Stitch Fix (SFIX) Q3 2026 Earnings Transcript

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DATE

June 10, 2026

CALL PARTICIPANTS

• Chief Executive Officer — Matthew Baer
• Chief Financial Officer — David Aufderhaar
• Head of Investor Relations — Cherryl Valenzuela

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RISKS

• Chief Financial Officer David Aufderhaar warned, "Q4 tends to be a seasonally less strong around Client acquisition and that is what we are seeing as we go into to Q4," with sequential active clients expected to decline by 0.5%-1%.
• Aufderhaar noted, "maybe seeing a little bit of an increase in client acquisition costs, from a marketing standpoint. We are seeing that across the industry."

TAKEAWAYS

• Revenue -- $340.3 million, up 4.7%, marking five consecutive quarters of year-over-year growth.
• Active Clients -- 2.3 million, an increase of 21,000 sequentially, representing nearly 1% growth.
• Net Revenue per Active Client (RPAC) -- $578, up 6.6%, and a company record.
• Gross Margin -- 43.7%, above the fiscal year target range mid-point of 43%-44%.
• Contribution Margin -- Above 30% for the ninth consecutive quarter.
• Adjusted EBITDA -- $13.2 million, with a margin of 3.9%, both exceeding company expectations.
• Free Cash Flow -- $6.5 million generated; quarter-end cash and investments totaled $229.4 million, with no debt.
• Share Repurchases -- 4.5 million shares bought back for $15.1 million, leaving $104.9 million authorized for future repurchases.
• Inventory -- $132.2 million on hand, a 15.6% year-over-year increase, reflecting greater demand and experience investments.
• Q4 Guidance—Revenue -- Projected between $322 million and $327 million.
• Q4 Guidance—Adjusted EBITDA -- Forecasted between $7 million and $10 million.
• Full-Year Guidance—Revenue -- Raised and tightened to $1.346 billion to $1.351 billion.
• Full-Year Guidance—Adjusted EBITDA -- Raised and tightened to $49 million to $52 million.
• Advertising Spend -- Accounted for 10.2% of revenue in the quarter; full-year expectation reiterated at 9%-10%.
• Fix Channel Performance -- Average order value (AOV) rose 6.4%, driven by more items per fix and higher average unit retail (AUR).
• Private Brands Performance -- Growing over 100% in certain brands; private brands provide approximately 500 basis points higher gross margin than market brands.
• Client LTV -- New client lifetime values have increased year over year for eleven consecutive quarters, nearly doubling in three years.
• Retention -- Seven consecutive quarters of retention rate improvement, surpassing the four-year high set last quarter.
• Family Accounts -- Continued adoption has materially improved active client growth and wallet share.
• AI and Technology Initiatives -- The AI-powered 'Vision' platform doubled Freestyle spend over a 90-day period for participating clients.
• Market Share -- Circana data shows revenue growth rate more than four times that of the total U.S. apparel, footwear, and accessories market.

SUMMARY

Stitch Fix (NASDAQ:SFIX) management highlighted progress in active client growth, a record level in revenue per active client, and ongoing gross margin expansion as pivotal outcomes from recent strategy execution. Specific mention was made of double-digit men's category growth for the fourth straight quarter, particularly in warm-weather apparel, as well as 50% year-over-year expansion in women's activewear and athleisure. Family Account adoption and AI-enabled enhancements to the client experience contributed to improved acquisition and retention, while robust free cash flow and share repurchases demonstrated financial flexibility and capital return discipline. Management raised and tightened both revenue and adjusted EBITDA guidance, citing resilience in core client spending despite macroeconomic uncertainty.

• Management stated, "New client LTVs increased year over year for the 11th consecutive quarter and were nearly double what they were 3 years ago," attributing gains to investments in assortment, personalization, and engagement mechanisms.
• Women’s and men’s active clients both grew sequentially, and management cited the eighth consecutive quarter of year-over-year active client growth rate improvement.
• Expansion into accessories, athleisure, and footwear each exceeded 18% growth in the quarter, with management targeting a $1 billion incremental opportunity if fair share realization is achieved among the current client base.
• Share repurchases of $15.1 million and a remaining $104.9 million authorization signal ongoing strategic capital allocation.
• AI-driven initiatives now enable private brand product assortment designs to be completed in about one week, a significant reduction from traditional multi-month lead times.

