Stitch Fix, Inc. Class A Aktie

Thank you. Hello everyone. Thank you for joining us and welcome to Stitch Fix Third Quarter 2026 Earning Results Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. now hand the conference over to Cheryl Valenzuela, Head of Investor Relations. Please go ahead.

Good afternoon and thank you for joining us today for the Stitch Fix third quarter fiscal 2026 earnings call. With me on the call are Matt Baer, Chief Executive Officer, and David Alterhart, Chief Financial Officer. We have posted complete third quarter 2026 financial results in a press release on the quarterly results section of our website. investors.stitchfix.com. 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 an update or discussion of the factors that could cause the results to differ.

In particular, our press release issued and filed today, as well as our quarterly report on Form 10-Q for the second quarter of fiscal 2026 and subsequent periodic reports filed with the SEC. 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. Please also note that fiscal 2024 was a 53-week year due to an extra week in the fourth quarter. As such, references to consecutive quarters of year-over-year revenue growth rates on this call are based on an adjusted 52-week basis, removing the impact of the extra week to provide a comparison that we believe more accurately reflects our performance. 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. And now let me turn the call over to Matt.

Thanks Cheryl, and good afternoon everyone. Revenue in the quarter grew 4.7% to $340.3 million, marking our fifth consecutive quarter of year-over-year revenue growth. Our active clients were 2.3 million and increased 21,000 sequentially, a significant milestone in our transformation journey. Revenue Proactive Client, or RPAC, reached $578 in Q3. the highest level we have reported, slightly exceeding the record we set just last quarter. These results demonstrate how we are strengthening our position as our client's retailer of choice for apparel, footwear, and accessories. As we scale, we maintain our focus on operating with financial discipline. in healthy profit margins. Gross margin in Q3 was 43.7% and contribution margin remained above 30% for the ninth consecutive quarter.

Our adjusted EBITDA was $13.2 million, and our adjusted EBITDA margin was 3.9%, both also better than expected. Our revenue outperformance in Q3 was driven by strength in our fixed channel. Fixed average order value, or AOV, increased year over year for the 11th straight quarter. primarily due to higher items per fix as a result of expanded adoption of our larger fix offering. Growth in average unit retail, or AUR, also contributed meaningfully to the overall AOV upside, reflecting the benefits of our ongoing assortment improvements. Over the last several years, we have significantly enhanced the breadth and depth of our assortment to more fully meet client needs and capture more wallet share. Our strategy has been anchored on optimizing our portfolio of market brands, investing in our own private brands, and expanding into new categories to better offer head-to-toe outfitting. We are seeing the results of this work.

Both our women's and men's businesses saw top line gains in Q3. Within our women's business, we saw robust domain for activewear and athleisure, which grew a combined 50% year over year. We also had a successful seasonal transition with strengthened sandals, skirts, and sneakers. Some of the brands that posted the strongest growth were our private brands, namely Montgomery Post, 41 Hawthorne, and Market & Spruce. Men's grew double digits year over year for the fourth straight quarter. with standout performance in warm weather categories, such as shorts, short sleeve woven tops, and casual shoes, which each grew more than 30%. Some of the brands that posted the strongest growth were our private brand Aylesbury, as well as Travis Matthew, Viore and Bonobos. With regards to expanding into new categories, we've previously shared our belief that growing our relevance in activewear and athleisure, footwear and accessories can unlock approximately $1 billion in incremental revenue if we achieve our fair share with our existing client base, and we are pursuing this opportunity by expanding our offerings in these key categories.

As an example, we recently launched women's sunglasses, introducing brands like La Specs, Air, and Keep, and we are strengthening our footwear assortment with new brands like Frye, while seeing growth in established brands such as Adidas and New Balance. We are also building on our momentum in active wear and athleisure. We recently added Outdoor Voices, Mob & Golf, Spiritual Gangster, and Cotopaxi, as well as deepened our penetration with client favorites like Varley, Roan, and our private label brand, We Wander. We are also seeing strength in men's and kids' swimwear with the addition of brands like Fair Harbor. The improvements to our assortment are bolstering our position in the market and translating into further market share gains. According to the latest Arcana data, Stitch Fix again meaningfully outperformed the total U.S. apparel, footwear, and accessories market in the most recent quarter. with our year-over-year revenue growth rate more than four times the growth of the total market. We also remain focused on the quality and durability of our client base. central focus of our transformation has been acquiring and retaining high lifetime value, or LTV, clients who value our service and whom we are uniquely positioned to serve exceptionally well.

As I noted earlier, we reached an important milestone in this work as we successfully grew our client base. We also hit our eighth consecutive quarter of year-over-year growth rate improvement in active clients and remain encouraged by this steady progress. Starting with new clients, they grew for the third consecutive quarter, up more than 10% year over year in Q3. As our marketing becomes more targeted and precise, we are seeing that rigor show up in the quality of new client cohorts. new client LTVs increased year over year for the 11th consecutive quarter and were nearly double what they were three years ago. reinforcing our belief that we are building a healthier and more durable client base. That momentum is being reinforced by the sustained adoption of family accounts, which is creating an additional organic pathway for client acquisition. As more clients adopt the feature, family accounts have become an efficient way for us to add high intent clients while also expanding family wallet share. We are also focused on reengaging former clients.

Our targeted campaigns are bringing clients back to Stitch Fix, and as they return, we are focused on deepening engagement through a more personalized and flexible experience. At the same time, retention rates continue to strengthen, with steady improvement over seven straight quarters. Q3 surpassed the mark we set last quarter for our highest retention rate in four years. Engagement also remains healthy. Total active clients on recurring shipments continue to grow year over year. new clients on recurring shipments grew even faster. This is an important signal of the value clients are seeing in their fixes and the strength of the ongoing relationship we are building with them. Taken together, these trends reinforce that we are methodically building a stronger client base, and our goal remains to return to year-over-year active client growth in fiscal 27. We attribute both our progress and active clients, as well as our revenue growth, in large part to the advancements we've made to our client experience over the past two years.

These improvements have been grounded in delivering on our core promise to offer the most client-centric and personalized shopping experience. We're best positioned to do this because of the uniqueness of our model, which starts with the power of our data. We know more about our clients before their first transaction with us than most retailers know over a lifetime relationship. We have billions of data points on their fit, style, and budget preferences, as well as nuanced insights on our merchandise assortment. It is the interplay of that data, our innovative and AI driven technology platform, and the human connections that our stylists build with clients every day that enable us to deliver what we believe is a superior way to shop for apparel, footwear, and accessories. Our AI-powered style visualization platform, Stitch Fix Vision, plays a plays an important role in offering this better way to shop. As a reminder, Vision provides clients with personalized imagery of their likeness in an array of shoppable outfits tailored to their style profiles and current trends.

Since launching it in October, we've been pleased with our clients' response. Notably, we continue to see over a 100% lift in freestyle spend over a 90-day period for clients who use Division. Now, we are integrating vision further within the client experience and are beginning to give clients more control over how they discover and visualize styles by enabling them to generate their own vision images around a look of their choosing. This is exactly the type of innovation we believe can deepen client engagement over time and reflects the broader strides we are taking to strengthen the Stitch Fix experience and the business overall. Beyond embedding AI into the client experience through features like vision, we are We are applying AI across the enterprise. We are increasingly using these capabilities to optimize efficiency and sharpen our retail advantage in areas including inventory management, intelligent pricing, and creative marketing execution. In private brand product development, we're using AI to fundamentally transform the process, and we can now design a full assortment for an individual private brand in about one week. compared to the traditional multi-month design cycle.

To close, Q3 was another clear step forward for Stitch Fix. We delivered revenue and adjusted EBITDA above our outlook, achieving sequential active client growth and continue to execute with the discipline that has been central to our transformation. This is increasingly showing up in our bottom line as we drive towards net income profitability. Importantly, this performance reflects the deliberate choices we have made over the last several years to strengthen the foundation of the business. enhance how we serve clients, sharpen our focus on higher quality growth, and fully deliver the client-centric, highly personalized shopping experience that sets Stitch Fix apart. Technology and innovation has been at the core of Citrix's business since day one, and as we look ahead, we will continue to capitalize on this leadership. will enable us to build on our progress, even in a more challenging retail environment. Our model is resilient, differentiated, and uniquely equipped to navigate macroeconomic uncertainty and a more dynamic consumer backdrop. We are confident in our ability to capture further market share and wallet share and to keep building steadily toward long-term, sustainable, profitable growth.

I want to thank the entire Stitch Fix team, the The results we are seeing are a direct reflection of your focus, dedication, and commitment to our clients. Thank you for the work you do every day. With that, I'll turn it over to David to discuss our financial results and outlook.

Thanks, Matt, and good afternoon, everyone. As Matt highlighted, our strategic initiatives are driving clear momentum across our top line and client metrics. From a financial perspective, I'm equally pleased with how those gains translated to our bottom line. Our third quarter results demonstrate our ongoing commitment to operational efficiency, which allowed us to exceed our adjusted EBITDA outlook and generate positive cash flow. We are maintaining strong financial discipline to ensure our transformation scales profitably. Now let's turn to the numbers. Revenue was $340.3 million, 4.7% year-over-year, exceeding our outlook.

Its AOV grew 6.4%, better than expected, and was the primary reason for the outperformance. This was driven by more items per fix and higher AUR, reflecting strong demand for larger fixes and our improved assortment. We ended Q3 with 2.3 million active clients, up 21,000 or nearly 1% sequentially. Both women's and men's active clients were up sequentially, and men's active clients were up year over year for the second consecutive quarter. Net revenue per active client, or RPAC, was $578, up 6.6% year over year, marking the ninth consecutive quarter of year over year growth. We view the continued growth in RPAC as an important indicator of improving engagement and spend among our clients. It reflects the impact of the work we are doing across assortment, personalization, fixed flexibility, and the overall client experience, and reinforces the opportunity we see to grow share of wallet over time as we build the active client.

We continue to deliver strong margins. Gross margin was 43.7%, again, above the midpoint of our FY26 range of 43 to 44%, while contribution margins remain robust and north of 30% for the ninth straight quarter. Advertising was 10.2% of revenue in Q3, in line with our expectations. Q3 adjusted EBITDA came in at $13.2 million, or 3.9% margin. We have ceded our guidance due to stronger than expected revenue and disciplined expense management. We ended Q3 with $229.4 million in cash and investments and no debt, and we generated $6.5 million of free cash flow in the quarter. Strong balance sheet and stable cash flows give us the flexibility to sustain our investments in the growth of the business, while also returning capital to shareholders when we believe it represents an attractive use of cash.

During the quarter, we bought back 4.5 million shares for $15.1 million under our previously authorized share repurchase program, which leaves $104.9 million in that program. Our decision to repurchase shares reflects our confidence in the progress we are making, the durability of our financial position, and our commitment to strategic capital allocation. Inventory at the end of Q3 was $132.2 million, up 15.6% year over year, reflecting investments in our client experience and increased demand for larger fixes. Turning to our outlook for Q4 and FY26. For Q4, we expect total revenue to be between $322,000 and $222 and $327 million. We expect Q4 adjusted EBITDA to be between $7 and $10 million. As a result, for full year FY26, we are tightening our ranges and raising the midpoints for both revenue and adjusted EBITDA to reflect the resilience we're seeing in existing client engagement despite an increasingly challenged consumer environment.

We now expect total revenue to be between 1.346 and 1.351 billion dollars. We now expect total adjusted EBITDA for the year to be between 49 and 52 million dollars. And we continue to expect to be free cash flow positive for the full year. We still expect full year gross margin to be between 43 to 44% and full year advertising costs to be between 9 to 10% of revenue. As we close out FY26, we are encouraged by the meaningful progress we are making across the business. Active client trends are improving, AOV growth remains healthy, and we expect continued market share gains. Our financial model continues to demonstrate strong margins, disciplined expense management, positive free cash flow, and progress towards net income profitability.

That performance gives us the flexibility to keep investing in the areas we believe can drive durable growth, such as strengthening the client experience, thoughtfully rebuilding our active client base, and advancing the innovation that differentiates Stitch Fix. confident in the path ahead, encouraged by the traction we are building, and committed to delivering further progress in the quarters to come. With that, operator, we can open the line for Q&A.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. ask that you pick up your handset when asking a question to allow for optimum sound quality. And if you're muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Jay Soul from UBS.

Your line is open. Please go ahead. Great. I hope you can hear me. So very interesting on the AOV trends. Can you double click on those a little bit? I mean, you mentioned what's driving it, but it seems like it really outperformed in the quarter. You know, tell us maybe some of the strategies that are really the key to getting, you know, the more units perfected from some of the other drivers of AOV that you mentioned. Thank you. Thank you.

Hey, Jay, it's Matt here. So appreciate the recognition. We're really proud of the work that we've done to reimagine the client experience. And through those efforts, we've been able to drive 11 consecutive quarters of average order value gains. There's a few key contributing factors to that. One, is the success that we've seen with larger fixes. As we've enabled our clients to have fixes, six, seven, or eight items, we've seen many clients self-select into those larger fixes, helping us capture additional wallet share, better provide head to toe outfitting, and ensure that we're able to meet or exceed needs for several additional use cases. We also see the success and average order value of those larger fixes nearly double that of a traditional fix. of the other factors of the reimagination, the client experience is the investments that we've made to improve our portfolio of assortment.

That's true in both the market brands that we carry as well as the private brands that we develop. Within the market brands, we've brought on several new brands, which we've highlighted on prior calls as well as noted in today's prepared remarks. And that's helped us improve our AURs across the board, which we're up, I believe, for a seventh consecutive quarter. We've also been investing heavily into our private brands, delivering exceptional value and quality across the board. clients have continued to take notice there, which has helped us again capture higher average unit retails within our private brand portfolio while not directly or not impacting average order value. Worth noting that our private brands are also delivering about 500 basis points of higher gross margin than the market brands.

Got it. It may be a matter if I can ask you about just the active client, the momentum you've gotten sequentially. I think the trend in active client growth improved for the eighth quarter in a row. I guess looking ahead to the fourth quarter, how are client acquisition and retention trends shaping up? And what's your level of confidence in being able to maintain the positive sequential momentum?.

Yes, Jay, this is David. I can take that. Thanks for the question. First, to your point, we're really encouraged with the results we saw this quarter. It's just one more proof point that that methodical approach that we've been taking to grow active clients is working. As for Q4, just a reminder that Q1 and Q3 tend to be seasonally stronger quarters for active clients. Q4 tends to be a seasonally less strong around client acquisition. And that's what we're seeing as we go into Q4. And so because of that, we actually expect Q4 to be down slightly sequentially, somewhere between about a half a percent to a percent down sequentially.

With that said, to your point, we We still do expect to improve in Q4 as they have the last eight quarters. And because of that work, we continue to be really encouraged by the overall trends that Matt highlighted in the remarks earlier around new, re-engaged, and client retention. And that methodical approach is the one that we will continue to use to make sure building a healthy and profitable client base. And that continues to be our focus in Q4. And our goal remains to return to that year over year client growth in FY27. And, you know, these results and our guide sort of show clear progress towards that.

Got it. If I can squeeze in one more and then I'll pass it on. You know, if you can maybe just put your finger on exactly what it was to allow you to raise the adjusted EBITDA guide, you know, especially the lower end of the guide as much as you did. You know, what's happening that's allowing you to do that of all the different things that you mentioned?.

