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What changed in Stitch Fix, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Stitch Fix, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+342 added−328 removedSource: 10-K (2023-09-20) vs 10-K (2022-09-21)

Top changes in Stitch Fix, Inc.'s 2023 10-K

342 paragraphs added · 328 removed · 253 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeOur vendors generally agree to our standard vendor terms, which govern our business relationship. Although we do not have long-term agreements with our vendors, we have long-standing relationships with a diverse base of vendors that we believe to be mutually satisfactory.
Biggest changeAlthough we do not have long-term agreements with our vendors, we have long-standing relationships with a diverse base of vendors that we believe to be mutually satisfactory. All of our Owned Private Label Brand merchandise is produced according to our specifications, and we require that all of our vendors comply with applicable law and observe strict standards of conduct.
The goal of our Stitch Fix Communities is to create spaces that drive increased inclusion and belonging for individuals from underrepresented groups who have historically been marginalized in our broader society, build on our mission of inspiring people to be their best, authentic selves, and to create opportunities for employees to share their perspectives with our leaders and connect with each other on a deeper level.
The goal of our Stitch Fix Communities is to create spaces that drive increased inclusion and belonging for individuals from underrepresented groups who have historically been marginalized in our broader society, to build on our mission of inspiring people to be their best, authentic selves, and to create opportunities for employees to share their perspectives with our leaders and connect with each other on a deeper level.
Once clients decide which items they wish to keep they can easily check out and pick the delivery date for their next Fix via our website or mobile application. 7 We charge clients a styling fee of $20 in the United States and £10 in the United Kingdom (“UK”) for each Fix, which is credited toward the merchandise purchased.
Once clients decide which items they wish to keep, they can easily check out and pick the delivery date for their next Fix via our website or mobile application. We charge clients a styling fee of $20 in the United States and £10 in the United Kingdom (“UK”) for each Fix, which is credited toward the merchandise purchased.
We request that clients return items to us that they do not wish to purchase within three calendar days of receiving a Fix. With Freestyle, a client can visit our website or mobile application and make direct purchases of apparel, shoes and accessories from a personalized set of recommended items and outfits.
We request that clients return items to us that they do not wish to purchase within three calendar days of receiving a Fix. 7 With Freestyle, a client can visit our website or mobile application and make direct purchases of apparel, shoes and accessories from a personalized set of recommended items and outfits.
The information we store for each SKU includes: • basic data, such as brand, size, color, pattern, silhouette, and material; • item measurements, such as length, width, diameter of sleeve opening, and distance from collar to first button; • nuanced descriptors, such as how appropriate the piece is for a client that prefers preppy clothing or whether it is appropriate for a formal event; and • client feedback, such as how the item fit a 5’7” client or how popular the piece is with young mothers.
The information we store for each SKU includes: • basic data, such as brand, size, color, pattern, silhouette, and material; • item measurements, such as length, width, diameter of sleeve opening, and distance from collar to first button; • nuanced descriptors, such as how appropriate the piece is for a client that prefers preppy clothing or whether it is appropriate for a formal event; and • client feedback, such as how the item fits a 5’7” client or how popular the piece is with young mothers.
On average, clients that complete our style profile provide us with over 100 meaningful data points, including detailed style, size, fit, and price preferences, as well as unique inputs such as how often they dress for certain occasions or which parts of their bodies the clients like to flaunt or cover up.
On average, clients that complete our style profile provide us with over 91 meaningful data points, including detailed style, size, fit, and price preferences, as well as unique inputs such as how often they dress for certain occasions or which parts of their bodies the clients like to flaunt or cover up.
We use data science throughout our business, including to style our clients, offer personalized direct buy options, predict purchase behavior, forecast demand, optimize inventory, and design new apparel. 5 Our data set is particularly powerful because: • the vast majority of our client data is provided directly and explicitly by the client, rather than inferred, scraped, or obtained from other sources; • our clients are motivated to provide us with relevant personal data, both at initial signup and over time as they use our service, because they trust it will improve their shopping experience; and • our merchandise data tracks dimensions that enable us to predict purchase behavior and deliver a more personalized experience.
We use data science throughout our business, including to style our clients, offer personalized direct buy options, predict purchase behavior, forecast demand, and optimize inventory. 5 Our data set is particularly powerful because: • the vast majority of our client data is provided directly and explicitly by the client, rather than inferred, scraped, or obtained from other sources; • our clients are motivated to provide us with relevant personal data, both at initial sign-up and over time as they use our service, because they trust it will improve their shopping experience; and • our merchandise data tracks dimensions that enable us to predict purchase behavior and deliver a more personalized experience.
We plan to achieve this goal by continuing to: • expand our relationships with existing clients; • acquire new clients; and • expand our addressable market. How it Works Clients can engage with us in two ways that, when combined, form an ecosystem of personalized experiences across styling, shopping, and inspiration.
We plan to achieve this goal by continuing to: • expand our relationships with existing clients; • acquire new clients; and • expand our addressable market. How it Works Clients can engage with us in two ways that, when combined, form an ecosystem of personalized styling experiences.
Over time, through their feedback on Fixes they receive and Freestyle orders, clients share additional information about their preferences as well as detailed data about both the merchandise they keep and return. Historically, over 80% of our shipments have resulted in direct client feedback.