INDUSTRY GLOSSARY

• Fix Channel: Stitch Fix’s personalized, stylist-driven “Fix” service where a box of curated clothing and accessories is shipped to clients on a recurring or one-time basis.
• Freestyle: A shopping experience within Stitch Fix that allows clients to directly select and purchase individual items outside the traditional fix model.
• Vision: Stitch Fix’s AI-powered style visualization tool that displays personalized outfit imagery, driving higher engagement and client spend.
• Family Accounts: An account structure allowing multiple members of a household to shop and receive personalized fixes under one primary user profile.
• AUR (Average Unit Retail): The average selling price per unit of merchandise sold.
• RPAC (Revenue per Active Client): Total net revenue divided by the number of active clients.
• SG&A: Selling, general, and administrative expenses.
• GLP-1: A class of prescription medications used for weight management; targeted in marketing to individuals undergoing body transformations.

Full Conference Call Transcript

Cherryl Valenzuela: Good afternoon, and thank you for joining us today for the Stitch Fix third quarter fiscal 26 earnings call. With me on the call are Matthew Baer, chief executive officer, and David Aufderhaar, chief financial officer. We have posted complete third quarter 26 financial results and 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 that 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 quarterly report on Form 10-Q for the second quarter of fiscal 26 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 24 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 Matthew.

Matthew Baer: Thanks, Cherryl, 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. Active clients were 2.3 million, and increased 21 thousand sequentially. A significant milestone in our transformation journey revenue per active client, or RPAC, Reached $578 in Q3. Now 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 clients' retailer of choice for apparel, footwear, and accessories. As we scale, we maintain our focus on operating with financial discipline. Resulting 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 eleventh 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 demand for activewear and athleisure, which grew a combined 50% year over year. We also had a successful seasonal transition with strength in sandals, skirts, and sneakers.

Some of the brands that posted the strongest growth were our private brands, namely Montgomery Post, 41 Hawthorne, and Market and Spruce. Men's grew double digits year over year for the 4th straight quarter. With standout performance in warm weather categories such as shorts, short sleeve woven tops, and casual shoes, which each grew >30%. Some of the brands that posted the strongest growth were our private brand Aylesbury, as well as TravisMathew, Vuori, and Bonovos. With regards to expanding into new categories, we have 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 actively pursuing this opportunity by expanding our offerings in these key categories. As an example, we recently launched women's sunglasses introducing brands like Le Specs, Eyre, and Quay, 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 activewear and athleisure. We recently added outdoor voices, Malbon Golf, Spiritual Gangster, and Cotopaxi, as well as deepened our penetration with client favorites like Varley, ROAN, and our private label brand WeWander. 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 both our position in the market and translating into further market share gains. According to the latest Circana data, Stitch Fix again meaningfully outperformed the total US apparel footwear and accessories market in the most recent quarter. With our year over year revenue growth rate more than 4x the growth of the total market. We also remain focused on the quality and durability of our base. A 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 well.

As I noted earlier, we reached an important milestone in this work as we successfully grew our client base. We also hit our 8th 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 3rd consecutive quarter up >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 3 years ago. Reinforcing our belief 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 7 straight quarters. Q3 surpassed the mark we set last quarter for our highest retention rate in 4 years. Engagement also remains healthy.

Total active clients on recurring shipments continued 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 in active clients as well as our revenue growth in large part to the advancements we have made to our client experience over the past 2 years.

These improvements have been grounded in delivering on our core promise, to offer the most client centric and personalized shopping experience. We are 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's Vision, 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 have 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 used vision. 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 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 are using AI to fundamentally transform the process, and we can now design a full assortment for an individual private brand in about 1 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, achieved 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 Stitch Fix's business since day 1, And as we look ahead, we will continue to capitalize on this leadership This 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 macro 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 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 will turn it over to David to discuss our financial results and outlook.

