Stitch Fix, Inc.

Good day and thank you for standing by. Welcome to the second quarter fiscal year 2023 Stitch Fix earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Hayden Blair.

Good afternoon, and thank you for joining us today to discuss the results for Stitch Fix's second quarter of fiscal year 2023. Joining me on the call today are Katrina Lake, Interim CEO of Stitch Fix, and Dan Jetta, CFO. Also joining us on today's call is David Ockerhart. We have posted complete second quarter 2023 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 annual report on Form 10-K for our fiscal year 2022 previously filed with the SEC, and the quarterly report on Form 10-Q for our second quarter of fiscal year 2023, 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 Katrina.

Thanks Hayden. 12 years ago, I was inspired by a very simple human problem to help people look and feel their best. Now, as I find myself back as interim CEO, this simple mission feels more resonant than ever. I'm proud of the ways that we've made our mission a reality but also motivated by the opportunity ahead. We're still in the early days of transforming the industry of apparel, and I feel optimistic that Stitch Fix can continue to lead the way in personalization and achieve greater impact in the years to come. While many companies may be starting to define an AI strategy, our company was built on data science from day one. We have built technology and systems that leverage the best elements of human stylists combined with machine learning And the billions of proprietary data points that we have around client and product interactions are rich, meaningful data sets that predict outcomes and help us to understand what clients need. At the same time, I realize we haven't met recent expectations. Driving towards an ambitious vision has resulted in a loss of focus. We must, now more than ever, deliver on the client experience, bring focus in our marketing efforts, and drive results for our shareholders. We have clarity on our path long-term and short-term. Long-term, I continue to have great conviction that the market opportunity for a more personalized way to buy apparel is large and growing, and that we have a significant advantage rooted in our decade of experience in leveraging data to deliver personalization at scale. Shorter term, we also have clarity. We need to get back to a position of execution and profitability. We have a history of achieving both in the past and I'm confident we will get there again. There were two major events in fiscal second quarter intended to help reposition and refocus the company to set ourselves up to optimize for liquidity and profitability in the short term and maximize our long-term growth potential. First, we restructured our operating model and made the difficult decisions to reduce our headcount by 20% of salaried positions and to shutter operations in our Salt Lake City warehouse. Late last year, we began analyzing the team and determined to restructure the organization in an effort to create a leaner operating model. This also allows us an opportunity to reorganize and refocus to more nimbly execute. These decisions are never easy, but we know it was the right decision to achieve our goals of liquidity and profitability and for the overall health of the business. And second, we are conducting a search for a permanent CEO. The Board and I realize that the macroeconomic environment, competitive landscape, and even our own business has changed meaningfully over the past few years, and we are excited to find the right leader for the present and future of Stitch Fix. I am encouraged by the process thus far and am confident that we can find an inspiring person to lead the Stitch Fix team and help reestablish the track record of results we were once known for. In addition, we shared in our press release this afternoon that Dan Jetta will be stepping down as CFO to pursue a new opportunity. The Board and I want to thank Dan for his service to Stitch Fix and wish him well for the future. David Ofterhaar, our SVP of Finance, will succeed him as CFO. David joined us four years ago with an eye towards CFO succession. In working together these many years, I have been impressed and inspired by his depth of partnership with the functional leaders at Stitch Fix, his deep commitment to and understanding of our business and our team. He is a thoughtful and trusted leader, and I'm excited for him to step into the CFO role. Now onto the financials in the quarter. Fiscal second quarter revenue came in at $412.1 million, which was at the lower end of the provided range. Despite this, we delivered adjusted EBITDA of $3.8 million, which was at the high end of our guidance range due to effective cost controls and our corporate restructuring. Dan will dive more into the financials later on, but before handing it over, I want to touch on topics in marketing and our product that demonstrate how the company is rallying around bringing focus and clarity to better deliver results for our clients and shareholders. Consistent with the broader company, our marketing strategy aims to preserve liquidity and achieve profitability while simultaneously attracting long-term customers to fuel a return to growth. This will be the case as we continue to refine our traditional paid channels as well as diversify into under-penetrated channels we have yet to scale. We are also continuing to lean into client retention and re-engagement strategies in an effort to continue to increase engagement and optimize our CPAs. It's worth highlighting that our CPAs were down over 40% from a year ago, which shows, despite a significant reduction in overall budget, we are gaining traction and more effectively deploying our marketing dollars. Overall, we know these are the right things to focus on, and when combined with our efforts to maximize the client experience, and improve retention should maximize ROI in the short term and set the stage for a return to growth. Moving on to the client experience. A complicated macroeconomic environment and tighter client wallets make it more critical than ever to re-examine and bring focus to our client experience. The ambitious vision we embraced for the past many months has resulted in a client experience that is less focused on our core areas of differentiation And we believe that there is opportunity to drive long-term value by being really deliberate and targeted about the role of features and functionalities in the Stitch Fix ecosystem. As an example, we've recently refined our point of view on Fixed Preview. Although at the highest level, Fixed Preview has demonstrated a positive impact on AOVs, digging into the data, we see a more nuanced story. There absolutely are clients who significantly benefit from fixed preview, but there are also clients for whom showing a preview actually increases cancellations. Acting on this data, we found an opportunity to drive better outcomes and LTV by experimenting with eliminating the preview for some clients, allowing those clients to enjoy the surprise and delight that we know those clients value, while allowing other clients to benefit from the agency of fixed preview. I share this example of letting data drive our decisions and providing more intention and focus in the client experience. I anticipate there are many similar opportunities as we dig into the data and the experience, and we believe these strategies will drive LTV, enabling us to optimize cash flow and profitability in the short term while positioning ourselves for an eventual return to growth. Before I turn it over to Dan, I want to thank the entire team at Stitch Fix. We talk internally about celebrating Stitch Fix Grit as one of our core operating tenants, and I've been inspired by the grit I've experienced day in and day out from the team these past few months. I continue to be inspired by the passion I see to deliver value for our clients and our business and to make our company a fantastic place to work. Our continued focus and data-driven decision-making are paving the way for a bright future for Stitch Fix. I believe we are on the right track to get there and I look forward to continuing the journey with you all. With that, I'll turn it over to Dan.