Over time, through their feedback on Fixes they receive and Freestyle orders, clients share additional information about their preferences as well as detailed data about both the merchandise they keep and return. Historically, over 81% of our Fix shipments have resulted in direct client feedback.
See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial and Operating Metrics” for information on how we define and calculate active clients. The very human experience that we deliver is powered by data science.
Refer to the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial and Operating Metrics” for information on how we define and calculate active clients. The very human experience that we deliver is powered by data science.
We further control the use of our proprietary technology and intellectual property through provisions in both our client terms of use on our website and in our vendor terms and conditions.
We further control the use of our proprietary technology and intellectual property through provisions in both our client terms of use on our website and mobile app and in our vendor terms and conditions.
We offer merchandise across multiple price points and styles from established and emerging brands, as well as our own private labels, which we call Exclusive Brands. Many of our brand partners also design and supply items exclusively for our clients.
We offer merchandise across multiple price points and styles from established and emerging brands, as well as our own private labels. Many of our brand partners also design and supply items exclusively for our clients.
Personalization is the Next Wave To be relevant today, retailers must find a way to connect with consumers on a personal level and fit conveniently into their lifestyles. Personalization in retail can be difficult and nuanced, as consumers consider many factors that can be difficult to articulate, including style, size, fit, feel, and occasion.
Personalization To be relevant today, retailers must find a way to connect with consumers on a personal level and fit conveniently into their lifestyles. Personalization in retail can be difficult and nuanced, as consumers consider many factors that can be difficult to articulate, including style, size, fit, feel, and occasion.
This feedback informs both our algorithms and stylists to improve each future order. We also gather feedback through Style Shuffle providing additional data to strengthen our understanding of client tastes and style preferences. Our Merchandise, Brand Partners, and Exclusive Brands The breadth of our merchandise selection is essential to our success.
This feedback informs both our algorithms and stylists to improve each future order. We also gather feedback through Style Shuffle providing additional data to strengthen our understanding of client tastes and style preferences. Our Merchandise, Brand Partners, and Owned Private Label Brands The breadth of our merchandise selection is essential to our success.
Historically, our net sales have not been concentrated in a particular period or season, with 28%, 25%, 24%, and 23% of our annual net sales being recognized during the first, second, third, and fourth quarters of the fiscal year ended 2022, respectively.
Historically, our net sales have not been concentrated in a particular period or season, with 28%, 25%, 24%, and 23% of our annual net sales being recognized during the first, second, third, and fourth quarters of the fiscal year ended July 29, 2023 , respectively.
Our clients are motivated to share these personal details with us and provide us with ongoing feedback because they recognize that doing so will result in more personalized and successful experiences. This feedback also creates a valuable network effect by helping us to better serve other clients. As of July 30, 2022, we had approximately 3,795,000 active clients.
Our clients are motivated to share these personal details with us and provide us with ongoing feedback because they recognize that doing so will result in more personalized and successful experiences. This feedback also creates a valuable network effect by helping us to better serve other clients. As of July 29, 2023, we had approximately 3,297,000 active clients.
Our goal in this work is to drive knowledge, precision, and transparency—not only for ourselves internally, but also to contribute to the dialogue and information sharing that is critical to chartering a path forward for the industry. We also have established seven Employee Resource Groups, which we call Stitch Fix Communities.
We do this to drive knowledge, precision, and transparency—not only for ourselves internally, but also to contribute to the dialogue and information sharing that is critical to chartering a path forward for the industry. We also have established seven Employee Resource Groups, which we call Stitch Fix Communities.
Exclusive Brands We also design and bring to market our own styles, which we refer to as Exclusive Brands, in order to target specific client needs that are unmet by what our merchandising team can source in the market. We use data science to identify and develop the new products for our Exclusive Brands.
We bring to market our own styles, which we refer to as Owned Private Label Brands, in order to target specific client needs that are unmet by what our merchandising team can source in the market. We use data science to identify and develop the new products for our Owned Private Label Brands.
In addition, Style Shuffle, an interactive mobile and web-based feature in which participants rate Stitch Fix merchandise and outfits, provides additional data to strengthen our understanding of client tastes and style preferences. We believe our proprietary merchandise data set is differentiated from other retailers.
In addition, Style Shuffle, an interactive mobile and web-based feature in which participants rate Stitch Fix merchandise and outfits, has collected more than 10 billion Style Shuffle ratings, and provides additional data to strengthen our understanding of client tastes and style preferences. We believe our proprietary merchandise data set is differentiated from other retailers.
Our competitors include eCommerce companies that sell apparel, shoes, and accessories; local, national, and global department stores; specialty retailers; discount chains; independent retail stores; and the online offerings of these traditional retail competitors. Additionally, we experience competition for consumer discretionary spending from other product and experiential categories.
Our competitors include eCommerce companies that sell apparel, shoes, and accessories; local, national, and global department stores; specialty retailers; discount chains; independent retail stores; and the online offerings of these traditional retail competitors. Additionally, we compete for our clients’ consumer discretionary spending from other shopping categories and experiences.
As of such date, 82% of our employees, 56% of our management team, and 44% of our Board of Directors identified as female. Employee Relations None of our employees is represented by a labor union. We have not experienced any work stoppages due to employee disputes, and we consider our relations with our employees to be good.