Yes, certainly Jay. On the adjusted EBITDA side, I think we've talked about this quite a bit over the last few quarters. Like we continue to be very, very focused on expense discipline and leverage in the business. And it's something that we continue to focus on this quarter. It's something that we'll continue to focus on in coming quarters. a couple of data points like SG&A spend in Q3 was down over 220 basis points from last year. And it was down, I think over 800 basis points from two years ago. And part of that is also SBC expense, which I know is below EBITDA, but another area that we continue to focus on. And so I think we just continue to make sure that we are driving financial discipline while still certainly investing in growth.

And that's really where we felt comfortable putting EBITDA where it is from a guide perspective.

Yes, maybe one additional build on that, Jay. And it was noted in the prepared remarks, we continue to lean in and capitalize on infusing both AI and additional initiatives in terms of the efficiencies of our operations. We continue to drive leverage throughout our fulfillment network and supply chain. We continue to drive efficiency. and leverage throughout our styling network as well. And all of those improvements are helping us continue to improve our bottom line performance.

Got it. Okay. Thank you so much. Your next question comes from the line of Owen Rickard from Northland Capital Markets. Please go ahead.

Thanks for taking my questions here. First for me, household accounts were called out as a growth initiative. How much penetration have you seen there and what is the RPAC list associated with clients who do adopt that feature?.

So, hey Owen, it's Matt. So we've been extremely pleased with the adoption of household accounts since we rolled that out. That household account feature came through the client insights that we gathered a couple of years ago, whereby our clients spoke loud and clear that we were offering a superior service. that they absolutely loved, but how could we bring that not just for the primary account owner, but such that it could be used for the entire household? So when we launched that feature, we saw some pretty quick organic adoption that adoption accelerated and has sustained since we launched. And it has made a material impact to the overall improvement in our active client count. And it's something that we're going to continue to lean into, creating awareness and consideration for the feature across the board. It's something that is now part of our core messaging throughout both our onsite experiences as well as through our CRM. In terms of how we're thinking about it, Our goal is to ensure that we're using household accounts to capture additional wallet share from that entire family. That continues to be a focus for us to ensure that we are the retailer for any and all apparel accessories and footwear needs for the entire household, such that they never have a reason to waste a day, you know, walking the cavern in a store or scrolling endlessly online.

They can just use the superior service offering unparalleled convenience to have all of their needs met.

Okay, got it. That makes sense. Super helpful. And then lastly for me, maybe how are you thinking about the balance between the fixed and freestyle as the primary growth drivers going forward? And maybe does the mix shift between the two have any meaningful margin implications?.

So, yes, Owen, it's Matt again. In terms of fix and freestyle, one of the important things for us is to show up for the client in the best way possible. However, we can best meet their needs, whether that is through a fixed experience or a freestyle experience. We've continued to lean into and invest in both of. of those channels. And also what we've started to do over the last several quarters is actually break down the barriers between those channels such that a client, for example, could be initiating their shopping journey within freestyle, but then while while in freestyle, actually use the item that they're shopping for to become the anchor for their next fix and work with their stylist to build an outfit around that item or to provide a few variations of that similar item. So when we're thinking about where that growth is coming from at the end of the day, we're bit indifferent. What we're looking for is how can we ensure that we continue to drive engagement and capture that wallet share overall for us.

David, if there's anything to add in terms of the relative profitability of both, I think at the end of the day, they're pretty similar, and we're very comfortable just meeting the client where they are.

Great, super helpful guys. Thanks for taking my questions here. Of course, Owen.

Your next question comes from the line of Dana Telsey from Telsey Advisory Group.

Please go ahead. The revenue proactive client in terms of what you're seeing. Where do you see that going, difference between brands and private label in terms of what you're seeing and what's the category trends and how do you feel about the state of consumer? And then lastly on advertising, which was flat at, I believe 10.2%, how do you manage that? you think of the trajectory of advertising spend moving forward? Thank you.

Hey Dana, I captured a few questions there. The first is in terms of our revenue proactive client success and where we see that trending. The second is in terms of the performance of private brands versus market brands, which categories we're seeing success with, how we're viewing the consumer and the current trends in our advertising expense. If I start at the top, We are very encouraged given what we're seeing in the total market today for our revenue proactive client to continue to set new highs for us from a reporting perspective. It is a really strong signal to us that we are delivering an exceptional service. And our goal is to continue to drive that metric as much as we can by meeting the client where they are. We feel really confident that the service that we offer is one that can meet our client's needs for nearly all of their use cases for apparel, accessories, and footwear.

And our goal is to continue to drive towards that part of that is by the category expansion that we continue to talk to for us to continue to grow in for us to continue to gro us to continue to grow in of those growing outsize business, all of them nor in the last quarter, we f that we're going to conti expanding the different use cases that we can serve them, which gives us a line of sight to future revenue proactive client growth and future wallet share gains. In terms of market brands and private brands, we're seeing success in both. As we've talked about previously, we're going to be very client-led in this pursuit. For us, it's really important to have the market brands that our clients covet. It's very important for us to have market brands to fill a white space where our private brands don't have assortment today. It's very important for us to have the leading brands for certain categories and certain use cases where market brands is a reason to purchase for our clients. And it's also a really critical signal for us to ensure that our clients understand that we are the leader when it comes to style and trend.

From a private brand perspective, the team has done a phenomenal job over the last couple of years, increasing the quality and value of the private brands that we offer. And our clients have absolutely taken notice. The awareness, the consideration, and the demand for those brands continues to increase. And that's why we were excited to highlight just the success. success that we're having with our private brands, some of which are growing now over 100% year over year, something that we take a tremendous amount of pride in. In terms of where we see the consumer today, we're really encouraged about the resilience of the Stitch Fix client. The Stitch Fix client continues to show up and in a really encouraging fashion, the Stitch Fix client at every single income cohort that we track continues to show up equally. We see the same levels nearly the same levels of revenue growth, no matter the household income of our clients.

And we believe that's because of our ability to personalize the experience to each client, no matter what is going on with their budget in any given time. Our assortment allows us to serve a significant breadth of different price points such that if there is a budget constraint at any given time, we're able to meet that client where they are. And we also have the resilience of our business model that is something based on the recurring nature of that business model, our product and the relationship that we have with our clients continues to show up for them and is top of mind for them. So that even if they are say reducing a shopping trip or a shopping journey, the relationship that they have with us and that deep and enduring relationship that they've built with their stylists is one that transcends whatever macro impact that client might be having. And we are able to capture the remaining wallet share that they have.

David, I'll let you touch on the advertising. Yes, Dana, on the advertising, I think we've talked about this before of just strength from a seasonality perspective. And certainly this quarter is one of those quarters. And we were really comfortable with spending at the high end of the range. I think we'd actually said that in our last call that we expected to spend sort of at the high end of our range. And certainly, we're seeing strength across each area of active clients. New client acquisition was up again.

Certainly quarter over quarter, but also year over year. Re-engaged clients are still incredibly healthy and a great avenue for us to bring clients back into the experience. And client retention continues to look better. And so because of that, certainly marketing plays a big part in that. And we're really comfortable with those levels of investments and continuing to spend, you know, right now, you know, our expectations to still spend within that 9 to 10 percent range.

Thank you. Your next question comes from the line of David Bellinger from Mizuho Securities USA. Please go ahead.

Hey everyone, thanks for the question. I want to go back to the consumer comments you were just making. You mentioned a few times in the prepared remarks some of this increasingly dynamic spending backdrop. Can you walk us through the cadence of this quarter and anything on quarter to date that's changed or this has shown up in the business and does this have to do anything with this sequential contraction that we're looking for in fiscal Q4?.

Yes, David, a couple of things. A couple of things there. In Q3, certainly, really happy with the performance. If you're talking about the progression through the quarter, it was definitely interesting. We probably had a little bit of a slower start to the quarter, and that was around average order value that we were talking about earlier in the call. And then it really rebounded mid quarter. And so really saw some strength as we exited the quarter. And we expect that strength to continue in Q4. we had already had an assumption, I think we had talked about this four to 6% increase in AOV in the back half of the year.

We had expected Q3 to be at the lower end of that range and Q4 to be at the higher end of that range. And so because of that, You know, that's why our guide stayed consistent for Q4, because we already had baked in a higher AOV for Q4. And so just really encouraged with those trends. And going into Q4, you know, we continue to see resilience with our existing clients. You know, if there's any macro headwind, we're maybe seeing a little bit of an increase in client acquisition. costs from a marketing standpoint. We're seeing that across the industry. But what's really interesting, and I think it goes back to what Matt was saying, is our existing clients remain incredibly resilient.

And that's true across all of our income cohorts. And so really encouraged by that, and we see that continuing in Q4. And all of that is included in our guide.

Understood. Thanks for all that. And then going forward, think about it. about SG&A dollars. The last few quarters have been in this $150 million or so range. As the business gets back to growth mode, is there anything we should think about that should come into that base or some type of incremental uplift in SG&A dollars as the business returns to growth? Thank you.

Yes, David, thanks for the question. You know, for SG&A, I think it goes back, I think we touched on this a little bit earlier, but, you know, we have been really focused on driving, you know, leverage actually across the entire P&L, certainly in gross margin, but then below gross margin, to your point, SG&A, you know, a part, a big part of that is our variable labor teams. our warehouse teams, our stylist teams, and driven a lot of leverage there. And so even over the last year. SG&A spend has come down to 120 basis points. And so, we continue to really make sure that we are driving that leverage. And SBC, I think is something we've called out in the past as well. That's a big part of the total SG&A spend and SBC was at 3.3% of revenue this quarter, that's down 100 basis points.

And so just across each one of the areas of SG&A, we wanna make sure that we are investing appropriately for growth, but that we continue to drive leverage. And we don't see any significant investment needs to turn that in the other direction. We just wanna make sure we're still driving so leverage in the P&L.

Your next question comes from the line of Anisha Sherman from Bernstein. Please go ahead.

Thank you and congrats on a great quarter. So David, I want to follow up on your comments on the prior question. It sounds like you're saying that you ended Q3 at a high point in terms of revenue growth relative to the first half of Q3. So I would imagine above the quarter's average of kind What does that imply for the current trend? Are you running ahead of the kind of Q4 guide or at the top of the Q4 guidance range at the moment? And do you expect it to decelerate a little bit through the quarter to get through to that 3.5% to 5% guidance range? And then related to that, AOV, your compares get a little tougher in Q4. Are you seeing or expecting any moderation or flattening out of the AOV growth in Q4 as those compares get a bit tougher?.

Yes, thanks for the question, Anisha. On the trends, definitely what we called out holds in Q3, we were definitely a little bit slow at the beginning of the quarter and then rebounded. For Q4, I think we see something similar where there's a little bit of a slower start to the quarter from an AOV perspective. and then it's already starting to come back. And so we see a little bit of the same. For AOV and Q4, though, we had already assumed that it was going to be 6% year over year. And so still really comfortable with the AOV compares in Q4. It was just in Q3 we got there faster than we had expected. in being able to rebound to be able to land just above 6% for the quarter in Q3.

And that's one of the reasons why we didn't necessarily play forward the beat is because we already had the strength included in our guide for Q4 last quarter.

Okay, that makes a lot of sense. And then if I can ask one follow up on your new client LTVs, beyond the family accounts that are obviously helping there, is there any particular other mixed shift in terms of demographics amongst those new clients that's driving higher LTVs.

that you're seeing in your mix? Hey, Nisha. It's Matt. I'll take that question. First, just a point of clarification. Within our household accounts, we treat each of those accounts separately. So from an LTV perspective, while we're really encouraged by the results we're seeing in household accounts. The growth we've seen in new client LTVs is actually independent of that. So for us to have effectively doubled our new client LTVs from where they were just three years ago, that's really the aggregate impact of everything that we have done to improve both the experience and our assortment.

Part of that is the larger fixes that we offer. Part of that is the continued improvements in our assortment. Part of that is all of the continued investments that we're making into our engagement mechanisms from Stitch Fix Vision to our AI Style Assistant to our Stylist Connect platform. And as we continue to create more opportunities for us to engage our clients, as we continue to create services that uplevel the experience for our clients, we're continuing to see that increase in spend for each of the new clients that we acquire. In terms of who's coming into this service, our marketing team continues to do a really good job getting more and more focused and methodical in terms of who we're targeting. such that we are bringing in clients that have a clear resonance for the service that we offer, and also finding very specific client segments like we've discussed before that we believe will be able to serve at an exceptional level. A great example of that is the success that we've had targeting clients that are low-income. likely on a GLP-1 medication and going through a body transformation. We're able to follow them all the way through the funnel from prospect marketing that explains to them why this service is one that will help them ensure they have all of their apparel needs met as their body is transforming.

They come into a landing page that really helps. explain again why this service is right for them. And then their stylist can work for them to meet their needs at each stage of the body transformation journey that they're going through. And we have lots of different segments that we're able to focus on similar to that, as well as ensuring that, you know, the clients that we bring in, we just continue to to serve at a really high level overall. Thank you.

Of course. At this time, there are no further questions. I would now like to turn the call back to Matt Baer for closing remarks.

Okay, thank you. So to close, I just want to reiterate how proud I am of the team overall, the progress that we've delivered this quarter and the success that we've been able to drive throughout the entirety of this transformation. We're building a healthier and more durable client base. We continue to strengthen our assortment. We're deepening the engagement levels with our clients. And we continue to prove that Stitch Fix can deliver a more personal, a more convenient, and a more inspiring way to shop. I'm excited the progress continues to show up across multiple dimensions of the business. We're growing our revenue. We're improving our active client trends.

We're gaining market share. And we're doing all of this while maintaining the financial discipline that has been central to the transformation. That includes the robust margins that we're delivering, our positive free cash flow, the strategic capital allocation that David discussed, and the progress towards net income profitability. At Stitch Fix, we're operating from a position of strength and I'm confident in our ability to continue to do so. I appreciate your interest in our business and I look forward to sharing our continued progress in the future. Thank you.

This concludes today's call. Thank you all for attending. You may now disconnect.

[Call has ended.]

Hello, everyone. Thank you for joining us, and welcome to the Stitch Fix Second Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions] I will now hand the call over to Cherryl Valenzuela, Head of Investor Relations. Please go ahead.

Good afternoon, and thank you for joining us today for the Stitch Fix Second Quarter Fiscal 2026 Earnings Call. With me on the call are Matt Baer, Chief Executive Officer; and David Aufderhaar, Chief Financial Officer. We have posted complete second quarter 2026 financial results in a press release on the Quarterly Results section of our website, investors.stitchfix.com.

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 our annual report on Form 10-K for fiscal 2025 and subsequent periodic reports filed with the SEC. 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.

Please note that fiscal 2024 was a 53-week year due to an extra week in the fourth quarter. As such, references to consecutive quarters of year-over-year revenue growth rates on this call are based on an adjusted 52-week basis, removing the impact of the extra week to provide a comparison that we believe more accurately reflects our performance. 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 the call will be available on the website shortly. And now let me turn the call over to Matt.

Thanks, Cherryl, and good afternoon, everyone. Q2 was another strong quarter marked by our fourth consecutive quarter of year-over-year revenue growth. We continue to successfully execute our transformation strategy and are seeing the cumulative impact of those efforts to both strengthen the foundation of our business and reimagine our client experience.