David Aufderhaar: Thanks, Matthew, 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 am 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 up 4.7% year over year, exceeding our outlook. Fix 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 thousand 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 2nd 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 base. We continue to deliver strong margins, Gross margin was 43.7%, again above the midpoint of our FY 26 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 exceeded 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. Our 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 attractive use of cash. During the quarter, 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 FY 26, for Q4, we expect total revenue to be between $322 million and $327 million We expect Q4 adjusted EBITDA to be between $7 million and $10 million As a result, for full year FY 26, we are tightening our ranges and raising the midpoints for both revenue and adjusted EBITDA. To reflect the resilience we are seeing in existing client engagement despite an increasingly challenged consumer environment.

We now expect total revenue to be between $1.346 billion and $1.351 billion We now expect total adjusted EBITDA for the year to be between $49 million and $52 million 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 FY 2026, 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. We are confident in the path ahead, encouraged by the traction we are building, committed to delivering further progress in the quarters to come. With that, operator, we can open the line for Q&A.

Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are 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 Sole from UBS. Your line is open. Please go ahead.

Jay Sole: Great. Hope you can hear me. So very interesting on the AOB trends. Can you double click on those a little bit? I mean, mentioned what is driving it, but it seems like it really outperformed in the quarter. Tell us maybe some of the strategies that are really the key to getting, you know, the more units per fix and some of the other drivers of AOV that you mentioned. Thank you.

Matthew Baer: Hey, Jay. it is Matthew here. So appreciate the recognition. We are really proud of the work that we have done to reimagine the client experience. And through those efforts, we have been able to drive 11 consecutive quarters of average order value gains. there is a few key contributing factors to that. 1, is the success that we have seen with larger fixes. As we have enabled our clients to have fixes 6, 7, or 8 items. We have 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 are able to meet or exceed the 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. 1 of the other factors of the reimagination of the client experience is the investments that we have made to improve our portfolio and assortment. that is true in both the market brands that we carry as well as the private brands that we develop. Within the market brands, we brought on several new brands, which we have highlighted on prior calls as well as noted in today's prepared remarks. And that is helped us improve our AURs across the board, which were up, I believe, for a seventh consecutive quarter.

We have also been investing heavily into our private brands. Delivering exceptional value and quality across the board. Our 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 and 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.

Jay Sole: Got it. And maybe, Matthew, if I can ask you about just the active client momentum you have gotten sequentially. I think active the trend in active client growth improved for the 8th quarter in a row. I guess, looking ahead to the fourth quarter, how are client acquisition and retention trends shaping up? And what is your level of confidence in being able to maintain you know, the positive sequential momentum?

David Aufderhaar: Yeah. Jay, this is David. I can take that. Thanks for the question. First, to your point, we are really encouraged with the results we saw this quarter. it is just 1 more proof point that methodical approach that we have 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. So Q4 tends to be a seasonally less strong around Client acquisition and that is what we are seeing as we go into to Q4. And so because of that, we actually expect Q4 to be down slightly sequentially somewhere between about a 0.5% to 1% down sequentially.

With that said, to your point, we still do expect year over year comps to continue to improve. In Q4 as they have the last 8 quarters. And, you know, because of that work, we continue to be really encouraged by the overall trends you know, that Matthew highlighted in the remarks earlier around new reengaged and client retention. And that methodical approach is the 1 that we will continue to use to make sure that we are rebuilding 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 FY 2027.

And, you know, these results and our guide shows clear progress towards that.

Jay Sole: Got it. If I can squeeze in 1 more and then I will pass it on. You know, if you can maybe just put your finger on exactly the 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. what is happening that is allowing you to do that? Of all the different things that you mentioned?

David Aufderhaar: Yeah. Certainly, Jay. On the adjusted EBITDA side, I think we have 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 is something that continue to focus on this quarter. it is something that we will 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 2 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 in investing in growth, and that is really where we felt comfortable putting EBITDA where it is from a guide perspective.

Matthew Baer: Yeah. Maybe 1 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 efficiencies and leverage throughout our styling network as well. And all of those improvements are helping us continue to improve our bottom line performance.

Jay Sole: Got it. Okay. Thank you so much.