As of such date, 84% of our employees, 50% of our management team, and 38% of our Board of Directors identified as women. Employee Relations None of our employees is represented by a labor union. We have not experienced any work stoppages due to employee disputes, and we consider our relations with our employees to be good.
These capabilities consist of our rich and growing set of detailed client and merchandise data and our proprietary algorithms.
Our Data Science Advantage Our data science capabilities fuel our business. These capabilities consist of our rich and growing set of detailed client and merchandise data and our proprietary algorithms.
See Part I, Item1A “Risk Factors—Our industry is highly competitive and if we do not compete effectively our operating results could be adversely affected” for more information. Our Service We help millions of clients discover and buy what they love through personalized apparel, shoes, and accessories. Our Data Science Advantage Our data science capabilities fuel our business.
Refer to Part I, Item 1A “Risk Factors — Our industry is highly competitive and if we do not compete effectively our operating results could be adversely affected” for more information. Our Service We help millions of clients discover and buy what they love through personalized apparel, shoes, and accessories.
We invest in spaces for employees to learn and grow so that they are equipped to design and uphold equitable systems and processes. To ensure that our ongoing Diversity, Equity and Inclusion strategy is informed by and rooted in data, we set out to more deeply understand and share our company demography and define clear baselines to improve upon.
We invest in spaces for employees to learn and grow so that they are equipped to design and uphold equitable systems and processes. To ensure that our ongoing Diversity, Equity, and Inclusion strategy is informed by and rooted in data, we analyze and share our company demography on our website.
We do not estimate any significant capital expenditures for environmental control matters either in the current fiscal year or in the near future. 9 Human Capital Headcount As of July 30, 2022, we had approximately 7,920 full-time and part-time employees, including over 3,430 stylists, 3,110 fulfillment center employees, 430 engineers and data scientists, 170 client experience employees, 190 merchandising employees, and 590 general and administrative employees.
We do not estimate any significant capital expenditures for environmental control matters either in the current fiscal year or in the near future. 9 Human Capital Headcount As of July 29, 2023, we had approximately 5,860 full-time and part-time employees, including 2,620 stylists, 2,270 fulfillment center employees, 240 engineers and data scientists, 130 client experience employees, 180 merchandising employees, and 420 general and administrative employees.
We then pair our data with the expertise of our design teams to bring these new products to market. We expect our product development efforts will yield better products for our clients as we acquire more data and feedback. Exclusive Brands are a meaningful part of our business and we expect them to be a permanent part of our portfolio.
We then pair our data with the expertise of our merchandise vendors to bring these new products to market. We expect our product development efforts will yield better products for our clients as we acquire more data and feedback.
This exclusivity allows our clients to discover personally recommended products that are unavailable elsewhere.
This exclusivity allows our clients to discover personally recommended products that are unavailable elsewhere. Brands and Products Exclusive to Stitch Fix We offer products exclusive to Stitch Fix through Owned Private Label Brands.
We have a reverse logistics operation to manage returned merchandise. Our specialist returns teams in our dedicated return intake areas accept, process, and reallocate returns to our inventory so the merchandise can be offered for another Fix or Freestyle order.
Our specialist returns teams in our dedicated return intake areas accept, process, and reallocate returns to our inventory so the merchandise can be offered for another Fix or Freestyle order. Seasonality Seasonality in our business does not follow that of traditional retailers, such as typical high concentration of revenue in the holiday quarter.
However, we do not have specific targets for the merchandise mix provided by our brand partners and our Exclusive Brands, and expect it will fluctuate over time. We will continue to develop products when we identify opportunities or gaps in the market.
Owned Private Label Brands are a meaningful part of our business and we expect them to be a permanent part of our portfolio. However, we do not have specific targets for the merchandise mix provided by our brand partners and our Owned Private Label Brands, and expect it will fluctuate over time.
Sourcing We purchase substantially all of our merchandise directly from our brand partners or Exclusive Brands merchandise vendors, who are responsible for the entire manufacturing process. 8 For the production of our Exclusive Brands, we contract with merchandise vendors, some of whom operate their own manufacturing facilities and others subcontract the manufacturing to third parties.
For the production of our Owned Private Label Brands, we contract with merchandise vendors, some of whom operate their own manufacturing facilities and others subcontract the manufacturing to third parties. Our vendors generally agree to our standard vendor terms, which govern our business relationship.
All of our Exclusive Brand merchandise is produced according to our specifications, and we require that all of our vendors comply with applicable law and observe strict standards of conduct. We have hired independent firms that conduct audits of the working conditions at the factories producing our Exclusive Brands.
We have hired independent firms that conduct initial and ongoing audits of the working conditions at the factories producing our Owned Private Label Brands.
If an audit reveals potential problems, we require that the vendor institute corrective action plans to bring the factory into compliance with our standards, or we may discontinue our relationship with the vendor. We require that all new factories producing Exclusive Brand merchandise for us be audited before Stitch Fix production begins.
If an audit reveals potential problems, we require that the vendor institute corrective action plans to bring the factory into compliance with our standards, or we may discontinue our relationship with the vendor. 8 Inventory Management and Fulfillment We utilize six fulfillment centers, five of which are in the United States (located in Arizona, Texas, Pennsylvania, Georgia, and Indiana), and one of which is in the UK, and is operated by a third party.
