Stitch Fix, Inc.

Good day, everyone, and welcome to the Stitch Fix fourth quarter 2022 earnings call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Hayden Blair. Please go ahead.

Good afternoon, and thank you for joining us today to discuss the results for Stitch Fix's fourth quarter and full year 2022. Joining me on the call today are Elizabeth Spalding, CEO of Stitch Fix, and Dan Jetta, CFO. We have posted complete fourth quarter and full year 2022 financial results in a press release on the quarterly results 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. In particular, our press release issued and filed today, as well as the risk factors sections of our quarterly report on Form 10-Q for our third quarter previously filed with the SEC, and the annual report on Form 10-K for fiscal year 2022, which we expect to be filed tomorrow. 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 press release on our investor relations 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 our investor relations website, and a replay of this call will be available on the website shortly. With that, I will turn the call over to Elizabeth.

Thank you, Hayden, and thank you all for joining us for Stitch Fix's Q4 webinar. 2022 earnings call. FY22 was a pivotal year for Stitch Fix as we embarked on a significant transformation with the full rollout of Freestyle. Freestyle, combined with our original six offerings, broadens our ecosystem and our ability to solve the hardest consumer shopping and styling problems, fit, discovery, and human relationships. These differentiators remain as relevant as ever as we provide our clients with the right product at the right time. We learned a lot over the course of FY22, and we are building on our areas of progress. In this challenging macroeconomic environment, and as we continue to work through our transformation, we recognize that returning to profitability is of utmost importance. This is our top priority. This will happen by both returning to active client growth and by optimizing our cost base. We are pleased with the progress that we made in Q4 on rightsizing our cost base, and we are on track to exceed the top end of our expected annual savings in FY23. Today, I will first provide details on our financial performance in Q4 and FY22. Then I will discuss how we are building on our learnings from this past year to drive net active clients and improve how we operate the business for both scale and profitability. Dan will then share more details on our cost management and productivity efforts. First on our financials, the realities of record inflation levels and a deteriorating retail landscape resulted in slower discretionary spend and apparel. and presented us with an increasingly challenging fourth quarter, particularly in June and July. Q4 net revenue declined 16% year-over-year to 482 million, driven by a 9% year-over-year decline in net active clients, which ended FY22 at 3.8 million. Adjusted EBITDA in the quarter was negative 31.8 million. Revenue per active client grew 8% year-over-year to $546 in the fourth quarter. Looking at our full FY22, net revenue declined 1% year-over-year to $2.1 billion, along with an adjusted EBITDA loss of $19.5 million. Despite this, freestyle revenue grew 21% year-over-year with penetration from our fixed client base steadily increasing since its launch. Now, let me share more on our go-forward strategy for FY23. First, we're capitalizing on the health of our existing customer base by nourishing our core differentiators and improving our unique experience. Second, we're focused on net active client growth by broadening our marketing portfolio, refining the onboarding experience to capture both new and prospective clients, and targeting strategies that re-engage previously active clients. And finally, we're committed to managing our costs efficiently and strengthening our infrastructure in order to build a profitable business that is ripe for future expansion. Starting on the first point, we know we win when our clients feel heard, when we send the right items based on personal preference and fit, and when we push style boundaries in new ways. our powerful combination of data science and creative human judgment has enabled us to ship over 75 million fixes and to fulfill over 10 million freestyle orders to date. We also know that the first few experiences with Stitch Fix represent a critical opportunity to build a long-term relationship and keep our clients coming back for more. In FY23, building on our strength of listening, and responding to client requests and meeting the moment, we are evolving our stylist request notes to include the ability to add specific occasions so that our stylists can deliver stronger choices in these discovery moments. We also plan to insert more opportunities to collaborate with our stylist community in real time. Additionally, we're working to deliver a diverse assortment that showcases our varying price points. especially in a time when consumers are more cost-conscious. We believe these efforts will drive higher engagement and further cement Stitch Fix as the go-to online styling partner for both current and future customers. On to the second point. We recognize that reigniting the active client flywheel is vital for growth. We know that success will not only come through new client activation, but also through prospective clients and re-engaging clients who haven't shopped with us for over 12 months. In mid-September, we released our first-ever multinational brand campaign with the goal of communicating how Stitch Fix works and celebrating the personalization that we deliver. While traffic improved through the second half of FY22, we expect this campaign to drive a sizable increase in impressions across TV, paid social, and branded content partnerships, and by building brand awareness, will increase traffic to our ecosystem. We also launched an affiliate influencer network in early August. Though small today, we plan to scale quickly with a goal of incorporating our stylists throughout FY23 as a way to tap more into our unique differentiators. And lastly, over the course of FY22, we made improvements post the freestyle launch to get conversion to a better place since its low point earlier in the year, and we're making further investments in the client onboarding journey to drive conversion rates even higher. These investments include style quiz simplification and seamless login experiences in order to reduce barriers to entry and more immediately show how we serve client interest. We also have many prospective clients who've given us information but have yet to convert, and many who haven't shopped with us for over 12 months, both of which represent opportunities for re-engagement. We're approaching these moments of re-engagement with new strategies given our expanded offering. As an example, we are enhancing our email programs to include algorithmically generated product previews that better showcase our inventory and are leveraging more stylist-centric messaging and content. On the third and final point on enabling profitable growth and expansion, in the near term, and as Dan will share more, we are taking a variety of important actions to continue to improve our free cash flow. More broadly, we are focused on developing our infrastructure to drive profitable growth and support our future expansion. With our tech infrastructure, we're investing in our structured data platform and more modular architecture to enable faster launch of new client features. We're also innovating on our core algorithms to allow for dynamic engagement and real-time styling. With this complex work well underway, we're confident in our technology strategy. By evolving our underlying infrastructure, we're creating a stable foundation for scale and are setting the stage for profitable growth in FY24. I'd like to conclude by thanking our team for all their hard work and innovating on behalf of our customers. We will continue to adapt as needed to build value for our shareholders without losing sight of the customer-centric culture that defines Stitch Fix. I'm proud of the team that we've built, the strategy we have now set in place, and I feel encouraged by what this next chapter brings for Stitch Fix. We're clear-eyed about the current challenges that the macro environment presents, and we remain focused on the key initiatives discussed today in order to deliver exceptional shopping and styling experiences to our clients and to achieve profitability in the future. With that, I will turn the call over to Dan.