Operator: Your next question comes from the line of Owen Ricker from Northland Capital Markets. Please go ahead.

Analyst: 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 ARPAC list associated with clients who do adopt that feature?

Matthew Baer: So hey, Owen. it is Matthew. So we have 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 is something that we are going to continue to lean into, creating awareness and consideration for the feature across the board. And it is something that is now part of our core messaging throughout both our on-site experiences as well as through our CRM. In terms of how we are thinking about it, our goal is to ensure that we are 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 needs for the entire household, such that they never have a reason to waste a day walking to a cavernous 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 help. 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 2 have any meaningful margin implications So, yeah, Owen. it is Matthew again.

In terms of fix and freestyle, 1 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 fix experience or a freestyle experience. We have continued to lean into and invest in both of those channels. And also, what we have 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 in Freestyle, actually, use the item that they are 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 are thinking about where that growth is coming from at the end of the day, we are a bit indifferent. What we are looking for is how can we ensure that we continue to drive engagement and capture that wallet share overall for us.

David Aufderhaar: You know, David, if there is anything to add in terms of the relative profitability of both, I think, you know, at the end of the day, they are pretty similar. And we are very comfortable just meeting the client where they are.

Analyst: Great. Super helpful, guys. Thanks for taking my questions.

Operator: Your next question comes from the line of Dana Telsey from Telsey. Advisory Group. Please go ahead.

Dana Telsey: In the revenue per active client in terms of what you are seeing, Where do you see that going? Difference between brands and private label in terms of what you are seeing and what is the category trends, and how do you feel about the state of the consumer? And lastly, on advertising, which was flat at, I believe, 10.2%. How do you think of the trajectory of advertising spend moving forward? Thank you.

Matthew Baer: Dana, I captured a few questions there. The first is in terms of our revenue per active 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 are seeing success with, how we are viewing the consumer, and then finally, the current trends in our advertising expense. If I start at the top, we are very encouraged given what we are seeing in the total market today for our revenue per active 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, you know, where they are. We feel really confident that the service that we offer is 1 that can meet our clients' 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 athleisure, for us to continue to grow in accessories, for us to continue to grow in footwear.

All 3 of those growing outside relative to our total business, all of them north of 18% growth in the last quarter. We feel really confident that we are gonna continue to meet our clients' needs while also expanding the different use cases that we can serve them which gives us a line of sight to future revenue per active client growth and future wallet share gains. In terms of market brands and private brands, we are seeing success in both. As we have talked about previously, we are going to be very client led in this pursuit.

For us, it is really important to have the market brands that our clients covet. it is very important for us to have market brands to fill white space where our private brands do not have assortment today. it is 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. it is also a really critical signal for us to ensure that our clients 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 is why we were excited to highlight just the success that we are having with our private brands, some of which are growing now over a 100% year-over-year. Something that we take a tremendous amount of pride in. In terms of where we see the consumer today, we are 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 nearly the same levels of revenue growth no matter the household income of our clients. And we believe that is 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 are able to meet that client where they are.

And we also have the resilience of our business model that is something that 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 built with their stylist is 1 that transcends whatever macro impact that client might be having. And we are able to capture the remaining wallet share that they have.

David Aufderhaar: And David, I will let you touch on the advertising. Yeah, Dana, on the advertising, you know, I think we have talked about this before of just you know, strength from a seasonality perspective. And certainly, this quarter is 1 of those quarters, and we were really comfortable with, spending at the high end of the range. I think we would actually you know, said that in our last call that we expected to spend sort of at the at the high end of our range. And certainly, you know, we are seeing strength across, you know, sort of each area of active clients. New client acquisition was up again certainly quarter over quarter, but also year over year.

Reengaged clients are still in healthy and a great avenue for us to bring clients back into the experience. And client retention, continues to look better. And so you know, because of that, certainly, plays a big part in that. And we are really comfortable with those levels of investments and continuing to spend, you know, right now, you know, our expectation is to still spend within that 9%-10% range. Thank you.

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

David Bellinger: 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 is changed? How has it just shown up in the business? Does this have to do anything with this sequential contraction that Yes. David, a couple of things. We are looking for in fiscal Q4?