The enhancements we've rolled out over the past 18 months, including greater flexibility, meaningful improvements we've made to the quality and breadth of our assortment and new AI features are driving increased client engagement and durable revenue growth. As a result, we are solidifying our position in the market and our role as our clients' retailer of choice for apparel, footwear and accessories. Getting into the specific numbers, revenue exceeded our outlook and grew 9.4% year-over-year to $341.3 million, supported by broad-based demand that remained resilient across all income cohorts. Revenue per active client reached $577 in Q2, our highest revenue per active client as a public company. We achieved this growth while driving leverage in our business. Q2 was our eighth consecutive quarter with a contribution margin greater than 30%.

Adjusted EBITDA also exceeded our outlook and was $15.9 million or 4.7% of revenue. We also continued to gain market share and significantly outperform the broader U.S. apparel and accessories market during the quarter, highlighting the strength of our value proposition. Our 9.4% year-over-year revenue growth in Q2 contrasts with the 0.5% contraction the total U.S. apparel, footwear and accessories market sustained in the same period according to the latest Circana data. Our growth this quarter was anchored by the fix channel. By leveraging our unique curation capabilities and expert stylists, we've leaned into head-to-toe outfitting and strategic category expansion.

This high-touch approach is resonating deeply. Both our women's and men's fix businesses grew double digits, contributing to a nearly 10% year-over-year increase in fix average order value, our 10th consecutive quarter of growth. A key driver of this performance is the increased flexibility we've integrated into our service. Adoption of our larger fixes, which offer up to 8 items in a fix versus the original 5 continues to grow. We are also seeing high resonance with other newer formats such as themed fixes and fixes built around a specific freestyle item of a client's choosing. The average order value for these fixes are, in aggregate, nearly double that of a traditional 5-item fix.

We have also fundamentally improved the selection of items within each Fix. The growth in fixed average order value was driven by higher average unit retail, which grew 7.7% year-over-year, our sixth consecutive quarter of growth. The increase was largely fueled by a more compelling assortment and favorable mix. External pricing factors, including tariffs, were not a significant driver of the change. In Q2, we successfully captured seasonal winter demand for warm layers with outerwear, a top growth category in both our women's and men's businesses, up 26% combined. We also saw strong demand for denim, up 17%.

In addition, activewear and athleisure were strong contributors to our performance in the quarter, growing 37% year-over-year combined. We also saw strong demand for special occasion and social events or night out styles, which grew 46% this quarter. Of note, we have also been expanding our assortment in strategic categories where we are seeing increased demand such as footwear and accessories. Footwear grew 33% year-over-year across our men's and women's businesses with sneakers alone up 46%. Accessories grew 51% year-over-year across both lines of businesses. As we mentioned last quarter, we believe expanding our relevance in activewear, athleisure, footwear and accessories can unlock a significant wallet share opportunity. We estimate our fair share within our existing client base in these categories represents approximately $1 billion in incremental revenue.

We also continue to optimize our brand mix. We're pairing more of the brands clients already know and love with private brands that are purpose-built from our data to offer exceptional quality and value. Within our private brands, we saw strong performance from Market & Spruce, Montgomery Post, 41 Hawthorn and We Wonder with revenue from each up more than 35% year-over-year. The work we've done to optimize our assortment and brand mix set the stage for a strong holiday performance. This achievement was fueled by a deeper selection of seasonally relevant merchandise and a strategic promotional cadence, which delivered record Freestyle sales during the Black Friday, Cyber Monday period and sustained broader momentum through the end of the calendar year.

Importantly, we achieved this growth while maintaining strict discipline within our fixed business, driven primarily by our enhanced Freestyle exclusive promotional capabilities. We continue to be encouraged by our active client trends. This quarter marked our seventh consecutive quarter of improvement in year-over-year active client growth rates, reflecting the disciplined and methodical progress we're making to build a healthier client base. Of note, our men's business after returning to sequential growth in active clients last quarter, returned to year-over-year growth in Q2.

We're also excited by the early results we're seeing from family accounts, which enable a client to manage multiple accounts within a single household. This feature is emerging as a lower-cost way to grow family wallet share while unlocking new ways for clients to shop for others and supporting gifting behavior. Our holiday results reinforce our confidence in its potential as an efficient acquisition lever in future key gifting moments. Taking a broader view of our performance, we ended Q2 with active clients of 2.3 million, in line with our expectations. Here are a few highlights.

New clients grew year-over-year for the second consecutive quarter. 3-month LTVs for new clients have now grown year-over-year for 10 consecutive quarters and remain at 3-year highs. Reengaged clients also grew for the second consecutive quarter, and the number of clients on recurring shipments continued to grow year-over-year. And we also just completed a quarter in which we had the highest retention rate in nearly 4 years. We are encouraged by the early signals from Stylist Connect, our new platform for near real-time client stylist collaboration. While still a recent addition, it is already helping us strengthen relationships between our clients and our stylists.

Clients who engage in the feature are significantly more likely to request the same stylist for their next Fix. We believe these positive trends confirm the improved quality of our new and returning client cohorts and will lead to greater client retention, higher revenue predictability and improved profitability over the long term. We remain on track to deliver positive sequential net adds in Q3. A key driver of our performance is how we are leveraging technology and innovation and AI specifically. Technology and innovation has been at the core of Stitch Fix's business since day 1. Since our founding, Stitch Fix has capitalized on the latest technology advancements as well as data science and proprietary algorithms to provide a superior retail experience.

Our proprietary data and algorithms remain a competitive advantage. We know more about our clients, their fit, their budget and their style preferences prior to them ever receiving a fix. We also have a continuous loop of both direct and indirect data from our clients as well as nuanced insight on our merchandise assortment on how specific items fit. We have billions of data points to leverage because we know our clients so well, we are able to leverage AI to deliver incomparable client experiences. One way we are putting this data to work is through our AI style assistant, which empowers our stylists by helping clients better articulate what they're looking for. This tool captures richer signals that enable our stylists to curate fixes that better meet each client's specific needs.

We are also leveraging AI to inspire clients and help them discover the styles they will love. A clear example is Stitch Fix Vision, our AI-powered styling platform that provides clients with personalized imagery of them and a wide array of shoppable head-to-toe outfit recommendations based on their own style profile and the latest fashion trends. Clients who have engaged with Vision use it on a consistent basis with 75% returning to use it again in subsequent months. And that engagement has translated into increased sales. We saw an over 100% lift in Freestyle spend over a 90-day period for clients who used the feature. As we further execute our strategy, we're confident in our ability to maintain a balance between growth and profitability.

Our unique data-driven model, which combines personalized styling expertise, AI-powered recommendations and a compelling assortment across Fix and Freestyle enable us to meet clients where they are while driving both engagement and spend. This integrated approach creates a powerful feedback loop between human insight and technology, strengthening client relationships and improving unit economics over time. The investments we're making in our client experience, AI capabilities and merchandise mix are designed to drive durable revenue growth while preserving margin integrity. These strategic drivers are performing in line with our expectations, supporting our improved full year revenue guidance as we remain focused on finishing the year strong. As the business continues to scale, we believe we will be able to generate increasing leverage and deliver consistent, sustainable profitability over time. I want to thank our team for their focus and execution and our clients, partners and shareholders for their support.

With that, I'll turn it over to David to discuss our financial results and outlook in more detail.

Thanks, Matt, and good afternoon, everyone. Our second quarter results reflect continued progress against our strategy and the momentum we're building across the business. We delivered strong revenue growth and disciplined expense management while continuing to invest in the client experience and innovation.

These results underscore the benefits of our methodical approach to strengthening the business and positioning Stitch Fix for consistent and sustainable performance over time. Now let's turn to the numbers. Revenue was $341.3 million, up 9.4% year-over-year, exceeding our outlook. Fix average order value rose 9.8%, driven by more items per Fix and higher AUR, reflecting strong demand for larger Fixes and our improved assortment. We ended Q2 with 2.3 million active clients, in line with our expectations. Revenue per active client was $577, up 7.4% year-over-year, marking the eighth consecutive quarter of year-over-year growth and the highest RPAC we've reported as a public company. The growth in RPAC confirms that our strategy is effectively leading to increased client engagement and spend, ultimately driving a higher share of wallet from our clients.

Gross margin was 43.6%, slightly above the midpoint of our FY '26 range of 43% to 44%, with contribution margins remaining strong above 30% for the eighth straight quarter. Advertising was 8.5% of revenue in Q2, slightly below our expected range of 9% to 10%. As we've discussed, we are being deliberate in how we invest, prioritizing efficiency and long-term client quality over near-term volume. Q2 adjusted EBITDA came in at $15.9 million or 4.7% margin, outperforming expectations on strong revenue and disciplined expense management. We ended Q2 with $240.5 million in cash and investments and no debt. Inventory was $122.1 million, up 11.4% year-over-year, reflecting investments in our client experience and increased demand.

Turning to our outlook for Q3 and FY '26. For full year FY '26, we expect total revenue to be between $1.33 billion and $1.35 billion. We expect total adjusted EBITDA for the year to be between $42 million and $50 million, and we continue to expect to be free cash flow positive for the full year. For Q3, we expect total revenue to be between $330 million and $335 million. We expect Q3 adjusted EBITDA to be between $7 million and $10 million. For the second half of the year, we're tightening our revenue guidance range, reflecting greater confidence in the underlying momentum we're seeing while continuing to be thoughtful and realistic about the environment ahead.

While we expect growth rates to moderate as we lap a strong 2-year AOV stack, we believe there remains opportunity to continue driving steady AOV improvement. Ongoing enhancements to our client experience, including a stronger, more relevant assortment, continued category expansion, increased fixed flexibility and the use of AI to support more dynamic client engagement provide a durable foundation for that progress. At the same time, we believe our methodical approach to rebuilding our active client base is working. We're encouraged by continued improvement in active client trends and remain confident that sequential net active client adds will be positive in Q3.

Over time, as both AOV and active clients improve, we believe this positions the business for compounding growth. We continue to expect full year gross margin to be approximately 43% to 44% and full year advertising costs to be between 9% and 10% of revenue. In closing, we're encouraged by the progress we're making across the business. Our focus on delivering a strong client experience, rebuilding our active client base with discipline and maintaining financial rigor is driving improved performance and positioning us well for the remainder of the year.

With that, operator, we can open up the line for Q&A.

Your first question comes from the line of Dana Telsey from Telsey Advisory Group.

Nice to see the progress. I wanted to get some more color on what you're seeing from the current consumer. It sounds like the AURs are being well accepted. Is that existing brands, new brands? You've brought on new brands over the past couple of months? How has that gone? And then would love to know more about active client growth and sequentially, how you're thinking about it going forward?

Dana, it's Matt. I appreciate the recognition on the progress that we've made. The team has done a phenomenal job driving this really continued outperformance from a revenue growth standpoint. So I appreciate that. I heard about 3 questions there, just kind of a check in terms of how we're seeing the consumer and how that has impacted our AUR performance. The impact between private brands and national brands and then kind of an update on our active client count.

I'll answer the first 2, and David can jump in with additional color as well as answer the third on the active client count piece. In terms of the consumer, one of the things that gives us additional confidence in our ability to continue to perform and sustain this momentum is that we're seeing really equally positive performance across all different income cohorts within our client base. We're seeing that strength really across the board. And the increase in AUR that we've been able to deliver is really reflective of continuing to improve the quality of our assortment overall. Within our private brand portfolio, we've really been investing to deliver an even higher quality product, but maintaining exceptional value for the end consumer. And our clients have really resonated with that. That's why we were excited to share the outsized growth that we're seeing within many of our private brands within our portfolio. We also continue to strategically add market and national brands in order to meet the needs of our clients and fill white space.

In addition to the brand piece, something else that we've talked about on prior calls that's part of our merchandise focused transformation is investing in newness and making sure that we stand for style and trend. In the second quarter, sales from new styles was up roughly 50% year-over-year. So that investment that we're making into new product is also resonating extremely well with our clients. As you know, having the best assortment is critical for delivering outperformance and revenue growth. So we really do feel good about the work that we've done there and the way that it's helping to drive that performance across the board.

And then, Dana, on active clients, first, the results we saw this quarter were definitely in line with our expectations. Sort of as a reminder, we have seasonality really in our active clients, where Q2 and Q4 tend to be a little bit seasonally softer quarters for us around active client growth. And certainly encouraged by being able to continue to commit to seeing sequential client growth in Q3, and we're confident we remain on track to do that. Size and shape, we're just returning to quarter-over-quarter growth. So we probably anticipate that Q3 client growth to be a little less than 1% quarter-over-quarter.

But again, encouraged with those results. And taking a step back, we continue to be encouraged with the overall trends that Matt called out earlier in his remarks around new client acquisition, reengaged clients and client retention. And that really goes back to that methodical approach that we've been talking about the last few quarters where we're really focused on rebuilding a healthy client base, and that continues to be our focus. One of the metrics I know we've been calling out a lot lately is that 90-day LTV, and that was up 5% year-over-year. It was the 10th quarter in a row that we've seen year-over-year growth. And so just really confirming that we're bringing healthy clients into the mix. And from a go-forward perspective, we'll provide more detail on specific numbers around Q4 next quarter, but our focus continues to be around sustainable, profitable client growth and using that methodical approach, we absolutely expect year-over-year comps to continue to improve. And our goal is to return to year-over-year active client growth in FY '27. So definitely encouraged with the results we're seeing.

Your next question comes from the line of Dylan Carden from William Blair.

The comments around revenue per decelerating as you lap harder comparisons, I mean you already kind of started to lap some of those comparisons. So can you give a sense sort of what's behind that? Or is that just sort of general caution? And I have some follow-ups.

Yes. Dylan, are you talking about sort of the back half revenue comps?

Correct.

Yes, got it. Yes. So over the last couple of quarters, I think we've consistently guided to a deceleration in the back half of the year. And actually, this back half guide is an improvement from last quarter's guide. But there are a couple of factors that I'd call out. First is what we have been discussing in the last couple of quarters. There are just more challenging AOV comps in the back half of this year, we've had 10 consecutive quarters of AOV growth. And Q3 and Q4 last year had AOV growth of 10% and then 12%. And our guidance in the back half of this fiscal year still assumes healthy AOV growth, but it's probably in the 4% to 6% range. So that's the first factor.

The second, when you think about sort of Q2 to Q3, we had a really strong holiday season compared to last year in Q2. And that doesn't necessarily play forward into future quarters. Like one data point there, December was our highest revenue comp in the quarter at around 12% year-over-year growth. And that's also -- the holiday period also created probably a little bit of a pull-forward activity from Q3 into Q2. And then lastly, considering the macro environment and current trends in consumer sentiment and some of the volatility that we're thinking, we still think it's prudent to assume some headwinds in spending in the coming quarters. And so all of that's factored into our guide for the year. But again, we're really encouraged with what we're seeing, and we're really encouraged with the guide that we've been able to provide where we raised the low end of the full year of the revenue guide.

And after significantly increasing our full year guide last quarter, as a reminder, sort of if you take the last 2 quarters and add them together, we raised the midpoint of our revenue guide by about $35 million over those 2 quarters and our EBITDA by almost $9 million. So still really encouraged with what we're seeing with those trends.

Very good. And then I'm curious on the assortment, Matt, maybe. Do you kind of have it where you want it now, particularly as you start thinking about maybe the women's business that, that inflects?

Dylan, I appreciate the question. Ensuring that we have best-in-class assortment, that's a perpetual area of focus for us. We're always going to challenge ourselves to make sure that we have the right brands, the right mix, the right breadth and depth within that. And we're always going to continue to drive an improvement there. As we've talked about previously, the initial focus as part of our transformation was more heavily weighted towards our men's business. We feel really good about where we are there. And we also feel great about the progress that we've made across the board within our women's business.

