Class B common stock, while diluted net income (loss) per share of Class B common stock does not assume the conversion of Class A common stock as Class A common stock is not convertible into Class B common stock.
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A reconciliation of the numerator and denominator used in the calculation of basic and diluted EPS attributable to common stockholders is as follows:
 For the Three Months Ended
 October 30, 2021October 31, 2020
(in thousands, except share and per share amounts)Class AClass BClass AClass B
Numerator:  
Net income (loss)$(1,341)$(486)$5,425 $4,116 
Net income (loss) attributable to common stockholders - basic(1,341)(486)5,425 4,116 
Reallocation of undistributed earnings (loss) as a result of conversion of Class B to Class A shares(486) 4,116  
Reallocation of undistributed earnings (loss) to Class B shares   (60)
Net income (loss) attributable to common stockholders - diluted$(1,827)$(486)$9,541 $4,056 
Denominator:   
Weighted-average shares of common stock - basic79,534,871 28,841,040 59,205,535 44,929,315 
Conversion of Class B to Class A common shares outstanding28,841,040  44,929,315  
Effect of dilutive stock options and restricted stock units  5,342,504 1,610,475 
Weighted-average shares of common stock - diluted108,375,911 28,841,040 109,477,354 46,539,790 
Earnings (loss) per share attributable to common stockholders:   
Basic$(0.02)$(0.02)$0.09 $0.09 
Diluted$(0.02)$(0.02)$0.09 $0.09 

The following common stock equivalents were excluded from the computation of diluted earnings (loss) per share for the periods presented because including them would have been antidilutive:
 For the Three Months Ended
 October 30, 2021October 31, 2020
Restricted stock units10,105,521 3,910,451 
Stock options to purchase Class A common stock2,266,417 1,647,310 
Stock options to purchase Class B common stock1,232,810 137,977 
Total13,604,748 5,695,738 
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ITEM 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes thereto included in Part I, Item 1 of this report and with our audited consolidated financial statements and related notes and our Annual Report on Form 10-K (the “2021 Annual Report”) for the year ended July 31, 2021, filed with the Securities and Exchange Commission on September 27, 2021. We use a 52- or 53-week fiscal year, with our fiscal year ending on the Saturday that is closest to July 31 of that year. Each fiscal year typically consists of four 13-week fiscal quarters. The fiscal year ending July 30, 2022, and the fiscal year ended July 31, 2021, include 52 weeks of operations. Throughout this Quarterly Report on Form 10-Q (this “Quarterly Report”), all references to quarters and years are to our fiscal quarters and fiscal years unless otherwise noted.
Special Note Regarding Forward-Looking Statements
This Quarterly Report contains forward-looking statements that involve risks, uncertainties, and assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained in this Quarterly Report that are not purely historical, including without limitation statements in the following discussion and analysis of financial condition and results of operations regarding our projected financial position and results, business strategy, plans, and objectives of our management for future operations, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “project,” “seek,” “should,” “target,” “will,” “would,” and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management, which are in turn based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties, and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors” included under Part II, Item 1A below. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
Overview
Since our founding in 2011, we have helped millions of women, men, and kids discover and buy what they love through personalized shipments of apparel, shoes, and accessories. Currently, clients can engage with us in one of two ways that, combined, form an ecosystem of personalized experiences across styling, shopping and inspiration: (1) by receiving a personalized shipment of items informed by our algorithms and sent by a Stitch Fix stylist (a “Fix”); or (2) by purchasing directly from our website or mobile app based on a personalized assortment of outfit and item recommendations (“Freestyle”). For a Fix, clients can choose to schedule automatic shipments or order on demand after they fill out a style profile on our website or mobile app. After receiving a Fix, our clients purchase the items they want to keep and return the other items, if any. Freestyle utilizes our algorithms to recommend a personalized assortment of outfit and item recommendations that will update throughout the day and will continue to evolve as we learn more about the client.
For the three months ended October 30, 2021, we reported $581.2 million in net revenue, representing year-over-year growth of 18.5% from the three months ended October 31, 2020. As of October&