Removed
We are investing in product experiences that we believe will drive greater personalization, such as Fix Preview. Fix Preview allows clients the opportunity to view proposed items for their next Fix before it ships, giving clients a chance to provide feedback to their stylists and have more control over the items they receive.
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We will continue to develop products when we identify opportunities or gaps in the market. Sourcing We purchase substantially all of our merchandise directly from our brand partners or Owned Private Label Brands merchandise vendors, who are responsible for the entire manufacturing process.
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In 2020, we founded the Stitch Fix Elevate Grant & Mentorship Program (the “Elevate Program”), with the mission of helping to grow, mentor, and support apparel and accessories businesses owned by Black, Indigenous and People of Color and are including Elevate Program grantees as new brand partners on the Stitch Fix platform.
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In furtherance and as an expansion of the restructuring plan announced in June 2022 (the “2022 Restructuring Plan”), we announced in June 2023 the intended closures of our fulfillment centers in Pennsylvania and Texas.
Removed
Inventory Management and Fulfillment We utilize seven fulfillment centers, six of which are in the United States (located in Arizona, Texas, Pennsylvania, Georgia, Utah, and Indiana), and one in the UK. In our fulfillment centers, our algorithms increase efficiencies in processes such as allocation, batch picking, transportation, shipping, returns, and ongoing process improvement.
Added
Following the closures, we will have a three fulfillment center strategy in the United States, which we believe will more optimally serve our clients across the entire country by showcasing the most relevant breadth and depth of inventory for stylists to send to clients with a lower inventory base now, and even as we grow our client base.
Removed
Seasonality Seasonality in our business does not follow that of traditional retailers, such as typical high concentration of revenue in the holiday quarter.
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Additionally, in connection with the 2022 Restructuring Plan, in June 2023, we also announced that we would enter a consultation period, in accordance with UK law, to explore exiting the market in the UK. On August 24, 2023, we ended the consultation period, and made the decision to exit our business and wind down our operations in the UK.
Added
Refer to Note 13, “Restructuring” within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report for more details. In our fulfillment centers, our algorithms increase efficiencies in processes such as allocation, batch picking, transportation, shipping, returns, and ongoing process improvement. We have a reverse logistics operation to manage returned merchandise.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeRisks Relating to Our Business • Our continued growth depends on attracting new clients. • We may be unable to maintain a high level of engagement with our clients and increase their spending with us, which could harm our business, financial condition, or operating results. • We rely on paid marketing to help grow our business, but these efforts may not be successful or cost effective, and such expenses may vary from period to period. • If we are unable to manage our inventory effectively, our operating results could be adversely affected. • The COVID-19 pandemic has caused significant disruption to our operations and impacted our business, key financial and operating metrics, and results of operations in numerous ways that remain unpredictable. • Our failure to adequately and effectively staff our fulfillment centers and other operational constraints at our fulfillment centers could adversely affect our client experience and operating results. • Shipping is a critical part of our business and any changes in our shipping arrangements or any interruptions in shipping could adversely affect our operating results. • Our business, including our costs and supply chain, is subject to risks associated with the sourcing and pricing of merchandise and raw materials . • We may not be able to return to or sustain our revenue growth rate and we may not be profitable in the future. • If we fail to effectively manage our growth, our business, financial condition, and operating results could be harmed. • If we are unable to develop and introduce new offerings or expand into new markets in a timely and cost-effective manner, our business, financial condition, and operating results could be negatively impacted. • We have a short operating history in an evolving industry and, as a result, our past results may not be indicative of future operating performance. • Expansion of our operations internationally requires management attention and resources, involves additional risks, and may be unsuccessful. • Our business depends on a strong brand and we may not be able to maintain our brand and reputation. • If we fail to attract and retain key personnel, effectively manage succession, or hire, develop, and motivate our employees, our business, financial condition, and operating results could be adversely affected. • If we fail to effectively manage our stylists, our business, financial condition and operating results could be adversely affected. • If we are unable to acquire new merchandise vendors or retain existing merchandise vendors, our operating results may be harmed. • We may incur significant losses from fraud. • We are subject to payment-related risks.
Biggest changeRisks Relating to Our Business • We may be unable to retain clients or maintain a high level of engagement with our clients and maintain or increase their spending with us, which could harm our business, financial condition, or operating results. • Our growth depends on attracting new clients. • We rely on paid marketing to help grow our business, but these efforts may not be successful or cost effective, and such expenses may vary from period to period. • If we are unable to manage our inventory effectively, our operating results could be adversely affected. • Operational constraints or our failure to adequately and effectively staff our fulfillment centers could adversely affect our client experience and operating results. • Shipping is a critical part of our business and any changes in our shipping arrangements or any interruptions in shipping could adversely affect our operating results. • Our business, including our costs and supply chain, is subject to risks associated with the sourcing and pricing of merchandise and raw materials. • We may not be able to return to revenue growth and we may not be profitable in the future. • If we fail to effectively manage our business, our financial condition and operating results could be harmed. • If we fail to attract and retain key personnel, effectively manage succession, or hire, develop, and motivate our employees, our business, financial condition, and operating results could be adversely affected. • If we are unable to develop and introduce new offerings or expand into new markets in a timely and cost-effective manner, our business, financial condition, and operating results could be negatively impacted. • We have a short operating history in an evolving industry and, as a result, our past results may not be indicative of future operating performance. • Our business depends on a strong brand and we may not be able to maintain our brand and reputation. • If we fail to effectively manage our stylists, our business, financial condition and operating results could be adversely affected. • If we are unable to acquire new merchandise vendors or retain existing merchandise vendors, our operating results may be harmed. • We may incur significant losses from fraud. • We are subject to payment-related risks.