As I noted, our women's fix business was up double digits from a revenue perspective last quarter, which is really a strong signal in terms of the strength there, but also recognition that we still have opportunity to improve that assortment even further, which gives us even greater confidence in our ability to sustain the gains that we're seeing across the board.

In addition to that, I would just point us back to something that was in the prepared remarks and that we've talked about previously around this $1 billion wallet share opportunity that we have with our existing client base across footwear, accessories, activewear and athleisure. We're delivering outsized growth in those categories. But because of the relatively smaller base that they started at, we still have an exceptional opportunity to continue to lean in there. And that's part of, again, what enables us to increase engagement with clients, deliver success with larger fixes, increase our wallet share and ultimately continue to deliver these outsized market share gains that we've delivered.

Excellent. And then just last one on the repeat customers that are some of the higher that you've seen. Is that proven out to be greater wallet share across use cases? Is that just sort of spending more on existing categories? How should we think about kind of how people are coming to you more and more?

So if I understand the question correctly, Dylan, the work that we do is to ensure that we are able to serve clients across a variety of use cases. And whatever use case that a client comes to us for, for example, if they're starting a new job and we need to update their wardrobe with the appropriate workwear, through that client stylist relationship, we're also able to navigate them to other use cases. It's why we're excited to share in the prepared remarks, the success that we've seen, for example, in social occasion dressing and night outs. And that's also why we're seeing that outsized growth in activewear and athleisure as well. Because we have such great assortment across the board for all of these different use cases, that expansion of use cases with our clients continues to be one of the drivers that's helping propel the revenue growth. We're going to continue to lean into that as well as continue to lean into head-to-toe outfitting across footwear and accessories.

Your next question comes from the line of Jessica Tian from Bernstein.

Congrats on the quarter. I had a 2-part question on the guide. So first, on the H2 guide, it looks like the Q2 be on adjusted EBITDA didn't fully flow through to the full year outlook. Should we read that primarily as conservatism on your part? Or is there anything in the underlying margin trend that caused you to hold back some of that upside?

And then second, on the Q3 active client inflection, sequential inflection with new clients growing year-over-year for the second consecutive quarter and 5-year low dormancies last quarter. Can you talk about what's driving the expected sequential increase in net adds? Should we think about that improvement as coming more from reduced dormancy? Or is it coming more from new clients?

Yes. Thanks, Jessica. On the EBITDA guide, I think we're really encouraged with increasing even the full year guide. If you look at the full year guide, I think we increased the low end of the guide by around $4 million and the high end of the guide by $2 million. And so definitely still feel like we've got a very healthy flow-through of EBITDA for the year. On the active clients on sort of the sequential, I think Matt might have called out in some of his prepared remarks as well, but we're really seeing strength across all 3 of those cohorts that we tend to call out.

New acquisition was up year-over-year for the second quarter in a row. Reengaging clients was up for the second quarter as well from a year-over-year perspective. And client retention is definitely looking healthier than it's been in quite a long time. And I think that is a big part of our focus is that client retention side. And it almost comes back to that full loop of making sure that we are bringing in those high LTV clients that engage with the service. And also for our existing client base, all of the new client features, the improved assortment that Matt called out as well, all of those things just create stickier relationships from a client perspective as well. And so all 3 of those things are sort of trending in the right direction, and that's why we felt comfortable really calling out that sequential improvement in the sequential quarter-over-quarter increase in Q3.

We will now move on to the next question from David Bellinger from Mizuho.

I want to ask on the Q3 guidance, revenue growth up something above 2% at the midpoint. And I think if I'm hearing you correctly, a lot of that deceleration from this quarter has to do with lapping positive revenue growth last year, some of the AOV uptick. Is there anything else that explains the deceleration? Any other context around the external pressures that you've started to factor into the guidance? You got gas prices moving up. Is any of that starting to show up in the business? And if you just remind us how gas prices moving higher has historically affected Stitch Fix?

Yes, David, I think outside of -- we called out the AOV comps earlier, and that is certainly probably the bigger factor around sort of the change quarter-to-quarter. I think the second call out was really the holiday period. We had a really strong holiday period this Q2. And so I think that's a big part of sort of when you just think about the sequentials where that's not necessarily something that plays forward. And then on the macro side, definitely, when you see the consumer sentiment where it is, the February jobs report, gas prices certainly going up and gas prices for us, that's not discretionary spend. And so if someone is having to spend more on gas, that just means less in their wallet for discretionary spend like apparel. And so certainly, those things we've taken into account in that back half guide.

The other thing that you can see, though, is that because the point in time where we are this year, you can sort of back into a Q4 guide as well. And we're really encouraged that between Q3 and Q4, you still see an acceleration in that revenue growth as well at the midpoint, where the midpoint in Q4 calculates to something closer to 4%. And so definitely really encouraged with that as we close out the year.

David, what I'll add as well is while not to minimize the impact of gas or challenges on the consumer and the broader macro environment, something that we've talked about previously is just how we're uniquely situated to perform really well if and when the overall wallet for our clients shrink. Our clients and stylists have a very deep and enduring relationship. That allows them to have a real conversation around how budgets might be shifting month-to-month, week-to-week, quarter-to-quarter. And we have the breadth and depth of assortment across all different price points so we can meet our clients where they are at any given time. And we continue to see us perform relatively well in those periods where the consumer is potentially challenged. And that's what gives us so much confidence that wherever the overall market goes, we'll continue to be a market share gainer.

Very helpful. My second question, I want to ask about GLP-1 usage. That seems to be a relatively new and positive customer driver. Can you help frame up any exposure to the business? Are these customers more sticky, more engaged? And can you simply get more of them as GLP-1 usage becomes increasingly popular?

Yes, David, I appreciate that question as well. Again, the uniqueness of our service and that superior level of service that we provide each of our clients positions us extremely well to serve clients going through a body transformation. And we've made it a real point of emphasis to market that capability of our service.

So we're out in market and have been for a while, explaining to consumers that are potentially on a GLP-1 medication that as their body transforms, they have the ability to work with a personal stylist to help ensure that they have everything that they need so that they can dress in clothing that fits at each stage of that weight loss journey that they're on. We've seen really positive results in terms of how that's helping them improve their confidence, how that's helping them improve their ability to get dressed and outfit themselves on a daily basis. And we've seen that also show up in our data as well.

Client mentions of weight loss in their fixed request notes, as an example, has tripled over the last 2 years, and it's actually surged 75% year-over-year just this past quarter. And what that tells me is that the work that we've been doing to improve the segmentation and targeting within our marketing capabilities is working extremely well and that the quality and superiority of our service is really resonating with those clients. We'll continue to lean in, and we'll continue to serve that demographic at a really high level.

Thank you. There are no further questions at this time. I will now turn the call back to Matt Baer, CEO, for closing remarks.

Thanks. To wrap up, as I said, we're incredibly pleased with the strong results we delivered this quarter and the improved guidance that we shared for the back half of the year. We believe we're uniquely positioned to lead in this moment of AI innovation, and that's because of just how seamlessly data science and AI are integrated into our business, how deeply and personally we know our clients and how holistically we've integrated our expert stylists.

Due to the significant improvements we've made to our experience and assortment through our transformation, we're capturing increased market share and outperforming the broader apparel retail market. We're also building a stronger client base. That's with 7 consecutive quarters of improving year-over-year active client trends. And also, as we noted, the expected sequential growth in active client count in the third quarter. We're confident the growth in our business will continue and that this growth will be sustainable.

Important to note that since the start of our transformation, we've improved our contribution margins more than 500 basis points, and we've maintained contribution margins above 30% for the last 2 years. So I appreciate everyone's interest in our business and look forward to sharing future updates with each of you in the future.

This concludes today's call. Thank you for attending, and you may now disconnect.

Ladies and gentlemen, thank you for standing by. My name is Dedra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Stitch Fix First Quarter 2026 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Cherryl Valenzuela, Head of Investor Relations. You may begin. PAUSE

Good afternoon. Thank you for joining us today for the Stitch Fix First Quarter Fiscal 2026 Earnings Call. With me on the call are Matt Baer, Chief Executive Officer; and David Aufderhaar , Chief Financial Officer. We have posted complete first quarter 2026 financial results in a press release on the quarterly results section of our website, investors.stitchfix.com. 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 our annual report on Form 10-K for fiscal 2025 and subsequent periodic reports filed with the SEC.

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. Please note that fiscal 2024 was a 53-week year due to an extra week in the fourth quarter. As such, references to our year-over-year revenue growth rates and consecutive quarters of revenue growth in our women's and men's businesses on this call are based on an adjusted 52-week basis, removing the impact of the extra week to combine a comparison that we believe more accurately reflect our performance.

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, 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 Matt.

Thank you, Cherryl, and good afternoon, everyone. Q1 was a strong start to the year. Revenue exceeded our outlook and accelerated 7.3% year-over-year to $342.1 million. Adjusted EBITDA also exceeded our outlook and was nearly 4% of revenue at $13.4 million. We are increasingly becoming the retailer of choice for more of our clients' apparel and accessories needs. We are doing this by leveraging the latest in generative AI technology, the expertise of our human stylists and our assortment of leading brands, in service of our aim to deliver the most client-centric and personalized shopping experience.

Given our Q1 performance, combined with the robust demand we've seen so far this quarter, we are guiding to a third quarter of accelerating growth in Q2 and raising our full year guidance. The outperformance is the direct result of the compounding benefits we're seeing from the disciplined execution of our transformation strategy. We've strengthened the foundation of our business by embedding retail best practices and building significantly more leverage into our operating model.

We have fundamentally reimagined our client experience. We zeroed in on 4 areas to deliver a more modern and dynamic Stitch fix. First, delivering enhanced client engagement features; second, cultivating deeper client stylist relationships; third, offering a best-in-class assortment; and fourth, increasing the flexibility of our business model.

For example, our increased flexibility now includes dynamic larger fixes, the ability to turn a Freestyle shopping journey into a style fix curated them fixes for specific occasions and use cases and family accounts, which unlock the Stitch Fix experience for the extended family. This comprehensive and customer-driven approach is clearly resonating with clients. Our fixed AOV was up nearly 10% in Q1. The ninth consecutive quarter, AOV has increased year-over-year, as our larger fixed offerings and our improved assortment continued to resonate with our clients and better meet their outfitting needs.

We are strengthening our competitive position and gaining market share in our core apparel business. Our strategic expansion into non-apparel categories is further accelerating this growth. By helping clients complete their outfits and dress them from head to toe, we are capturing a greater share of their wallet from other retailers. Our 7.3% year-over-year revenue growth in Q1 meaningfully outpaced [ sarcoma's ] estimated 1% growth for the broader U.S. apparel, accessories and footwear market.

Our growth is broad-based with both our women's and men's businesses continuing to accelerate. In women's, we saw a strong start to fall sales across key seasonal categories such as sweaters, coats, jackets and vests, which combined grew 19% year-over-year. Sneakers, which were up 63% year-over-year, driven by New Balance, Gola and Adidas and wide-leg denim, was up 217% driven by outsized performance in [ days ] denim, Pistola and Madewell. We've also seen great client responses to new brands especially within activewear and footwear such as Varley, Birkenstock and Ron.

And we're excited to continue to add new brands to our assortment in the coming months. Our men's business delivered a second consecutive quarter of double-digit revenue growth by leaning more into the elevated everyday and athleisure styles our clients are looking for. Seasonal categories such as fleece, sweaters and outerwear grew 57% combined, while denim grew 30% and Sneakers grew 24% year-over-year. Brands like TravisMathew and Viori delivered outsized growth and remain trusted client favorites for style, versatility and quality, while new brands such as Kate in, Industry and NNO7 have introduced more style and trend into our assortment.

We believe that our expanded relevance in activewear and athleisure, footwear and accessories, in particular, could unlock a significant wallet share opportunity and that our fair share with our existing client base in these categories is approximately $1 billion of incremental revenue. We are confident in our ability to capture increased market share in the future.

Just as importantly, we're focused on achieving profitable active client growth. We ended the quarter with 2.3 million active clients at the high end of our expectations. Q1 marked the sixth consecutive quarter of improvement in active client year-over-year growth rates and a return to sequential active client growth in our men's business. We continue to expect a sequential increase in net adds in Q3 of our current fiscal year.

Our methodical approach to rebuilding our client base around long-term fit with our service and higher lifetime value paired with a continuously improving client experience is working. With respect to new clients, Three-month LTVs have grown year-over-year for 9 consecutive quarters and remain at 3-year highs. We also have had more new clients on recurring fixed shipments at the end of Q1 than in any of the prior 6 quarters. Q1 also benefited from higher reengagements with a significantly higher percentage of reengaged clients enrolling in recurring shipments compared to last year. We believe these positive trends confirm the improved quality of our new and returning client cohorts and will lead to greater client retention, higher revenue predictability and improved profitability over the long term.

To build on this momentum and ensure we sustain this improved client quality, we are also focused on delivering growth by leveraging our competitive differentiation in data science and AI. AI is not new to Stitch Fix. When we launched nearly 15 years ago, we disrupted retail with a proprietary data-driven approach. Over time, we've amassed billions of insights on our clients' fit, style and budget preferences. That, combined with the human judgment of our stylists, enable us to uniquely deliver ultra personalization at scale. We're capitalizing on this competitive advantage through a suite of AI-powered innovations that aim to drive greater client engagement and retention.

For example, Vision, our generative AI-powered style visualization experience provides our clients with an entirely new and inspiring approach to style discovery, offering personalized, shoppable images of each client based on the unique style profile and the latest trends. Another great example is our AI style assistant, which leverages Gen AI to engage in a dialogue with clients and is helping our clients better articulate their individual requests to their stylists.

This stylist then draws on each client's style file and the extensive data we already know about them and the more it's used the smarter it gets, helping ensure each fix delivers on the client's individual needs. The scope of our Gen AI strategy goes beyond client-facing features, we are taking an enterprise-wide approach, incorporating these capabilities across every area of the business to drive further efficiencies and deepen our competitive advantage as a leading innovator in retail.

For example, our merchandising team is using Gen AI to fundamentally transform private brand product development and inventory management. Our Gen AI-assisted design process leverages our proprietary data to develop complete fashion lines, which will enable us to respond to trends more quickly and bring products to market faster. Beyond design, AI provides predictive intelligence for trend forecasting, optimizing inventory and setting intelligent pricing, ensuring every piece of merchandise we sell is calibrated for both profitability and client satisfaction.

The innovations we've introduced across our business will enable us to better serve clients this holiday season. We entered this critical period with our most seasonally relevant assortment and competitive pricing and promotions. Enhanced by new and inspiring shopping experiences, including vision, theme fixes and fixes built around the Freestyle items. We also launched Stylist Connect, a platform for near real-time client stylist collaboration and introduced family accounts to better support gifting during the season.

Holiday performance has been strong with record Freestyle sales for the Black Friday to Cyber Monday period. In closing, we have strong momentum in our business, remain focused on exceeding our clients' expectations and will continue to play offense in order to deliver increased market share gains.

Now I'll turn the call over to David to share more details of our financial results and future outlook.

