Stitch Fix, Inc.

Good day, everyone. Welcome to the Stitch Fix first quarter 2021 earnings call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. David Pierce, Vice President of Investor Relations. Please go ahead, sir.

Thank you for joining us on the call today to discuss the results for our first quarter of fiscal 2021. Joining me on today's call are Katrina Lake, founder and CEO of Stitch Fix, Elizabeth Spalding, President, and Mike Smith, President, COO, and Interim CFO. I would also like to mention that we are joining you remotely today from our home offices. We have posted complete Q1 financial results in our shareholder letter on the IR section of our website, investors.stitchfix.com. A link to the webcast of today's conference call can also be found on our site. We would like to remind everyone that we will be making forward-looking statements on this call, which involve risks and uncertainties. Actual results could differ materially from those contemplated by our forward-looking statements. Reported results should not be considered as an indication of future performance. Please review our filings with the SEC for a discussion of the factors that could cause the results to differ. Also, note that the forward-looking statements on this call are based on information available to us as of today's date. We disclaim any obligation to update any forward-looking statements except as required by law. During this call, we will discuss certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are provided in the shareholder letter on our IR website. These non-GAAP measures are not intended to be a substitute for our GAAP results. Finally, this call in its entirety is being webcast on the IR website, and a replay of this call will be available on the website shortly. I'd now like to turn the call over to Katrina.

Thanks, David, and thank you for joining us. After the market closed today, we issued our quarterly shareholder letter with more details on our results and strategies, as well as a press release announcing the appointment of Dan Jetta as our new Chief Financial Officer. Today, I'll be sharing our first quarter results and highlighting three key 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. 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. And third, we're enhancing our fixed and direct buy offerings to expand our addressable market, deepen client engagement, and grow wallet share over time. Before I dive into these themes, let me first discuss our Q1 results. In Q1, We generated net revenue of $490 million, reflecting 10% growth year-over-year and 11% growth quarter-over-quarter. We delivered net income of $9.5 million and adjusted EBITDA of $6.9 million. During the quarter, we grew our active client count to nearly 3.8 million. This represents a year-over-year increase of 347,000 clients, our 10% growth, and a quarter-over-quarter increase of $240,000, our highest sequential client addition on record. This surge of new clients who are still early in their spending journey with us resulted in an expected decrease in year-over-year net revenue per client of 4%. Even early in their journey with us, these new clients have demonstrated very strong purchase behavior in their first fixes that we believe to be a strong signal of future satisfaction, retention, and lifetime value. Q1 was a quarter that saw great momentum in client growth and in our business more broadly. 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 declines 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. In their very first experience with us, these recently acquired fixed customers are demonstrating both strong purchase behavior and satisfaction. We previously shared a measure that we internally refer to as a successful first fix, which 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've seen in five years. Even as we acquired a high volume of clients, we're very pleased that we're able to meet their needs and preferences. The strength of these recent cohorts are due in part to our ability to shift our inventory to meet the client in the moment but also our longer term efforts in improving 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 six outcome is a strong indicator of future client engagement and retention that will serve as a tailwind in the quarters to come. We saw strong client outcomes in our newest clients and also in our broader existing client base. We're pleased to share that across our entire fixed offering We've increased success rate every year on record, and in Q1, we delivered our highest level yet. 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've 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've 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 10 weeks. This contributed to a strong back-to-school season in which we grew first fixed shipments by 60% year-over-year. We've 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 outside 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. As we look to the remainder of fiscal 2021, our strong foundation of client and business trends sets the stage for the quarters ahead. We are pleased to reinstate annual guidance that reflects the momentum we're seeing. As Mike will discuss later, we expect to deliver net revenue growth of 12 to 14% year over year in Q2, and to drive further acceleration in the second half of the year, resulting in full year revenue growth of 20 to 25% year over year. There are several drivers underpinning this outlook, but most notable is our expectation of further acceleration of our active client growth. While the apparel industry is currently contracting, we expect to take share and drive higher new client signups as the relevance of our model of personalized discovery and convenience grows. In Q1, we delivered first fixed growth exceeding 25% year over year. As a 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're pleased to share that due to such strong demand for our styling role, we've already met this hiring target and feel well-positioned to serve higher fixed demand in the remainder of fiscal 2021. In addition to our strong outlook for fixed demand, we believe that DirectBuy will serve as another catalyst as we attract new clients, convert prospective clients, and reactivate lapsed clients. We've continued to see DirectBuy'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. These strong trends we've seen in our business, combined with the ongoing market share shift to Stitch Fix, gives us excitement for the quarters ahead. In Q1, the combination of record quarterly client additions, strong auto-ship retention, multi-year highs and successful first fix rates, and our highest success rates to date demonstrate the resonance of our offering and the power of the personalization engine that fuels our business. With that, I'll hand it over to Elizabeth to share more on the enhancements we're making to our direct buy and fix experiences as well as some of the exciting marketing initiatives we're investing in to capitalize on the retail share shift that is underway.