Share repurchases could also increase the volatility of the trading price of our stock and could diminish our cash reserves. • Future sales of shares by existing stockholders could cause our stock price to decline. • The dual class structure of our common stock concentrates voting control with our executive officers, directors and their affiliates, and may depress the trading price of our Class A common stock. • We do not currently intend to pay dividends on our Class A common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation of the value of our Class A common stock. • Delaware law and provisions in our amended and restated certificate of incorporation and amended and restated bylaws could make a merger, tender offer, or proxy contest difficult, thereby depressing the trading price of our Class A common stock. • Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware and the federal district courts of the United States are the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
Share repurchases could also increase the volatility of the trading price of our stock and could diminish our cash reserves. • Future sales of shares by existing stockholders could cause our stock price to decline. • The dual class structure of our common stock concentrates voting control with our directors, executive officers, and their affiliates, and may depress the trading price of our Class A common stock. • We do not currently intend to pay dividends on our Class A common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation of the value of our Class A common stock. • Delaware law and provisions in our amended and restated certificate of incorporation and amended and restated bylaws could make a merger, tender offer, or proxy contest difficult, thereby depressing the trading price of our Class A common stock. • Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware and the federal district courts of the United States are the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
We seek to attract high-quality clients who will remain clients for the long term, but our efforts may not be successful or produce the results we anticipate. For example, if we are not able to engage new Fix clients effectively so they continue receiving Fixes after their first few tries, our active client growth will suffer.
We seek to attract high-quality clients who will remain clients for the long term, but our efforts may not be successful or produce the results we anticipate. For example, if we are not able to engage new Fix clients effectively so they continue receiving Fixes after their first few tries, our active client growth will continue to suffer.
For instance, the severe winter weather and temperatures experienced in Texas and other parts of the country in February 2021 caused us to temporarily close two of our fulfillment centers and affected the shipping of merchandise in and out of fulfillment centers.
For instance, the severe winter weather and temperatures experienced in Texas and other parts of the country in February 2021 caused us to temporarily close two of our fulfillment centers and affected the shipping of merchandise in and out of our fulfillment centers.
Compromise of our data security or of third parties with whom we do business, failure to prevent or mitigate the loss of personal or business information, and delays in detecting or providing prompt notice of any such compromise or loss could disrupt our operations, damage our reputation, and subject us to litigation, government action, or other additional costs and liabilities that could adversely affect our business, financial condition, and operating results.
Compromise of our data security or the data security of third parties with whom we do business, failure to prevent or mitigate the loss of personal or business information, and delays in detecting or providing prompt notice of any such compromise or loss could disrupt our operations, damage our reputation, and subject us to litigation, government action, or other additional costs and liabilities that could adversely affect our business, financial condition, and operating results.
These regulations and laws may involve taxes, privacy and data security, consumer protection, the ability to collect and/or share necessary information that allows us to conduct business on the internet, marketing communications and advertising, content protection, electronic contracts, or gift cards. Furthermore, the regulatory landscape impacting internet and eCommerce businesses is constantly evolving.
These regulations and laws may involve taxes, privacy and data security, consumer protection, the ability to collect or share necessary information that allows us to conduct business on the internet, marketing communications and advertising, content protection, electronic contracts, or gift cards. Furthermore, the regulatory landscape impacting internet and eCommerce businesses is constantly evolving.
If securities or industry analysts either do not publish research about us or publish inaccurate or unfavorable research about us, our business, or our market, or if they change their recommendations regarding our common stock adversely, the trading price or trading volume of our Class A common stock could decline.
If securities or industry analysts either do not publish research about us or publish inaccurate or unfavorable research about us, our business, or our market, or if they change their recommendations regarding our Class A common stock adversely, the trading price or trading volume of our Class A common stock could decline.
These provisions include the following: • establish a classified Board of Directors so that not all members of our board of directors are elected at one time; • permit the Board of Directors to establish the number of directors and fill any vacancies and newly created directorships; • provide that directors may only be removed for cause; • require super-majority voting to amend some provisions in our certificate of incorporation and bylaws; • authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan; • eliminate the ability of our stockholders to call special meetings of stockholders; • prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; • provide that the board of directors is expressly authorized to make, alter, or repeal our bylaws; • restrict the forum for certain litigation against us to Delaware; • reflect the dual class structure of our common stock; and 30 • establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.
These provisions include the following: • establish a classified Board of Directors so that not all members of our board of directors are elected at one time; • permit the Board of Directors to establish the number of directors and fill any vacancies and newly created directorships; • provide that directors may only be removed for cause; • require super-majority voting to amend some provisions in our certificate of incorporation and bylaws; • authorize the issuance of “blank check” preferred stock that our Board of Directors could use to implement a stockholder rights plan; • eliminate the ability of our stockholders to call special meetings of stockholders; • prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; • provide that the Board of Directors is expressly authorized to make, alter, or repeal our bylaws; • restrict the forum for certain litigation against us to Delaware; • reflect the dual class structure of our common stock; and • establish advance notice requirements for nominations for election to our Board of Directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.