Thanks, Matt, and good afternoon, everyone. We delivered a strong first quarter that underscores the success of our strategy and the momentum Matt outlined. We're accelerating growth and gaining market share while maintaining financial discipline to ensure that growth is profitable and sustainable. FY '26 is about leaning into innovation and the client experience to strengthen our competitive advantage, while continuing to identify savings that fuel reinvestment.

Now let's turn to the numbers. Revenue was $342.1 million, up 7.3% year-over-year, exceeding our outlook. Average order value rose 9.6% driven by more items per fix and higher AUR, reflecting strong demand for larger fixes and our improved assortment. We ended Q1 with 2.3 million active clients at the high end of our expectations.

Revenue per active client reached $559 up 5.3% year-over-year, marking the seventh consecutive quarter of year-over-year growth. The growth in RPAC confirms that our strategy is effectively leading to increased client engagement and spend ultimately driving a higher share of wallet from our clients. Gross margin was 43.6%, in line with our FY '26 range of 43% to 44%. And with contribution margins remaining strong, above 30% for the seventh straight quarter. Advertising was

9.9% of revenue in Q1, up 50 basis points year-over-year. Q1 adjusted EBITDA came in at $13.4 million or 3.9% margin, outperforming expectations on strong revenue. We ended Q1 with $244.2 million in cash and short-term investments and no debt, giving us flexibility to invest in growth. Inventory was $141.5 million, up 18.8% year-over-year, reflecting investments in our larger fix offerings.

Turning to our outlook for Q2 and FY '26. We are increasing our full year guide to take into account the positive trends we are seeing in the business. For full year FY '26, we expect total revenue to be between $1.32 billion and $1.35 billion. We expect total adjusted EBITDA for the year to be between $38 million and $48 million. And we expect to be free cash flow positive for the full year. And for Q2, we expect total revenue to be between $335 million and $340 million. We expect Q2 adjusted EBITDA to be between $10 million and $13 million.

With respect to revenue, we are really encouraged with the trends we have seen in our business so far this year. The resilience in client demand that we saw in Q1 and through the first part of Q2 gives us confidence to guide to another quarter of growth acceleration in Q2 and to raise our guidance for the full year in FY '26. Given the current trends and consumer confidence and the impact of inflation on discretionary spending, we think it's prudent to assume some headwinds in the back half of this year.

As a reminder, we will also face tougher AOV comps as we begin to lap the double-digit growth we saw in the second half of FY '25. Both of these considerations have been included within our outlook. For active clients, we believe our methodical approach to rebuilding our active client base is working. We expect active client year-over-year growth rates to continue to improve in Q2. Additionally, we remain on track to deliver a sequential increase in net adds in Q3 FY '26.

We continue to expect full year gross margin to be approximately 43% to 44% and full year advertising costs to be between 9% and 10% of revenue. We're investing thoughtfully in AI and innovation, which we expect to drive stronger client engagement and retention over time. These investments are already included in our outlook and we'll scale them judiciously. Our strong first quarter demonstrates the health of our business. The commitment to client engagement and operational discipline drove revenue and market share gains.

Looking ahead, we remain confident in our strategy, which prioritizes sustainable profitable growth. With that, operator, we can open the line for Q&A.

[Operator Instructions] And our first question comes from the line of Dylan Carden with William Blair.

This is Marcus Belanger on for Dylan Carden. I was just curious, could you provide a little bit more color on new customer behavior and just your general view under stickiness. What metrics are you tracking that inform this view outside of the 30-day LTV that you mentioned?

Marcus, I appreciate the question. I'll share some insights and David, feel free to add anything additional. When we look at the client behavior that we're seeing across the board, we're extremely enthusiastic in terms of what we've been seeing PAUSE -- we shared in the prepared remarks that we've seen 9 consecutive quarters of improving LTV for new client acquisition. New clients have also been -- were also up last quarter for both year-over-year and quarter-over-quarter, which gives us a lot of confidence that we're going to continue to see more health in our overall client base moving forward. We're also seeing strength

within our reengagement with our reengaged clients or formerly dormant clients they continue as they rejoin the service to stay longer and spend more, which again, is really encouraging to continue to improve the overall health of our client base. And then finally, when we're looking at our clients that might otherwise go dormant, we just completed a quarter in which we had the lowest number of dormant clients in 5 years. some additional signals that show the strength overall in our client base, as we shared in our prepared remarks, is that our men's business has returned to sequential increases in our overall active clients.

And that is one of many things that give us further confidence that we will return to overall sequential active client growth in PAUSE -- so those clients that we have. They're staying longer. They're spending more. The new features that we've launched are driving incremental engagement, and we're also seeing. And then those new clients that have joined, we're also seeing them stay longer and spend more. So we're really proud of the overall widespread and holistic impact with everything that we've done.

Our next question comes from the line of Aneesha Sherman with Bernstein.

Congratulations on the quarter. Matt, you talked about gaining share and you said some pretty strong numbers about share gains versus the total apparel accessories and footwear sector. Can you talk about where do you think that market share is coming from? I mean is it from other multi-brand retailers -- is it from trade down? I mean what are you hearing from the brands that you talked to about where those share gains are coming from?

And then on gifting, now I was surprised to hear you say that gifting was so strong. It's typically not a very strong use case for you. Do you think that's changing? And especially as you move more into Freestyle, is gifting becoming -- gifting or maybe even holiday is becoming more of an occasion for you?

And if I could throw in 1 more quick follow-up for David around advertising. 9% to 10%, it sounds like the sales numbers are working, the client numbers are working. How do you think about maybe leaning in on that more to drive more of the top line if needed?

Yes. Aneesha, it's Matt. I'll answer the first 2 on market share and holiday performance. And as you noted, David can chime in on the advertising and any additional commentary. First, appreciation for the recognition, the team deserves it. They're doing a phenomenal job in order to deliver these incredibly impressive results and market share gains. Speaking of those market share gains, it's a great question. And the work that the team has done to improve the client experience is clearly resonating.

The work that we've done to continue to improve the trends overall in our active client growth rates continue to demonstrate that as well. And with regards to who we're taking market share from, what we're doing is we're focused on delivering the most client-centric and personalized shopping experience. And in doing so, we're picking up share from where other retailers aren't delivering. And we're taking that share from a wide range of retailers who don't and cannot offer the personalization consumers want and expect, which is so core to our business.

And as you noted, we're hearing loud and clear from the brands that we work with, that we are delivering outsized growth relative to others that they might be working with. In terms of our holiday performance, as I noted in the prepared remarks, we really entered this holiday season with the most seasonally relevant assortment, competitive pricing, really compelling promotions and a lot of new ways for our consumers to engage with us and to shop.

For example, themed fixes or fixes built around the freestyle item. Also a significant improvement in terms of the engagement experiences like Stitch Fix Vision and Stylist Connect. Specifically in terms of gifting, the more recent launch of family accounts has delivered results that have exceeded our expectations. With family accounts, we heard loud and clear from our clients that they were looking to bring the Stitch Fix experience to their entire family. They love the service that we provided and they wanted to make sure that they were able to use it for spouse partners, children and any other loved ones as well.

In fact, 92% of our women's clients shop on behalf of a spouse partner. So when we created the ability to launch family accounts. We saw phenomenal engagement right out of the gate, and that was really the entry way for us in order to start to deliver a gifting business over the holiday season. In addition to the gifting though, as you well know, a lot of the purchases that happened over this time period are just gifts for others, their gifts for self. And that's where we have really led the way, and that's what helped us deliver record-breaking sales over the Black Friday to Cyber Monday time period.

And then Aneesha, on the advertising, this quarter, we did lean in a little bit on advertising. We ended up at the high end of that 9% to 10% range at 9.9%. And I think it goes back to what we've talked about in the past about that methodical approach to advertising and really holding ourselves accountable to those CAC to LTV ratios. And because of that, we tend to see some seasonality in our marketing spend. And so we leaned in, in Q1. Q1 and Q3 tend to be our stronger quarters.

So you'll probably see us spending more at the lower end of that range in Q2. And all of that is just to make sure that we are really focused on not just adding clients to add clients but really making sure to Matt's point that we're bringing in really healthy clients and sort of what he highlighted earlier, that new client LTV is something that we really keep an eye on. And this last quarter, it was up almost 17% year-over-year.

And that's really just a very clear indication that the marketing efforts are working and we're bringing in clients that truly engage with the service and see value in the service. And we'll continue with that methodical approach and where we do find opportunity like we're very comfortable leaning in.

Next question comes from the line of David Bellinger with Mizuho.

I want to ask about the consumer facing AI and visualization tools. PAUSE Any read on the early adoption there? Any numbers you could share with us? Or in what ways are consumers using and engaging these tools early on?

Yes. Great question. And we're really excited about this truly innovative feature that we've created a Stitch Fix Vision, where clients can upload a couple of pictures in the sell generative AI image visualization of themselves of their likeness dressed head to toe in Stitch Fix apparel. That experience is completely shoppable and fully shareable across all social media platforms.

And we're seeing engagement from our clients that far exceeded our expectations when we rolled out the beta just a couple of months ago. And we're seeing clients use it in many different ways. We're seeing clients that are using their Stitch Fix vision images and sharing it back with their stylists to help inform what they're looking for in their next fix. We're seeing clients purchase directly from the Tic VIX vision image itself.

And we're also seeing a lot of what we call Citrix vision in the wild, where clients are actually sharing it across their social platforms, they're sharing it with friends and family. PAUSE -- and it's creating a bit of a virality and organic growth for us from a client acquisition standpoint as well. So we're really encouraged by the early adoption that we're seeing across the board, and we're even more excited about how we'll lean into it into the future with additional applications.

If I can just get 1 other 1 in. So a question on the gross margin performance for David. I know it was down 180 basis points versus last year, still within your full year range or so. But could you just help us bridge that decline? And anything we should expect for the Q2 period?

Yes, David, I can give you more color on that. I think we might have highlighted this a little bit on the last earnings call, but the decline from a year-over-year perspective is 3 factors: First is transportation expenses. Our transportation team have done a great job over the last 3 or 4 years of really driving leverage in our transportation costs through carrier diversification, negotiations, even last mile carriers. And in FY '25, it was probably the lowest percent of revenue we've seen in a very, very long time.

And this year, it's more around those general rate increases that you're seeing. USPS is a big part of that and seeing those general rate increases. And so that's part of the gross margin decline. And then the second part is really investing in different categories from a merchandising perspective, which we really consider a great investment and a great ROI, really leaning into some of those categories that we feel like we have market share opportunity like footwear is a great example where they just have lower margins. But we're able to outfit a client entirely. And I think that will really drive a higher LTV from a full client perspective. And so we're really happy with that investment as well. And then the third and honestly, the smallest of the 3 is tariffs. There was a small impact to tariffs. But again, our teams have done a very good job negotiating and really minimizing that impact from tariffs. So I'd say that was probably the smallest of the 3.

And the other thing I'd highlight is it's another reason why we've been calling out contribution margins over the past few quarters is we've done a lot of work in making sure that we're driving efficiency within our warehouse and stylist teams. And because of that, having contribution margins that are still well over 30%, they were 32.5% this last quarter. we feel really confident that we can continue to drive leverage in the business. And for Q2, I would expect margins to be in a similar place than they were this quarter, pretty much right in the middle of where our guidance -- our full year guidance range is.

Next question comes from the line of Jay Sole with UBS.

I have a couple of questions. Matt, can you just first of all, break down just for us, the opportunity with different brands because you mentioned you're bringing in some great brands, you're having success -- is it -- what is it that's attracting brands? Or is it really you just going on reaching for more brands now that you can sell them? Just explain to us how the quality of the third-party brand profile is improving. Could you talk about how the the private label is improving.

And then just on net revenue per active client, I think it was up 5% year-over-year. I think that's the seventh quarter in a row you've had growth. Can you just kind of break down the drivers of it?

And then just on active clients, you did touch on this. I think it was down 5%, but it continues to improve. I guess, what are the drivers there? Can you just give us any color on some of the demographics and some of the newer customers that you bring in, what the demographics of those newer customers are

Yes, absolutely. Happy to answer that. I'll start with the brand question. David, if you want to start with RPAC and then active clients, and I'll add some additional insight probably after that as well. The Stitch Fix service is an incredibly attractive value proposition for third-party brands to work with. We create a phenomenal experience for our clients, and in turn, that creates a really positive experience for the brands themselves as a closed ecosystem, brands that work with us, they don't have to worry about seeing their product fully visible to the entire market and all consumers. They don't have to worry about the adjacency of seeing their product hanging on racks or on digital shelves next to products of inferior quality.

Everything that we do is personalized to the individual. So when their product shows up either on our site or delivered to their home in a Fix, it's with other brands that they'd be proud to see from an adjacency standpoint and we treat the brands with respect throughout the process. We also do a phenomenal job in terms of -- based on everything that we know about our clients to ensure that we're getting price, style and budget right. So when we deliver product to a client -- it's a product that they're going to have a high level of resonance with. It's a product that they're going to be excited to get and that they're going to keep at a really high rate.

And that experience that we provide for brands becomes really attractive and is part of the reason why they're so eager to work with us. And then when they do, why they have such an exceptional experience as a partner of ours. It's also why so many coveted brands. We are the largest or one of the largest retail partners that they have and also why some of the brands, we are their exclusive retail partner other than their direct-to-consumer platform.

As we continue to expand that brand portfolio, our clients are absolutely recognizing it and it's part of the reason that they continue to engage more and it's part of what's continued to drive up our average order values as well as our overall client LTVs. So it's just a really great experience we provide and a really good partnership that we offer each of them.

And then, Jay, on the RPC side, really definitely encouraged with what we're seeing there. It was up 5% year-over-year this last quarter, and I think we highlighted that it was the seventh quarter in a row that we improved from a year-over-year perspective. A big part of that is what we are calling out with those new client LTVs that when you see that, it's really a big part of what you're seeing because as those new clients become a larger share of the base, that's really starting to impact RPAC.

And I think the other thing that highlights that really well is average order value is average order value was up almost 10% year-over-year, and it was the ninth consecutive quarter that it's been up. So definitely something that is driving a lot of strength. And within average order value, there are probably 2 things I'd call out. One of those is just a higher average number of items sent in fixes where that larger fixed offering is really resonating with our clients, and we're seeing a lot of adoption there.

And then we're also seeing some upside in AUR as well. That was up 3% year-over-year. And that was really more about that mix shift into some of these newer categories that we've been leaning into. And so definitely seeing encouraging signs across all of those metrics that are coming through in that revenue per active clients.

On the active client side, we were really encouraged with what we saw this last quarter. We ended at the high end of our expectations, really just slightly down for the quarter. And what we are seeing, I think, Matt highlighted a little bit of this earlier, but really across all 3 of the views of active clients, where new client acquisition was up year-over-year, and we continue to see strength there. Reengaged clients is an area where we've really seen some great strength. Reengage clients were up 8% year-over-year this last quarter.

And so definitely an area that we're leaning into and really bringing some of those clients back into a really new experience and experience with a very different level of assortment. And so seeing strength there. And then dormancy, our client retention continues to get better. And so just playing forward those 3 lines is really how we have the confidence in being able to continue to say that in Q3, we expect a quarter-over-quarter inflection. And there is definitely seasonality to our active clients. There's also seasonality to our marketing spend as well.

And so in Q2, it tends to be a seasonally slower quarter for us from a client acquisition perspective. And so we'll probably expect active clients to be slightly down from a quarter-over-quarter perspective. But then still very confident that in Q3, we expect a quarter-over-quarter increase.

