• Revenue: $312.1 million, down 5.5% year over year and 2% quarter over quarter.
• Adjusted EBITDA: $15.9 million, representing a 5.1% margin, up 380 basis points year over year.
• Contribution Margin: 33%, marking the fourth consecutive quarter above 30%.
• Gross Margin: 44.5%, up 110 basis points year over year.
• Active Clients: 2.4 million, down 16% year over year and 2.6% quarter over quarter.
• Revenue per Active Client (RPAC): $537, up 4% year over year.
• Advertising Expense: 7.8% of revenue, down 160 basis points quarter over quarter.
• Net Inventory: $109.6 million, down 13% year over year and 8% quarter over quarter.
• Free Cash Flow: Negative $19 million for Q2.
• Cash and Investments: $230 million with no debt.
• Annual Revenue Guidance: Between $1.225 billion and $1.240 billion.
• Annual Adjusted EBITDA Guidance: Between $40 million and $47 million.
• Q3 Revenue Guidance: Between $311 million and $316 million.
• Q3 Adjusted EBITDA Guidance: Between $7 million and $10 million.
• Full Year Gross Margin Guidance: Approximately 44% to 45%.

• Warning! GuruFocus has detected 3 Warning Sign with SFIX.

Release Date: March 11, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Stitch Fix Inc (NASDAQ:SFIX) exceeded expectations in Q2 with revenue of $312.1 million and adjusted EBITDA of $15.9 million.
• The company achieved a 710 basis point sequential improvement in year-over-year revenue comps and a contribution margin of 33%, marking the fourth consecutive quarter above 30%.
• Both the Men's business and Freestyle channel returned to year-over-year revenue growth, indicating positive momentum.
• Investments in improving the quality of the assortment and inventory management have led to a 9% year-over-year increase in Average Order Value (AOV).
• The company raised its annual guidance for fiscal 2025, reflecting confidence in continued performance improvements and strategic investments.

Negative Points

• Net revenue for Q2 was down 5.5% year over year and 2% quarter over quarter, indicating ongoing challenges in achieving consistent revenue growth.
• Active clients ended the quarter at 2.4 million, down 16% year over year and 2.6% quarter over quarter, highlighting difficulties in client retention and acquisition.
• Free cash flow was negative $19 million in Q2, attributed to timing of working capital requirements related to inventory purchases.
• The company anticipates continued active client declines into FY26, which could impact future revenue growth.
• Despite improvements, the company faces potential challenges from tariffs and macroeconomic uncertainties, which could affect future performance.

Q & A Highlights

Q: Can you provide insights into your customer demographics and how they relate to current consumer sentiment? Additionally, do you need Freestyle to expand your total addressable market (TAM)? A: Our clients span various household income levels, seeking convenience and style advice. The Stitch Fix value proposition resonates broadly, addressing shopping stress and dissatisfaction. Freestyle complements our Fix model, enhancing client engagement and wallet share, thus expanding our TAM.

Q: How are tariffs impacting your pricing strategy, and what categories are performing well? A: We have a tariff mitigation strategy to protect profitability, leveraging our diverse brand portfolio. Our private brands and national brands are strategically managed to mitigate tariff impacts. Categories like sneakers and accessories are performing well, and we're expanding non-apparel offerings.

Q: What drove the gross margin expansion in Q2, and what are your expectations for Q3? A: Q2 gross margin expansion was due to typical seasonality and strong AOV performance. We expect Q3 gross margins to remain within the 44% to 45% range, consistent with our full-year guidance.

Q: Can you provide more color on quarter-to-date trends for February and March? A: We're encouraged by the momentum, with strong performance in February and March. Our reimagined client experience and strategic initiatives have exceeded expectations, driving growth in Men's and Freestyle channels and improving trends in Women's and Fix channels.

Q: How does AOV growth impact future revenue growth, and what is your strategy for sustainable growth? A: AOV has been strong, but comping against it presents challenges. We aim for growth through both existing client engagement and active client growth. Sustainable long-term growth will come from balancing these areas.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.