In addition, our ability to receive inbound inventory efficiently, ship merchandise to clients, and receive returned merchandise from clients may be negatively affected by inclement weather, fire, flood, power loss, earthquakes, public health crises such as the COVID-19 pandemic, labor disputes, shortages, or strikes, acts of war or terrorism, periods of high e-commerce volume, such as holiday seasons, and similar factors.
In addition, our ability to receive inbound inventory 16 efficiently, ship merchandise to clients, and receive returned merchandise from clients may be negatively affected by inclement weather, fire, flood, power loss, earthquakes, public health crises such as the COVID-19 pandemic, labor disputes, shortages, or strikes, acts of war or terrorism, periods of high e-commerce volume, such as holiday seasons, and similar factors.
All the shares of Class A and Class B common stock subject to stock options and restricted stock units outstanding and reserved for issuance under our 2011 Equity Incentive Plan, as amended, our 2017 Incentive Plan, and our 2019 Inducement Plan (our “Incentive Plans”) have been registered on Form S-8 under the Securities Act and such shares are eligible for sale in the public markets, subject to Rule 144 limitations applicable to affiliates.
All the shares of Class A and Class B common stock subject to stock options and restricted stock units outstanding and reserved for issuance under our 2011 Equity Incentive Plan, as amended, our 2017 Incentive Plan, and our 2019 Inducement Plan (collectively, our “Incentive Plans”) have been registered on Form S-8 under the Securities Act and such shares are eligible for sale in the public markets, subject to Rule 144 limitations applicable to affiliates.
As a result, the holders of our Class B common stock, including our directors, executive officers, and their affiliates, are able to exercise considerable influence over matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as a merger or other sale of our company or our assets, even if their stock holdings represent less than 50% of the outstanding shares of our capital stock.
As a result, the holders of our Class B common stock, including certain of our directors, executive officers, and their affiliates, are able to exercise considerable influence over matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as a merger or other sale of our company or our assets, even if their stock holdings represent less than 50% of the outstanding shares of our capital stock.
Our failure to adequately prevent fraudulent transactions could damage our reputation, result in litigation or regulatory action, and lead to expenses that could substantially impact our operating results. We are subject to payment-related risks. We accept payments online via credit and debit cards and online payment systems such as PayPal, which subjects us to certain regulations and fraud.
Our failure to adequately prevent fraudulent transactions could damage our reputation, result in litigation or regulatory action, and lead to expenses that could substantially impact our operating results. 20 We are subject to payment-related risks. We accept payments online via credit and debit cards and online payment systems such as PayPal, which subjects us to certain regulations and fraud.
The market price of our Class A common stock may fluctuate or decline significantly in response to numerous factors, many of which are beyond our control, including: • actual or anticipated fluctuations in our client base, the level of client engagement and client acquisition, revenue, or other operating results; • variations between our actual operating results and the expectations of securities analysts, investors, and the financial community; 28 • any forward-looking financial or operating information we may provide to the public or securities analysts, any changes in this information, or our failure to meet expectations based on this information; • actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors; • repurchases of our Class A common stock pursuant to our share repurchase program, which could also cause our stock price to be higher that it would be in the absence of such a program and could potentially reduce the market liquidity for our stock; • whether investors or securities analysts view our stock structure unfavorably, particularly our dual-class structure and the significant voting control of our directors, executive officers, and their affiliates; • additional shares of our Class A common stock being sold into the market by us or our existing stockholders, or the anticipation of such sales; • announcements by us or our competitors of significant products or features, technical innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments; • changes in operating performance and stock market valuations of companies in our industry, including our vendors and competitors; • price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; • targeted efforts of social media or other groups to transact in and affect the price of Stitch Fix stock, such as the activity in early 2021 targeting GameStop Corp and others; • lawsuits threatened or filed against us; • developments in new legislation and pending lawsuits or regulatory actions, including interim or final rulings by judicial or regulatory bodies; and • other events or factors, including those resulting from war or incidents of terrorism, public health crises such as the COVID-19 pandemic, or responses to these events.
The market price of our Class A common stock may fluctuate or decline significantly in response to numerous factors, many of which are beyond our control, including: • actual or anticipated decreases in our client base, the level of client engagement, client acquisition and retention, and revenue and other operating results; • variations between our actual operating results and the expectations of securities analysts, investors, and the financial community; • any forward-looking financial or operating information we may provide to the public or securities analysts, any changes in this information, or our failure to meet expectations based on this information; • actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our Company, or our failure to meet these estimates or the expectations of investors; • repurchases of our Class A common stock pursuant to our share repurchase program, which could also cause our stock price to be higher that it would be in the absence of such a program and could potentially reduce the market liquidity for our stock; • whether investors or securities analysts view our stock structure unfavorably, particularly our dual-class structure and the significant voting control of our directors, executive officers, and their affiliates; • additional shares of our Class A common stock being sold into the market by us or our existing stockholders, or the anticipation of such sales; • announcements by us or our competitors of significant products or features, technical innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments; 27 • changes in operating performance and stock market valuations of companies in our industry, including our vendors and competitors; • price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; • targeted efforts of social media or other groups to transact in and affect the price of Stitch Fix stock, such as the activity in early 2021 targeting GameStop Corp and others; • lawsuits threatened or filed against us; • developments in new legislation and pending lawsuits or regulatory actions, including interim or final rulings by judicial or regulatory bodies; and • other events or factors, including those resulting from war or incidents of terrorism, public health crises such as the COVID-19 pandemic, or responses to these events.