A couple of other points that I think are relevant. I'll call out here that impact both -- relevant for both RPAC and active clients overall. First, we're just incredibly encouraged that we are seeing strength across all income segments from our client base additional confidence in terms of that increased guide within both Q2 and our full year as the service that we offer is one that serves well clients no matter what the macroeconomic environment is. because of the deep and enduring relationship that clients have with their stylists and the ability for us to tailor each of those experiences to their budget at any given time.

And then the second is that the growth that we have, that's being driven by both increased client engagement as well as increased unit sales. It's not being driven by inflation. So the growth that we're delivering is that healthy growth that's going to lead to sustainable and profitable overall enterprise growth.

[Operator Instructions] There are no further questions at this time. I would like to turn the call back over to our CEO, Matt Baer. Thanks. PAUSE

To close, I'd like to recognize the entire Stitch Fix team for their exceptional execution this quarter. I'm proud of how we're increasingly establishing Stitch Fix as our clients' retailer of choice for more of their apparel and accessories needs and that's evidenced by the revenue growth in the quarter and the considerable market share gains we captured, which we discussed. Our results this quarter, they are a testament to the superior retail experience we provide. We believe we offer a higher level of convenience personalization, service, inspiration and innovation than anyone else in the market.

I appreciate your interest in our business. and we believe the continued execution of our strategy will further fuel the momentum we have in our business and drive long-term sustainable profitable growth, and I look forward to sharing...

Thank you for standing by, and welcome to the Stitch Fix Fourth Quarter Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's program is being recorded.

And now I'd like to introduce your host for today's program, Cherryl Valenzuela, Head of Investor Relations. Please go ahead.

Good afternoon, and thank you for joining us today for the Stitch Fix Fourth Quarter and Full Fiscal Year 2025 Earnings Call. With me on the call are Matt Baer, Chief Executive Officer; and David Aufderhaar, Chief Financial Officer.

We have posted complete fourth quarter and full fiscal year 2025 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 our annual report on Form 10-K for fiscal 2025, which we expect to file 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.

Please note that fiscal 2024 was a 53-week year due to an extra week in the fourth quarter. As such, the adjusted revenue growth rates we referenced on this call remove the impact of that extra week to provide a comparison that we believe more accurately reflect our performance.

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.

And now let me turn the call over to Matt.

Thank you, Cherryl, and good afternoon, everyone. Over the last 2 years, we've been relentlessly executing our transformation strategy to deliver the most client-centric and personalized shopping experience. I'm incredibly proud of the significant progress we've made. We've fundamentally reshaped how we operate by strengthening the foundation of our business and embedding retail best practices. We've also made significant strides in reimagining our client experience.

Our transformation is driving tangible results. We closed out fiscal '25 with a strong Q4, delivering 4.4% adjusted revenue growth. Revenue of $311.2 million exceeded our guidance and marked our second consecutive quarter of revenue growth. We once again gained market share in the U.S. apparel market this quarter according to Circana data. Adjusted EBITDA was $8.7 million or 2.8% of revenue. which also came in ahead of guidance.

Our strong top line performance was the direct result of the improvements we've made to our client experience and assortment. Fix average order value grew 12% year-over-year, our eighth consecutive quarter of AOV growth. AOV growth was driven by higher items per Fix due to greater penetration of our larger fixed offering. AOV growth was also driven by fixed AUR that was up 7.6% year-over-year, as we continue to benefit from the newness and trend-right styles we brought to our merchandise assortment.

Both our women's and men's lines of business accelerated revenue growth in Q4. Expansion into non-apparel categories and a greater infusion of established brands were the primary drivers. I'm especially proud of the continued strength of our men's business that delivered double-digit revenue growth in Q4 and a positive full year performance.

Our core Fix channel continues to perform with Q4 revenue growth that outpaced our total growth. This is due in part to the encouraging initial results we're seeing from our new feature that allows clients to build a Fix around a freestyle item. This is a strategic move that blends the best of both channels to create a more seamless experience for our clients.

As a result of the changes to our client experience and our thoughtful client acquisition strategy, we are encouraged by the trends we're seeing with new client acquisition, engagement of former clients and retention of our current clients. These shifts have led to improvements in year-over-year active client growth rates for 5 consecutive quarters.

Bringing in the right clients to our service remains a key priority, and this is an area where we continue to see strength with 90-day new client LTVs at 3-year highs. Our recurring Fix shipments enrollment also remains up year-over-year, reflecting the resonance of our client experience improvements.

FY '25 was a milestone year for Stitch Fix, where our consistent execution set us on a path to sustainable, profitable growth. In the last fiscal year, we achieved our highest contribution margin in the last decade. We expanded our adjusted EBITDA margin by 170 basis points and we completed another year with positive free cash flow and no debt.

Now firmly in the growth phase of our transformation will continue in fiscal year '26 and to enhance our client experience, including through investments in generative AI and remain focused on 4 areas: creating more dynamic ways for our clients to engage with us, deepening our client stylist relationships, introducing increased Fix flexibility and strengthening our assortment.

In line with these priorities, we recently began to roll out a new suite of innovations. These enhancements will further our efforts to deliver industry-leading personalization and convenience. First, we are leveraging generative AI to offer even greater personalization as well as new engagement opportunities. As a result of our services continuous feedback loop, we have billions of insights on our clients fit and style preferences. And we are using these insights coupled with the latest in GenAI technology to serve them in ways only we can.

Our clients have shared with us that one of their biggest challenges is expressing what they want to their stylists. To address this, we recently began to roll out an AI style assistant which chats with clients while they develop their Fix request note. Using GenAI imagery as well as leading questions to help them articulate what they are looking for. Through the feedback we secure from the AI style assistant as well as our sophisticated algorithms and the expertise of our human stylists, we are now able to be much more precise with meeting each client's individual needs.

In addition to launching our AI style assistant, we are also beginning to roll out a style visualization feature called [ Vision ] that provides clients with personalized GenAI imagery of their likeness in a variety of shoppable outfit recommendations incorporating the latest styles and trends.

Second, we're further deepening client stylist relationships. I often think back to the golden age of retail when sales associates knew their customers by name, remember their preferences and could anticipate their needs. Those personal relationships have all but disappeared from shopping today. However, at Stitch Fix, they are alive and well. Our stylists serve as trusted partners to our clients.

And now we're creating opportunities for clients and stylists to collaborate like never before through a new platform called Stylist Connect. Through the beta rollout of Stylist Connect to let clients can communicate with their stylists whenever they need assistance, whether to ask a question about Fix, get tips on the latest trends or work together on their next Fix. Client feedback on this feature has been incredibly positive, and we are also seeing higher order values from clients who have been part of the early rollout.

Third, we're giving clients even more flexibility. One of the main reasons clients come to us is for the convenience and time savings we offer. We recently launched Family Accounts, which enable clients to shop for their partner or anyone else in their household all from 1 account. This helps families save hundreds of hours a year. Family Accounts join other ways we've embedded flexibility into the experience, including larger Fixes, themed Fixes and the ability for clients to build a Fix around a freestyle item.

Lastly, we're further strengthening our assortment by leveraging GenAI in our private brand design process and adding new styles and brands. By integrating GenAI and private brand development, we are responding to trend signals more quickly and accelerating how we bring relevant styles to the market. We are uniquely positioned to do this because of the depth and quality of our data from the continuous direct and indirect feedback our clients provide.

While we are enhancing our private brand development process, we're also expanding our portfolio of emerging and established brands. Since the start of FY '25, we've added more than 50 new brands, including Varley, Favorite Daughter, Alex Mill, [ Grown Women ], Pendleton, Madewell Men, Birkenstock, Gola, Abercrombie Kids and my kid's favorite, GOAT USA, with additional brands launching in the coming months.

Building off the momentum of FY '25, we are operating from a position of strength, and our FY '26 guidance anticipates a return to full year revenue growth. We also expect active client year-over-year growth rates to continue to improve through the year, including a quarter-over-quarter increase in net adds. We will accomplish this while staying disciplined with our growth investments as we navigate an increasingly dynamic and complex environment.

2 years ago, when I stepped into the CEO role, I recognize that Stitch Fix offered a powerful and differentiated alternative to traditional retail whose potential had yet to be fully realized. I'm incredibly proud of the work the Stitch Fix team has done since then to further unlock that potential. At Stitch Fix, we know that the best retail experience is one that serves clients at a truly individual level, one where you know your clients so well that you don't just meet, but anticipate and ultimately exceed their needs and expectations.

That's the level of service we aspire to provide every day harnessing the power of AI, almost 15 years of proprietary data are algorithms that get smarter with every interaction our assortment of leading brands and the human connection of our stylists who know each of their clients personally. With this competitive edge, we're well positioned to be the retailer of choice for apparel and accessories and to continue to grow faster than the overall U.S. apparel market.

In closing, I want to thank our team for their incredible work and our clients, partners and long-term shareholders for their support. And with that, I'll turn it over to David for our financial results and outlook.

Thanks, Matt, and good afternoon, everyone. Our financial results in the fourth quarter and for the full year are a direct reflection of the strategic plan Matt outlined. We made disciplined choices to operate more efficiently, and that rigor enabled us to return to revenue growth earlier than expected, while driving significant leverage in our business.

AOV growth was a highlight in FY '25. This was a main factor in our return to growth, but was only one of many clear signals of a healthier business overall. We're seeing encouraging trends in many areas, including more consistently bringing in highly engaged clients, retaining those clients for longer and selling them more items. This progress confirms that our strategic focus on the fundamentals from improving our inventory to enhancing the client experience, is the right path to drive sustainable, profitable growth. At the same time, we continue to deliver strong improvements to our cost structure. Over the last 3 years, we have removed a total of almost $500 million in SG&A spend, going from 53.1% of sales to 47.5%.

Rationalizing our cost structure has become ingrained in our company culture. We achieved these operational efficiencies through a combination of large strategic initiatives and everyday expense management. We optimized our warehouse network and stylist workforce. We restructured our corporate head count to eliminate redundancies and flatten our organizational hierarchies. We focused our marketing spend on the most effective channels for growth and we reduced the remainder of our Fix cost structure. In FY '26, we will continue to identify additional savings opportunities that will allow us to reinvest in growth.

Now let's turn to the numbers. FY '25 net revenue was $1.27 billion. On an adjusted basis, this was down 3.7% year-over-year, with revenue for the second half of the year, growing 2.5%. We drove further leverage in our business in FY '25. Gross margin was 44.4%, up 10 basis points year-over-year and our highest annual gross margin since FY '21. The increase was primarily driven by transportation leverage due to improvements in carrier mix and rate negotiations with key carriers.

We also captured additional efficiencies across our operations and styling teams. This resulted in our highest full year contribution margin in the last decade. We reduced our overall SG&A spend by $124 million in FY '25. The decrease was primarily driven by lower compensation and benefits expense, including lower stock-based compensation expense and lower facilities costs. These actions allowed us to deliver adjusted EBITDA for the year of $49.1 million or 3.9% margin, up 170 basis points compared to FY '24. We generated $9.3 million of free cash flow in FY '25 and ended the year with $242.7 million in cash, cash equivalents and investments and no debt.

Turning to our Q4 results. Q4 net revenue was $311.2 million. Revenue was up 4.4% year-over-year on an adjusted basis and down 4.2% quarter-over-quarter. As Matt mentioned, growth was largely driven by strength in AOV due to the increased penetration of our larger Fix offerings and our focus on trend and style right assortment.

We ended Q4 with active clients of $2.3 million, down 7.9% year-over-year and down 1.9% quarter-over-quarter. As expected, sequential active client net losses increased this quarter due to seasonality, though the year-over-year comp improved for the fifth consecutive quarter.

Revenue per active client was up 3% year-over-year to $549. This was the sixth quarter in a row, we have seen a year-over-year increase in RPAC, demonstrating that the clients we are acquiring and retaining are highly engaged.

Gross margin for the quarter came in at 43.6%, down 100 basis points year-over-year and down 60 basis points quarter-over-quarter. The year-over-year change was driven primarily by higher transportation costs due to general rate increases from carriers such as USPS. Gross margin was also impacted by a mix shift towards non-apparel categories.

Advertising came in at 9.5% of revenue in Q4, up 50 basis points year-over-year but down 70 basis points quarter-over-quarter as part of our broader reinvestment in revenue and active client growth. We'll remain thoughtful and disciplined in how we invest in this area.

We ended Q4 with net inventory of $118.4 million, up 20.9% year-over-year and up 3.5% quarter-over-quarter as we expanded merchandise to support larger Fixes. Q4 adjusted EBITDA was $8.7 million or 2.8% margin, down 20 basis points year-over-year and down 60 basis points quarter-over-quarter. It exceeded our guidance largely due to flow-through from our stronger-than-expected top line performance.

Turning to our outlook for Q1 and FY '26. For full year FY '26, we expect total revenue to be between $1.28 billion and $1.33 billion. We expect total adjusted EBITDA for the year to be between $30 million and $45 million, and we expect to be free cash flow positive for the full year. And for Q1, we expect total revenue to be between $333 million and $338 million. We expect Q1 adjusted EBITDA to be between $8 million and $11 million.

I'd like to offer a few additional thoughts on our guidance. First, with respect to revenue, we are projecting full year revenue growth for the first time since FY '21 and in a macro environment that is pointing to a more challenging environment as we enter the holiday season. For active clients, we believe our methodical approach to rebuilding our client base is working. We expect to deliver a quarter-over-quarter increase in net adds in Q3 FY '26.

We are projecting FY '26 gross margin to be between 43% and 44%. This reflects higher transportation costs and ongoing strategic investments in our client experience and assortment. Our teams have done an excellent job managing the impacts of tariffs by negotiating with suppliers and diversifying our sourcing, resulting in only a small impact to gross margins attributable directly to tariffs.

We expect full year advertising cost to be between 9% and 10% of revenue as we continue to be opportunistic in this area, given the success we've had in acquiring healthier clients with higher LTVs. And finally, we plan to further shift more of our compensation mix from equity to cash. This will have an impact on adjusted EBITDA with a positive trade-off on net income.

In closing, we are encouraged by the momentum in our business. While cognizant of the difficulties in the current macro environment, how we plan and execute is in our hands, and that is where our focus continues to be. We're operating at scale with a strong financial foundation and a uniquely agile business model anchored by a debt-free balance sheet, proprietary data science and AI and the ability to quickly adapt our marketing, merchandising and pricing levers. These give us the confidence to not only navigate the current environment but to see strategic opportunities and accelerate our path to long-term profitable and sustainable growth.

With that, operator, we can open the line for Q&A.

Certainly. And our first question for today comes from the line of Dana Telsey from Telsey Advisory Group.

And nice to see the progress, Matt. As you think about the changes in the business, particularly on the top line and the additional brands that you've added lately, where are you seeing the most growth from? And how are tariffs impacting the AOV? And then I have another question after that for a follow-up.

Dana, I appreciate the question and the recognition for the continued growth. And I think to answer your question in 2 parts, the first in terms of what we're seeing from our assortment and then the second, the impact that we're seeing from tariffs, particularly any impact for AOV. As we noted in the prepared remarks, both our women's and our men's business accelerated their year-over-year revenue growth on an adjusted basis in the fourth quarter. And that was driven by expansion into non-apparel categories as well as the greater infusion of established brands we've added to our assortment.

