Stitch Fix, Inc.

Good afternoon, and thank you for standing by. Welcome to the third quarter fiscal year 2024 Stitch Fix earnings call. At this time, all participants are in listen-only mode. After the speaker's presentation, you will be invited to participate in a question and answer session. To ask a question during this session, you'll need to press star 11 on your telephone. You will hear an automated message indicating your hand is raised. To withdraw your question, simply press star 11 again. Please be advised that today's conference is being recorded. And now I'd like to hand the call over to Hayden Blair, Senior Director, Investor Relations and Treasurer. Please go ahead, sir.

Good afternoon. And thank you for joining us today for the Stitch Fix Third Quarter Fiscal 2024 Earnings Call. With me on the call are Matt Baer, Chief Executive Officer, and David Alperhar, Chief Financial Officer. We have posted complete third quarter 2024 financial results and 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 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 fiscal 2023 previously filed with the SEC, and the quarterly report on Form 10-Q for our third quarter of fiscal 2024. which we expect to be filed later this week. 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. In the first quarter of fiscal 2024, we began to report our UK business as a discontinued operation. Accordingly, all metrics discussed on today's call represent our continuing operations. 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. And now, let me turn the call over to our CEO, Matt Baer.

Thanks, Hayden, and good afternoon, everyone. At Stitch Fix, we are on a journey to transform our business and our efforts remain focused on two areas. First, we are working to strengthen the foundation of our business across all disciplines. This includes embedding retail best practices across the enterprise, identifying operational efficiencies, and ensuring we have the right organizational structure in place to enable our future success. Second, we are reimagining the client experience and taking a holistic approach to rethink how our clients engage with Stitch Fix. I am particularly encouraged by the progress we've made on our foundational work, which outperformed our expectations, as well as delivered results earlier than anticipated, resulting in our revenue and adjusted EBITDA coming in ahead of our guidance for the quarter. In Q3, we achieved net revenue of $322.7 million and adjusted EBITDA of $6.7 million. We also achieved gross margin of 45.5%, our strongest quarterly result in more than two years. While we are still in the early days of our transformation efforts, Our Q3 results reaffirm my confidence that we have the right strategy in place. In addition, our financial position continues to be solid. We have a healthy balance sheet and no debt. This, in combination with our enviable order economics, will enable us to invest in the areas of the business that we believe will drive sustainable, profitable growth in the future. Now I'd like to talk through some of the specific foundational efforts that contributed to our results this quarter. Stitch Fix's unique business model allows us to know more about our clients on day one than many retailers could aspire to know over the course of their entire relationship. This advantage, combined with the AI and data science that have been fundamental to our DNA since day one, enables us to create better client experiences as well as identify business efficiencies. In Q3, we leveraged our analytics capabilities to improve the profitability of fixed transactions while strengthening client satisfaction. Following a robust analysis of client interactions, we found opportunities to reduce underperforming shipments. As an example, we currently offer quick fixes, which provide clients the option to schedule an additional fix immediately following checkout. Utilizing our proprietary demand algorithms, we improve the performance of quick fixes by only offering them to clients when we know the new fixes have a high likelihood of success. Within three weeks of this change, Quick Fix average order value improved by 25%. Another example of work to improve profitability is we recently completed a comprehensive review of our pricing architecture to ensure price points within each of our lines of business are aligned with the value we offer. Within each category, we tested the elasticity of price to ensure we are priced appropriately while still serving our clients' needs. The results of these tests indicated more than $20 million of annualized contribution profit opportunity. Building upon our effort to increase client engagement, we're utilizing improved CRM to drive more frequent freestyle transactions and engage our current clients outside of their fixed schedule. As part of this, we are testing new promotional capabilities to drive incremental sales and manage our inventory more efficiently. Looking ahead, we will take a more data-driven approach through the use of targeted offers and promotional events. In addition, as part of our broader approach to embed AI across our business, we continue to scale our AI inventory buying tool to inform a larger set of buying decisions. This tool sifts through our proprietary transactional and client data to predict demand at the individual style and client level, empowering our merchandising team to make buying decisions that are more effective and efficient. This enables our merchants to spend more time on the art of merchandising. including trend identification, vendor partnership, and private brand development. In Q3, the tool informed nearly half of all inventory receipts, and that merchandise outperformed the items selected without the use of the tool. Moving forward, we will further leverage this capability and expect it to increase the productivity of our inventory while delivering our clients the styles they will love. These examples demonstrate the recent progress we've made to strengthen the foundation of our business. As we advance our foundational work, we believe these efforts will continue to increase wallet share and improve profitability. Now, despite this progress, new client acquisition remains a headwind, and we are addressing the challenge of reaching the right client acquisition targets in order to build a healthier and growing client base. In the immediate term, we are making sure we have the right media mix and improving the effectiveness of each marketing channel. Our opportunity remains to improve our conversion metrics as we further optimize our marketing and reimagine our client experience, which together will help us acquire, retain, and reactivate a growing number of highly engaged clients over time. Next, I'll speak to our work to reimagine the client experience, which we believe is critical to ensuring we can better serve the clients we have today, as well as those we plan to acquire in the future. This work continues to progress on schedule. As we have shared before, One of our key differentiators is how well we know our clients, and our success has always been tied to our ability to deliver a convenient and personalized experience that helps clients discover the styles they will love. As we work to reimagine the client experience, we're rethinking every interaction. This includes how we serve clients through the number of items in their fix, how we approach fixed discounting, and the more dynamic and visual onboarding we discussed last quarter. We have a number of tests in the market tied to these areas, and we are encouraged by the results we are seeing so far. We expect the first of a series of experience updates to launch this summer. The end result will be a more modern and dynamic Stitch Fix. I'm excited by our progress this quarter. We are seeing the impact of our efforts to strengthen our foundation and are advancing our work to reimagine the client experience. We are on a mission to help people discover the styles they will love that fit perfectly so they always look and feel their best. When we do that, when we nail our client's style and fit, we win. And that's what our transformation is grounded in. With that, I'll turn the call over to David to talk about our Q3 financial results and future outlook.