Any of these risks could be difficult to eliminate or manage and, if not addressed, could have an adverse effect on our business and operating results. 24 Adverse litigation judgments or settlements resulting from legal proceedings in which we are or may be involved could expose us to monetary damages or limit our ability to operate our business.
Any of these risks could be difficult to eliminate or manage and, if not addressed, could have an adverse effect on our business and operating results. Adverse litigation judgments or settlements resulting from legal proceedings in which we are or may be involved could expose us to monetary damages or limit our ability to operate our business.
We are also at risk of claims by others that we have infringed their copyrights, trademarks, or patents, or improperly used or disclosed their trade secrets. The costs of supporting any litigation or disputes related to these claims can be considerable, and we cannot assure you that we will achieve a favorable outcome of any such claim.
We are also at risk of claims by others that we have infringed their copyrights, trademarks, or patents, or improperly used or disclosed their trade secrets. The costs of supporting any litigation or disputes related to these claims can be considerable, and we cannot assure that we will achieve a favorable outcome of any such claim.
If any analyst who may cover us were to cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the trading price or trading volume of our Class A common stock to decline. Item 1B. Unresolved Staff Comments. None. 32
If any analyst who may cover us were to cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the trading price or trading volume of our Class A common stock to decline. Item 1B. Unresolved Staff Comments. None.
We have in the past incurred and may in the future incur losses from various types of fraud, including stolen credit card numbers, claims that a client did not authorize a purchase, merchant fraud, and clients who have closed bank accounts or have insufficient funds in open bank accounts to satisfy payments.
We may incur significant losses from fraud. We have in the past incurred and may in the future incur losses from various types of fraud, including stolen credit card numbers, claims that a client did not authorize a purchase, merchant fraud, and clients who have closed bank accounts or have insufficient funds in open bank accounts to satisfy payments.
If we fail to retain employees and effectively manage our hiring needs, our efficiency, ability to meet forecasts, employee morale, productivity, and the success of our strategic plans and product roadmap could suffer, which may have an adverse effect on our business, financial condition, and operating results.
If we fail to retain employees and effectively manage our hiring needs, our 18 efficiency, ability to meet forecasts, employee morale, productivity, and the success of our strategic plans and product roadmap could suffer, which may have an adverse effect on our business, financial condition, and operating results.
These risks could adversely affect our revenues, reduce our profitability, and negatively impact our business. 27 We could be required to collect additional sales taxes or be subject to other tax liabilities that may increase the costs our clients would have to pay for our offering and adversely affect our operating results.
These risks could adversely affect our revenues, reduce our profitability, and negatively impact our business. We could be required to collect additional sales taxes or be subject to other tax liabilities that may increase the costs our clients would have to pay for our offering and adversely affect our operating results.
Interruptions may also be caused by a variety of incidents, including human error, our failure to update or improve our proprietary systems, cyber attacks, fire, flood, earthquake, power loss, or telecommunications failures. These risks are exacerbated by our move to a more remote workforce.
Interruptions may also be 22 caused by a variety of incidents, including human error, our failure to update or improve our proprietary systems, cyber attacks, fire, flood, earthquake, power loss, or telecommunications failures. These risks are exacerbated by our move to a more remote workforce.
Our trademarks are valuable assets that support our brand and consumers’ perception of our services and merchandise. We also hold the rights to the “stitchfix.com” internet domain name and various other related domain names, which are subject to internet regulatory bodies and trademark and other related laws of each applicable jurisdiction.
Our trademarks are valuable assets that support our brand and consumers’ perception of our services and merchandise. We also hold the rights to the “stitchfix.com” internet domain name and various other related domain names, which are subject to internet regulatory bodies and trademark and other related 25 laws of each applicable jurisdiction.
We may also adjust our marketing strategy or spend within a period if we are not achieving the intended results or if we believe the return-on-investment is not favorable, which may result in faster or slower rates of active client growth in any given period.
We may also adjust our marketing strategy or decrease spend within a period if we are not achieving the intended results or if we believe the return-on-investment is not favorable, which may result in faster or slower rates of active client growth in any given period.
There can be no assurance, however, that we or our vendors will not suffer a data compromise, that hackers or other unauthorized parties will not gain access to personal information or other data, including payment card data or confidential business information, or that any such data compromise or unauthorized access will be discovered in a timely fashion.
There can be no assurance, however, that we or our vendors will not suffer a data compromise, that hackers or other unauthorized parties will not gain access to personal information or other sensitive data, including payment card data or confidential business information, or that any such data compromise or unauthorized access will be discovered in a timely fashion.
For example, in the first quarter of fiscal year 2022, we experienced technical issues following a systems upgrade to our procure-to-pay processes which affected the transmission, receipt, and reconciliation of purchase orders and payments with many of our apparel and accessory vendors.
For example, in the first quarter of fiscal 2022, we experienced technical issues following a systems upgrade to our procure-to-pay processes which affected the transmission, receipt, and reconciliation of purchase orders and payments with many of our apparel and accessory vendors.