If you drill down into our women's business, we saw increased demand for footwear and that grew over 35%. We also saw significantly improved demand for denim especially wide leg denim. We also saw improved demand for skirts that would include miniskirts, maxi skirts and fleeted skirt styles. And we also continue to see strength in our athleisure business.

If you drill down into our men's business, first, just to point out again that we had double-digit growth in Q4 within our men's business and a full year of positive revenue comp in fiscal '25 for our men's business. In the quarter, and similar to our women's business, we saw a very high demand for footwear and athleisure. And we also saw a strong performance from national brands like Travis Matthew, Adidas, Marine Layer and Tommy Bahama, just to name a few.

I'll speak to the tariff piece a little bit and let David add any additional context. In the fourth quarter, none of the improvement in AUR, the 7.6% year-over-year growth or the growth in AOV of 12%, which was our eighth consecutive quarter of growth is attributable to tariffs. That's in large part due to the great work that our tariff task force did in order to mitigate any potential impacts in the fourth quarter of fiscal '25.

Got it. And then the -- go on.

No, go ahead.

And then on the uptick in the sales, where do you see you're taking the share from? And given the volatile outlook for holiday, how do you think about planning for holiday or its timing, whether it is what you're seeing from your customers? How do you see that?

Yes. I appreciate the question again. We're very proud of the fact that we continue to gain market share. and that coincides with our growth in the fourth quarter, growing 4.4% on an adjusted basis, considerably outperformed the overall market, something that we are very proud of. And to me, that indicates the fact just that our superior service is very clearly resonating with our clients. I'm very proud of the trends we're seeing in our active client growth rates the fact that those have improved for 5 consecutive quarters. I'm also really proud of the fact that for the new clients that we brought in, we see 90-day LTVs continue to be at 3-year highs.

With regards to who we are taking market share from, at Stitch Fix, we're very much focused on delivering the most client-centric and personalized shopping experience. And in doing so, we're picking up share from all of the retailers that are letting consumers down. It's our superior service that is enabling us to take share from a wide variety of retailers who don't and actually cannot deliver on the personalization consumers want and expect and that is core to our business.

In terms of what we're doing for holiday, we talked about this last year, we really leaned into holiday more meaningfully than we ever had before, and we plan to build on that success in our holiday this year. I believe we're better positioned this year compared to last, given the changes we've made to our experience. A few of those of note is the continued flexibility we brought into our experience. That's what themed fixes, larger fixes, the ability to build a Fix around the freestyle item, and one that I'm particularly excited about is the introduction of family accounts. One of the critical components of family accounts is that really unlocks gifting opportunities for us.

We've also, as I noted before, continue to improve our assortment across private brands, emerging brands and well-known brands. so that we can ensure that we have the right assortment to drive promotions at healthy margins as well as ensure that we have the right assortment to serve our clients for all of the occasions that they might attend over the holiday time period. And also the new features like Vision and Stylist Connect that I mentioned, those will continue to provide clients with new ways to engage with us throughout the holiday season.

We've also talked at times about the investments we've made into our promotional and CRM capabilities. Those will also help us remain competitive during this time. And ultimately, it comes down to the differentiation of our business model that just continues to give us a competitive edge and we're confident that we will continue to gain market share throughout the holiday time period.

And then, Dana, just to add one additional point to Matt's point, especially around active clients and how that might be part of the underlying growth from a revenue perspective. to his point, we're really encouraged by the continued improvement that we're seeing from a year-over-year comp standpoint. And when you play that trajectory forward for the client cohorts that we talked about, the new client adds, reengaging clients that have gone dormant and retaining our existing clients, there is that natural inflection point in clients. And that's one of the reasons why I called out earlier in our remarks that we see a quarter-over-quarter inflection in active clients in Q3.

One of the other things we're seeing, I tend to give color on the most recent quarter. For Q1, we expect quarter-over-quarter active clients to be roughly sort of flat quarter-over-quarter to down approximately 0.5%. And so definitely just really encouraged with those trends. And again, this is part of that methodical approach that has worked really well for us of just focusing on deepening relationships with our clients and bringing in clients where this service really resonates with. And that's -- you also see that in some of the metrics where it's the eighth quarter in a row that we saw year-over-year growth in new client LTVs. And so just really encouraged with what we're seeing there as well, and that's one of the things we'll continue to focus on.

[Operator Instructions] Our next question comes from the line of Sole Jay from UBS. Sole, you might have your phone on mute. We're still not hearing you. [Operator Instructions]

And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to Matt Baer, CEO, for any further remarks.

Appreciate that. To close, I'll just reiterate how proud I am of the results the team delivered this year and how confident I am in the future of Stitch Fix. The momentum that we have, it proves that we have the right strategy, it proves that we have the right team and it proves our ability to execute at the highest level. It's my fundamental belief that you gained market share by playing offense.

At Stitch Fix, we continue to innovate. We continue to strive to exceed our clients' expectations, and we continue to face external headwinds head on. We know our clients intimately, and we serve them individually. We build enduring relationships, which give us a competitive advantage relative to the transactional relationship consumers have with other retailers.

Our differentiated business model of expert stylist paired with our proprietary data and algorithms as well as our leading assortment and generative AI innovations position Stitch Fix to uniquely serve clients. In doing so, I believe that we'll continue to take share from those that struggle to deliver the level of personalization and convenience consumers desperately want and deserve.

Everything we do at Stitch Fix is in service of the client and to deliver sustainable, profitable growth. We are judicious, methodical and unrelenting in that pursuit. We remain focused and committed to accelerating growth and becoming the retailer of choice for apparel and accessories.

I believe this is an exciting time to be in retail. I also believe it's an even more exciting time to be at Stitch Fix, where we are writing the future of what retail will look like. We are operating from a position of strength and a solid financial foundation. I'm more confident than ever in our future. Appreciate your interest in our business, and I look forward to sharing our continued progress.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Good day, and thank you for standing by. Welcome to the Q3 FY '25 Stitch Fix Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]

I would now like to conference over to your speaker today, Cherryl Valenzuela, Head of Investor Relations.

Thank you for joining us today for the Stitch Fix Third Quarter Fiscal 2025 Earnings Call. With me on the call are Matt Baer, Chief Executive Officer; and David Aufderhaar, Chief Financial Officer.

We have posted third quarter 2025 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.

On today's call, Matt and David will share their prepared remarks. We will then move to Q&A before concluding with Matt's closing remarks.

Before we begin, 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. For a discussion of the factors that could cause our results to differ, please review our press release issued and filed today as well as the Risk Factors sections of our most recent quarterly report on Form 10-Q and subsequent periodic reports filed with the SEC.

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 begin to report our U.K. business as a discontinued operation. Accordingly, all metrics discussed on today's call represents 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 Matt.

Thank you, Cherryl, and good afternoon, everyone. I'm proud to share the strong results we've achieved this quarter, highlighted by a return to year-over-year revenue growth. Q3 revenue was $325 million, and adjusted EBITDA was $11 million. In the quarter, our Women's business and overall Fix channel returned to revenue growth. For the second consecutive quarter, our Men's business and Freestyle channel revenue grew. In addition, AOV grew 10% with items per Fix, keep rate and AUR, all up year-over-year for the second straight quarter. Based on this strong performance and our ongoing momentum, we are increasing our annual guidance for the current year, which David will detail shortly.

These results reflect the strength of Stitch Fix's value proposition and the disciplined execution of our 3-phased transformation strategy. Over the last 2 years, we have worked through the first 2 phases of our strategy, rationalize and build, and fundamentally reshaped how we operate. We've strengthened the foundation of our business, incorporating retail best practices in strategic areas such as pricing, warehouse optimization and inventory management that enable us to operate more efficiently.

We've also brought to life a more modern and dynamic Stitch Fix through our refreshed brand identity and the progress we have made reimagining our client experience. The improvements to our client experience includes 4 areas of focus: enhancing client engagement features, deepening client-stylists relationships, introducing increased flexibility to our service and offering a stronger assortment with more fresh and new styles. The latter 2, in particular, contributed to our strong results in the quarter.

First, our clients are responding positively to the increased flexibility we provide. Larger fixes, which offer up to 8 items, have helped our existing clients better refresh their closets seasonally, explore current trends and update their wardrobes for big and small life moments. Larger fixes have directly contributed to our AOV growth.

We are now testing larger fixes with first-time clients to help us more quickly understand their preferences and serve them better from the start. We're also testing theme fixes, which provide clients with selections curated for specific occasions or trends from summer vacations to workwear refreshes.

Additionally, we're rolling out a new feature that allows clients to start to a Fix around an item they discover on Freestyle. This enables clients to take advantage of the discovery on Freestyle, but still leverage our team of expert stylists to complete a look around their chosen item.

Second, in merchandising, we have strengthened our assortment by offering increased variety in on-trend styles, which are contributing to higher Fix AOVs as well as driving growth in our Freestyle channel. This quarter, athleisure was a notable highlight for our Women's and Men's clients alike, up over 30% year-over-year. In addition, our Women's business saw strength in wide leg denim and spring transitional sweaters, whereas our Men's business saw demand for fleece and knit tops.

We have also further expanded our assortment within adjacent categories such as footwear, accessories and jewelry, and we are offering more complete outfitting solutions that are resonating with our clients. As an example, we continue to see increased demand for footwear across all lines of business with sneakers up 35% year-over-year.

These efforts to improve the client experience coupled with our retail therapy brand platform, which demonstrates how Stitch Fix is the solution to the frustrations of traditional apparel shopping are leading to stronger client metrics.

In terms of overall active clients, Q3 marked our lowest quarter of sequential declines in 3 years, and the number of active clients on recurring shipments has grown for 3 straight quarters. With regards to new clients, we've achieved 2 straight quarters of year-over-year new client growth. We continue to see new clients spend more as evidenced by 90-day LTVs, which are among the highest in 3 years. This demonstrates that we are successfully acquiring higher-value clients for whom our service resonates.

As we move from the build phase into the growth phase of our transformation, we're focused on cementing ourselves as the retailer of choice for apparel and accessories by delivering the most client-centric and personalized shopping experience. We believe we are well positioned to do this because of the unique value our service provides. We pride ourselves on sending every client a Fix as unique as they are.

We do this by leveraging our team of expert stylists as well as our best-in-class AI and recommendation algorithms built from the billions of insights we've gathered on style and fit. This differentiation is key to us gaining market share and based on year-to-date insights from Circana, we are growing faster than the overall apparel market.

We are successfully transforming our business in fundamental ways. At the same time, we are navigating significant external challenges, a dynamic macroeconomic environment, a shifting tariff landscape and ongoing pressure on consumers' discretionary spending. Against this backdrop, we remain focused on what we can control, and we have strong conviction in our path forward.

Our team is actively working to mitigate tariff-related risks and prepare for broader macro shifts. As we look further ahead, we believe the current tariff structure could have a greater impact on FY '26, which for us begins in August. However, consistent with our view last quarter, we don't expect any significant cost impact from tariffs for the remainder of our fourth quarter.

In closing, we're proud of our accelerated return to revenue growth. We believe our results demonstrate that we have the right strategy, the right team and the right operational rigor to continue gaining share. By staying relentlessly focused on our clients, investing where it matters and executing with discipline, we believe we will not only successfully navigate this uncertain environment, we will emerge as an even stronger company.

Thank you to the entire Stitch Fix team for your dedication to our clients and our mission, which is driving our business forward. I'd also like to thank our clients, partners and long-term shareholders for their support.

And with that, I'll turn it over to David.

Thanks, Matt, and good afternoon, everyone. As Matt mentioned, we are proud of our return to revenue growth in Q3. This success came as a direct result of focused delivery across all of our teams. We have made deliberate choices about how to operate with more agility, drive greater leverage in our cost base and invest in targeted areas to drive growth. At the same time, we recognize the macroeconomic backdrop remains uncertain, and we are preparing accordingly.

While we haven't seen a pullback in active client spend within our financial results in fiscal '25 to date, we are closely monitoring broader market trends and the impact tariffs may have in the quarters ahead. We are actively scenario planning and maintaining the same disciplined approach that has guided our recent performance. We are confident in the foundation we have built and remain focused on prudently managing our business through this uncertain environment.

Now let's turn to the numbers. Q3 net revenue reached $325 million, up 0.7% year-over-year and 4.1% quarter-over-quarter. Growth was largely driven by strength in AOV due to the increased penetration of our larger Fix offerings and our focus on trend and style right assortment.

Net active clients ended the quarter at 2.4 million clients, down 10.6% year-over-year and down 0.8% quarter-over-quarter as we continue to narrow losses in active clients.

Revenue per active client for the quarter was $542, up 3.2% year-over-year and up 1% quarter-over-quarter. Gross margin for the quarter came in at 44.2%, down 130 basis points year-over-year and down 30 basis points quarter-over-quarter. The year-over-year change was driven primarily by lower product margins as we invest in our client experience through our assortment strategy.

Advertising came in at 10.2% of revenue in Q3, up 130 basis points year-over-year and up 240 basis points quarter-over-quarter as part of our broader reinvestment in growth. We ended Q3 with net inventory of $114.4 million, flat year-over-year and up 4.4% quarter-over-quarter. Our inventory turns were up both year-over-year and sequentially, reflecting both higher demand and better inventory management.

Q3 adjusted EBITDA was $11 million or approximately 3.4% margin, up 130 basis points year-over-year and down 170 basis points quarter-over-quarter. We generated $16 million of free cash flow in Q3 and ended the quarter with $242 million in cash, cash equivalents and investments and no debt.

Turning to our outlook for Q4 and FY '25. I'd like to offer a few thoughts to frame our updated guidance. First, with respect to revenue, we exceeded expectations in Q3, and we are projecting a stronger Q4 than previously anticipated. Both of these are reflected in our increased full year revenue outlook. This means that excluding last year's 53rd week, we expect to see a second consecutive quarter of top line growth. Consistent with what we shared on our last earnings call, we still expect active clients to decline sequentially in Q4.

As for adjusted EBITDA, we are tightening our FY '25 guidance, which largely reflects strategic investments we're making in client acquisition and reengagement as well as strengthening our assortment. We believe these are thoughtful, long-term investments to support sustainable growth.

As a result, for full year FY '25, we now expect total revenue to be between $1.254 billion and $1.259 billion. We expect total adjusted EBITDA for the year to be between $43 million and $47 million. This guidance still assumes we'll be free cash flow positive for the full year. And for Q4, we expect total revenue to be between $298 million and $303 million. We expect Q4 adjusted EBITDA to be between $3 million and $7 million.

As a result of the factors I mentioned earlier, we expect Q4 gross margin to be at the lower end of our 44% to 45% range and full year FY '25 gross margin to be in the middle of that same range. We expect full year advertising to be at the high end of the 8% to 9% range we provided last quarter.

Looking further ahead, we are in the early stages of the planning process for FY '26. And as such, we'll provide actual guidance during our next earnings call.

As we move through the planning process, we're mindful that 3 overarching impacts may put pressure on our financial results. First, based on current tariff rates, we expect our cost to increase in FY '26. We are closely monitoring the situation and proactively working with our suppliers. Second, broader macro uncertainty and market conditions may put increased pressure on discretionary spending in FY '26. And third, as we called out last quarter, continued active client declines creates tougher year-over-year revenue growth comparisons. We will continue to monitor each of these as we progress through the planning process.

I want to reiterate that we'll manage the business with the goal of driving long-term profitable and sustainable growth that includes growth in both active clients and revenue per active client. While the macroeconomic environment is out of our control, how we plan and execute is in our hands, and that is where our focus continues to be.