David Aufderhaar: Couple of things there. In Q3, certainly, you know, really happy with the performance. If you are talking about sort of the progression through the quarter, you know, it was 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 on the call. And then it really rebounded mid quarter. And so really saw some strength, as we exited the quarter. And, you know, we expect that strength to continue in Q4, You know, we had already had an assumption. I think we had talked about this 4 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, Q4 to be at the higher end of that range. And so because of that, you know, that is 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 is any macro headwind, we are maybe seeing a little bit of an increase in client acquisition costs. from a marketing standpoint. We are seeing that across the industry.

But what is really interesting, and I think it goes back to what Matthew was saying, is our existing clients remain incredibly resilient. And that is true across all of our income cohorts. And so, you know, really encouraged by that, and we see that continuing in Q4. And all of that is included in our guide.

David Bellinger: Understood. Thanks for all that. Then going forward, if you think 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.

David Aufderhaar: Yes, David, thanks for the question. 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 of a big part of that is our variable labor teams, our warehouse teams, our stylist teams. And, you know, driven a lot of leverage there. And so even over the last year, SG&A spend has come down 220 basis points. And so, you know, we continue to really make sure that we are driving that leverage.

And, you know, SBC, I think, is something we have called out in the past as well. that is, you know, a big part of the total SG&A spend, and SBC was at 3.3% of revenue this quarter. that is down a 100 basis points. And so just across each 1 of the areas of SG&A, you know, we wanna make sure that we are investing appropriately for growth, but that we continue to drive leverage. And you know, we do not see any significant investment needs to turn that in the other direction. We just wanna make sure we are still driving leverage in the P&L.

Operator: Your next question comes from the line of Aneesha Sherman from Bernstein. Please go ahead.

Aneesha Sherman: 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 are 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 of 4.7%. How does that 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%-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 a flagging of the AOV growth in Q4 as those compares get a bit tougher?

David Aufderhaar: Yes. Thanks for the question, Aneesha. On the trends, definitely what we called out holds in Q3, were definitely a little bit slow at the beginning of the quarter and then rebounded. For Q4, you know, I think we see something similar. Where, you know, there is a little bit of slower start to the quarter from an AOV perspective, and then it is it is already starting to come back. And so we see a little bit of the same. For AOV in 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, you know, just above 6 for the quarter in Q3. And that is 1 of the reasons why we did not necessarily play forward the beat is because we already had the strength included in our guide for Q4 last quarter.

Aneesha Sherman: Okay. That makes a lot of sense. And then if I can ask 1 follow-up on your client l new client LTVs. Beyond the family accounts that are obviously helping there? Is there any particular other mix shift in terms of demographics amongst those new clients that is driving higher LTVs? That you are seeing in your mix?

Matthew Baer: Hey, Aneesha. it is Matthew. I will 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 are really encouraged by the results we are seeing in household accounts, the growth we have 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 3 years ago, that is 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 continued improvements in our assortment.

Part of that is all of the continued investments that we are making into our engagement mechanisms from Stitch Fix vision to our AI style assist to our Stylus Connect platform. And as we continue to create more opportunities for us to engage our clients, as we continue to create services that up level the experience for our clients. We are continuing to see that increase in spend. For each of the new clients that we acquire. In terms of who is 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 are 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 have discussed before that we believe will be able to serve at an exceptional level. A great example of that is the success we have had targeting clients that are likely on a GLP-1 and going through a body transformation. We are able to follow them all the way through the funnel from prospect marketing that explains to them why this service is 1 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 are going through. And we have lots of different segments that we are able to focus on similar to that. As well as ensuring that, you know, the clients that we bring in, we just continue to serve them at a really high level overall. Thank you.

Operator: At this time, there are no further questions. I would now like to turn the call back to Matthew Baer for closing remarks.

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

We are gaining market share. We are doing all of this while maintaining the financial discipline that has been central to the transformation. That includes the robust margins that we are delivering, positive free cash flow, the strategic capital allocation that David discussed, and the progress towards net income profitability. As at Stitch Fix, we are operating from a position of strength, and I am 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.

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

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