We're operating at scale with a strong financial foundation and a uniquely agile business model, anchored by a debt-free balance sheet, proprietary data science and AI, and the ability to quickly adapt our marketing, merchandising and pricing levers. We believe these attributes put us in a position to navigate challenges and continue to deliver strong results.

With that, operator, we can open the line for Q&A.

[Operator Instructions] Our first question comes from Dana Telsey with Telsey Advisory Group.

Nice to see the progress. As you think about the current quarter that just ended with the Women's and Fix channel returning to growth along with Men's and Freestyle continuing to grow, what did you see in the core consumer? What did you see in terms of keep rates? And as you think about the go forward into the fourth quarter guidance that you just gave, have you seen any shifts in terms of consumer behavior and in product category acceptance?

And then just lastly, on the gross margin, where you described the fourth quarter gross margin at the lower end of the range, can you just go through the puts and takes? And also, what could tariff implications mean for you?

Dana, it's Matt. I'll speak a little bit about the performance from Q3 as well as the factors, the Q4 guide. I'll let David give some additional context and also speak to the gross margin question. And then I'll come back to lead an answer on your third question about tariffs. But we're really proud of the accelerated return to year-over-year growth that we just delivered this quarter, also confident in the Q4 guide that we gave that shows that we'll have a second consecutive quarter of growth. And it reflects the resonance of our core value proposition. It also represents the disciplined execution of our transformation strategy.

As we've shared previously, in August, we introduced a set of changes to our client experience and also a new brand identity for the business. And as we shared previously as well, since then, nearly every initiative that we've introduced as part of that reimagination, the client experience has performed well and exceeded expectations. So the performance for Q3 and the guide for Q4 are largely driven by similar factors.

Specifically, a primary driver of growth in Q3 was the continued strength in average order value. Average order value is up 10% year-over-year. That was the seventh consecutive quarter of average order value growth for us. And we also shared that we saw strength across both more items for Fix, keep rate and AUR.

The drivers of those metrics is the introduction of the greater flexibility in our Fix option as shared in the prepared remarks, particularly the larger fixes that now have up to 8 items in them. It's clearly resonating with our clients, and is helping to drive engagement with them and stronger business results.

Another factor is how we've continued to infuse newness into our assortment. We've also expanded more into non-apparel categories. These are paying off and leading to better keep rates and higher AUR, as you asked. We've also seen strength, as you noted, across almost all of our lines of business, the positive year-over-year revenue comps for Women's and Men's. And in addition to our Fix channel returning to growth, the Freestyle channel grew again for a second consecutive quarter.

And finally, I think it's really important to also take note that we've achieved a second consecutive quarter of year-over-year growth in new clients. And those new clients are spending more and opting into recurring shipments at a higher rate. And that speaks to the increasing client satisfaction and engagement. This is driven in large part by the retail therapy brand platform that we launched, and we've spoken about previously. We're doing a really good job at targeting clients, which our service will resonate best with. And by doing so, we're focusing on the quality of that client acquisition, not just the quantity of the new clients that we bring into the service.

And these aren't one-off wins. These improvements are deeply rooted in the fundamental reshaping of our operations, the strategic investments that we've made during the rationalize and build phases of our transformation. And we're carrying over that momentum, which we believe will endure as we transition into that growth phase of our transformation.

David, if you want to add additional color and anything on gross margin?

Yes. Just one more point on the quarters, like when we think about Q4, one of the other call-outs that I think we called out last time is there is just normal seasonality in active clients. So what Matt was calling out is really important that there's both sort of the active client side and the client engagement side. And so we expect, just from a seasonality standpoint, to have a slightly higher sequential loss in the quarter.

This quarter, we were down quarter-over-quarter about 1%. Roughly, we expect next quarter to be around down 2%, but still really confident in the continued growth from a revenue standpoint. And that's because of what Matt was alluding to, the AOV strength that we've seen this quarter is something that we're very confident in. And we actually see that strength continuing in May. And so that's definitely something that's encouraging that we're seeing.

From a gross margin perspective, definitely, gross margin, it was at 44.2% this quarter. It's a little bit down quarter-over-quarter. Really, margins are going to fluctuate quarter-over-quarter as we mix shift between market brands and private brands. Matt touched on leaning into newness in some of those non-apparel categories. Some of that mix shift might have an impact on gross margin. But I think it's also really important to call out contribution margin. That's one of the reasons we've been talking about that a lot the last couple of quarters is really driving leverage in our operations. Contribution margin was above 33% again this quarter. And that really gives us the flexibility to be able to do what's client right from an assortment standpoint, even if that has a little bit of a headwind on gross margin. And that's what's included in our guide for the quarter.

Yes. And Dana, on the third question, we're taking a proactive approach, and we're facing external headwinds head on. Our view is that you don't win market share by playing it safe. And we'll continue to closely track any changes in trade policy. We're going to adjust as needed in order to mitigate any risk to our business. And if current rates persist, it will create headwinds. But as noted, I'm confident that we're well prepared to navigate this and to even strengthen our market position through that process.

I believe this for a few reasons. The first is that our value proposition, it resonates even in a challenging macro environment. Clients come to Stitch Fix for the personalized styling, the convenience, the discovery of the items that they love, and it inherently offers additional value and protects our business from any pure price comparison shopping. Further, the strong and enduring relationships that a client and stylists have, really allows us to tailor the experience to each individual client and adjust to their budgets at any moment in time.

The second, and as we discussed on the last call, as a multi-brand retailer, we have a significant advantage in navigating any market and policy shifts. We can strategically adjust our brand matrix mix to minimize any impacts. And what's more, our strong private brand portfolio is robust and most of our vendors have production facilities across multiple countries, which allows them to pivot quickly, helping to limit any long-term effects.

Third, our rich data and advanced AI capabilities also help inform our merchandising strategy, helps us predict demand. It helps drive our buying decisions, and it also helps improve our private brand design process.

Finally, we believe that the work we've done in the first 2 phases of our transformation are really important assets for us. We've already driven significant internal operational efficiencies. And as David noted, with our contribution margin north of 30% for a fifth consecutive quarter, it gives us a lot of flexibility in terms of how we would deal with any macro pressures or external pressures.

So all of these factors, our core value proposition, our distinct business model and the work we've done in the first 2 phases of our transformation, that gives us confidence that we can emerge stronger and continue to gain market share.

Our next question comes from Aneesha Sherman with Bernstein.

Congrats, Matt and David. So Matt, I just -- my first question is a follow-up on your comments that you just made. You talked about the value proposition resonating in a tougher macro environment. Could the current macro be a potential share gain opportunity for you? And if so, what are you doing differently to communicate that value proposition to consumers and kind of take advantage of that opportunity in this current macro?

And then a follow-up on the tariff side. So you talked about a couple of different levers to mitigate the tariff impact. You talked about working with suppliers, some mix shifts and category national brands. Are you also considering pricing as a potential lever? And can you talk a little bit more about that if you are?

Aneesha, yes, happy to answer those questions and appreciate the recognition for the return to growth. In terms of our approach during a tough environment, we absolutely believe that this is an opportunity for us to gain share. The service that we offer is one that we can tailor to the exact needs of an individual at any time. The information that we have in terms of the budget implications for our clients allows us to shift in terms of how we're interacting with them, which items of clothing we're sending, how we're approaching different pricing messages as well with our clients.

And we also feel really strongly that the relationship that clients and stylists have gives us a leg up over any potential competition in terms of where clients are going to go when they need their apparel and accessories. As someone who styles clients like I do, I know just how strong those bonds can become. And I know that in times of need that I feel confident that clients are going to come to us for those needs based on our ability to be adaptive and responsive to them at any given moment.

What I also know that is really working well for us, it's how we've continued to adapt the messaging when we go out to market, both to speak -- both for new client acquisition as well as to speak to our current clients. And we've really made it clear to them the value that we offer in these environments. And during this time, we save our clients' time, we add convenience back into their daily lives and we can create value for them, both in our assortment and our service. So we are very confident that we can gain share in a more challenging macro environment.

The quick add-on from the question that you had in terms of tariffs, we don't anticipate taking any price increases during the balance of our fiscal year and feel really confident in the work that our team has done in order to mitigate any potential cost increases into the future and feel really strong about the resonance of our service, such that that's not an expectation for us going forward. And we'll continue to see where the macro environment plays out. And we'll continue to make sure that what we do is create value for our clients that also enables us to drive positive and strong business results.

Yes. And just to add one point to that, Aneesha. I mean, I think to Matt's point, under the current tariff conditions, yes, we would expect to see an increase in merchandising costs in FY '26. But as a multi-brand retailer, I think we're really well positioned to really work with our partners, both from a country of origin diversification as well as just ongoing negotiations to mitigate that as much as possible. And so that's the way that we're looking at it, and we'll provide more information next quarter as well.

Our next question comes from Dylan Carden with William Blair.

I'm just curious, you've spoken historically about kind of a lag effect in your business as you acquire customers, and they repeat over a period of time. I mean, the line of sight -- can you share anything as to the line of sight that you have at this point as you start to grow new customers as to when you might start growing total active customers?

Yes. Dylan, I appreciate the question. I'll answer and David, if you want to add any additional context to that. For us, as we've approached how we go out to market to acquire new clients, we're very much focused on quality over quantity. We're really focused on clients that are going to deliver a high lifetime value for us that help us ensure that the investments that we're making into acquisition have the highest possible return on investment. That's why we're really proud about the lifetime value that we're seeing in the first 90 days from new clients that we acquire and the strength that we continue to see in that being some of the highest metrics, the highest performance over the last years. And even though we have a focus on quality, we've still delivered new client growth over the last 2 quarters.

We've also continued to see strength in reengagement and had a lot of success reengaging clients that were previously customers of Stitch Fix, which continues to pay dividends for us. And we're also seeing strength in terms of our dormancy rate as well. So I feel really confident that in the future we will return to active client growth. Our focus right now is making sure that we have the best quality clients that we have, that we're maximizing wallet share with our current clients and that we're delivering the highest lifetime value with those clients. And you see that with the engagement metrics and the really strong performance. And I think it ultimately manifests in both the return to growth in our third quarter as well as our guide to continued growth in the fourth quarter.

And then, Dylan, just to add a couple of points. For FY '26, outside of macro impacts, we would still expect a quarter-over-quarter increase in active clients at some point in FY '26. And to Matt's point, that continues to be our focus. With that said, macro uncertainty and market conditions may create some headwinds, and we'll provide more of an update.

On the other part of your question around sort of the lagging part, we used to talk about this where revenue can sometimes lag client growth. And certainly, as we get to that inflection point, that's certainly going to be a tailwind where revenue in a client within maybe the first quarter that we have them isn't as high as that sort of recurring second shipment and third shipment. And so you tend to see more of that value over time.

What's been interesting over the last year, though, that I think we've been talking about more and more is both sides of the equation from a revenue standpoint is, yes, long-term sustainable growth is both about active client growth and revenue per active client. But what we've been seeing in the last few quarters has been really a lot of strength in that client engagement with AOV up significantly for the past 7 quarters. And so really getting to both of those things continues to be our focus.

[Operator Instructions] Our next question comes from David Bellinger with Mizuho.

Matt, David, I wanted to follow up on AOV. I think you mentioned up 10% in the quarter, something like 7 consecutive quarters of AOV growth. Could you just unpack that a little bit for us? Are we seeing broader increases across the business? Or is this a structural shift where you're seeing more units per Fix? Just trying to unpack this and can you talk to the sustainability of these AOV increases over the next several quarters or even into next year?

David, I appreciate the question. David, do you want to go ahead and I'll add any additional context?

Yes. David, a couple of call-outs. Certainly, in this quarter, a big part of the AOV increase is those larger fixes that we've talked about. Those are really resonating with our clients where we're adding the flexibility to offer them, not just 5 items in a Fix, but 6, 7 or 8 items. And that's really, really resonating with our clients. From Q1 to Q3, the penetration of our fixes that have larger fixes has more than doubled. And so that's been a big part of the AOV increases. And we do see that momentum continuing into May. And so we do believe that there is continued upside in gaining wallet share from our existing clients. It continues to be a focus both for our marketing teams, for our product teams, for our stylists to make sure that we're providing different touch points with every client to drive value, and that's really why we see that sort of increase from an AOV perspective.

The one call-out I would say on AOV is as we go into FY '26, certainly, this strength will create tougher comps in FY '26 and probably create tougher comps as we move through FY '26, just because of the strength that we've seen this year. Like if you think about this quarter, it's not just about the 10% increase this quarter. If you get like -- if you look at a 2-year stack of Q3, it's a 17% increase in AOV. And so definitely more upside that we're driving towards, but some tougher comps next year.

Yes. Got it. That's very helpful. And then I wanted to follow up too on the ad spend. So the increase as a percent of sales this quarter, I think on a year-over-year growth rate, the dollar basis was up double digits. You still got active customers down. So can you tell us, is it getting more expensive to keep your customer base? And what do you need? Should we see another step up in ad spend or different channel mixes? What do you need exactly to drive that new customer growth again?

Yes, David, I'll start and then Matt, if you want to provide any color. First, I don't think we need to increase ad spend to get to an active client growth. I think we've touched on this maybe 2 quarters ago, where we definitely see some good signs from a new client acquisition. It's the second quarter in a row that new client acquisition is up. We see client reengagement is up again and is in a very healthy place. And even on the dormancy side, those are the 3 components to active clients. And dormancy trends are getting better as well. And so with our existing product road map and existing marketing levels of investment, we feel comfortable outside of, obviously, the macro uncertainty that we see an inflection point in FY '26. And so I don't think we need to increase ad spend.

The caveat to that is one that I used to say, I think, almost every quarter, which is we have a methodology around our ad spend and where we see opportunity to lean in we do. We have a CAC-to-LTV. Certainly, with the health of our clients recently, LTV is up and that makes us feel more comfortable about leaning in. I think the other call-out for ad spend is there is seasonality there, and that's where it gets a little bit lumpy, where Q1 and Q3 tend to be stronger quarters from a client acquisition standpoint for us. And so we tend to lean in a little bit more from a percent of revenue in those quarters than we do in Q2 and Q4.

I would now like to turn the call back over to Matt Baer for any closing remarks.

Okay. Thank you. So to close, I want to reiterate just how proud I am of the results that the team delivered this quarter, including our return to year-over-year revenue growth, that's a significant milestone in Stitch Fix's transformation. We know many people are dissatisfied with retail today. Traditional apparel shopping, it's broken. And Stitch Fix has always been focused on fixing it. And our transformation has always been grounded on fully realizing that vision. And as the return to growth this quarter demonstrates, it's working. And we've improved our business in fundamental ways through the rationalize and build phase of our transformation.

As part of this, we've created a much more modern and dynamic client experience, and we're seeing the results of our collective efforts in our numbers and how we are gaining share in the market. We believe these improvements we've made will also enable us to successfully navigate an increasingly challenging macro environment.

As we enter the growth phase, we will continue to operate with rigor and an unrelenting focus on delivering the best possible experience for our clients. In doing so, we aim to cement ourselves as the retailer of choice for both our current clients as well as a far larger base than we currently reach today. The momentum of the Stitch Fix business is undeniable. I'm more confident than ever in our future. I appreciate your interest in our business, and I look forward to sharing our continued progress in the future. Thank you.

This concludes the conference. Thank you for your participation. You may now disconnect.