These laws could also impact our ability to offer our products in certain locations. The costs, burdens, and potential liabilities imposed by existing privacy laws could be compounded if other jurisdictions in the U.S. or abroad begin to adopt similar or more restrictive laws.
These laws could also impact our ability to offer our products in certain locations. The costs, burdens, and potential liabilities imposed by existing privacy laws could be compounded if other jurisdictions in the U.S. begin to adopt similar or more restrictive laws.
For example, Apple made a change in iOS 14 that required apps to get a user’s opt-in permission before tracking or sharing the user’s data across apps or websites owned by companies other than the app’s owner.
For example, Apple made a change in iOS 14 that required apps to get a user’s opt-in permission before tracking a user or sharing the user’s data across apps or websites owned by companies other than the app’s owner.
The dual class structure of our common stock concentrates voting control with our executive officers, directors and their affiliates, and may depress the trading price of our Class A common stock. Our Class B common stock has ten votes per share and our Class A common stock has one vote per share.
The dual class structure of our common stock concentrates voting control with our directors, executive officers, and their affiliates, and may depress the trading price of our Class A common stock. 28 Our Class B common stock has ten votes per share and our Class A common stock has one vote per share.
Although we maintain liability insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms or at all.
Although we maintain liability insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us 23 on economically reasonable terms or at all.
We also experienced weaker-than-expected conversion of new clients in the second and third quarters of fiscal 2022 driven by onboarding challenges and lower site traffic, due in part to the ongoing effects of Apple’s iOS privacy changes that r equire apps to get a user’s opt-in permission before tracking or sharing the user’s data across apps or websites owned by companies other than the app’s owner .
We also experienced weaker-than-expected conversion of new clients in the second and third quarters of fiscal year 2022 driven by onboarding challenges and lower site traffic, due in part to the ongoing effects of Apple’s iOS privacy changes that r equire apps to get a user’s opt-in permission before tracking the user or sharing the user’s data across apps or websites owned by companies other than the app’s owner .
In fiscal year 2022, our results were below our expectations, in large part, because the initial launch of our Freestyle did not drive as much new client growth as we anticipated.
In fiscal 2022, our results were below our expectations, in large part, because the initial launch of Freestyle did not drive as much new client growth as we anticipated.
The restrictive covenants of this or any future debt financing secured may make it more difficult for us to obtain additional capital and to pursue business opportunities.
The restrictive covenants of this or any future debt financing secured may make it more difficult for us to obtain capital and to pursue business opportunities.
If existing clients no longer find our service and merchandise appealing or appropriately priced, they may make fewer purchases and may stop using our service.
If our existing clients no longer find our service and merchandise appealing or appropriately priced, they may make fewer purchases or may stop using our service altogether.
We experienced temporary closures and reduced capacity in the third quarter of fiscal year 2020 as we temporarily closed three of our fulfillment centers as we responded to the pandemic. We allowed employees to opt-in to work, provided them with four weeks of flexible paid time off, and implemented additional safety protocols.
We experienced reduced capacity in the third quarter of fiscal year 2020 as we temporarily closed three of our fulfillment centers as we responded to the pandemic. We allowed employees to opt-in to work, provided them with four weeks of flexible paid time off, and implemented additional safety protocols.
Developing new offerings requires significant investments of resources and time, and if a new offering is not successful, our business may not grow as anticipated. If the launch of a new category or offering or in a new geography requires investments greater than we expect, is delayed or is not executed well, our operating results could be negatively impacted.
Developing new offerings requires significant investments of resources and time, and if a new offering is not successful, our business may not grow as anticipated. If the launch of a new category or offering requires investments greater than we expect, is delayed or is not executed well, our operating results could be negatively impacted.
In the first and second fiscal quarters of fiscal year 2022, we spent less on marketing because we were experiencing weaker-than-expected conversion of new clients and decided to pull back to focus on evolving the Freestyle offering and refining the client onboarding experience.
For example, in the first and second fiscal quarters of fiscal year 2022, we spent less on marketing because we were experiencing weaker-than-expected conversion of new clients and decided to pull back to focus on evolving the Freestyle offering and refining the client onboarding experience.
In addition, we seek to attract new clients by offering new products, services, and ways to engage with our platform, such as our Freestyle offering. If such new products or services are not timely or successfully launched or are not successful in attracting new clients, our revenue growth and results of operations may suffer.
In addition, we seek to attract new clients by offering new products, services, and ways to engage with our platform, such as our Freestyle offering. If such new products or services are not timely or successfully launched or are not successful in attracting new clients, our results of operations may suffer.
Freight delays caused by lockdowns due to COVID-19, port closures, port congestion, and shipping container and ship shortages have affected us and caused us to experience delays in receiving inventory. Freight delays caused by these issues or new issues, including labor disruptions or shortages, may affect us in future quarters.
For example, freight delays caused by lockdowns due to COVID-19, port closures, port congestion, and shipping container and ship shortages have affected us and caused us to experience delays in receiving inventory. Freight delays caused by these issues or new issues, including labor disruptions or shortages, may affect us in future quarters.
In the ordinary course of our business, we and our vendors collect, process, and store certain personal information and other data relating to individuals, such as our clients and employees, which may include client payment card information.
In the ordinary course of our business, we and our vendors and service providers collect, process, and store certain personal information and other data relating to individuals, such as our clients and employees, which may include client payment card information.
Further growth of our operations, vendor base, fulfillment centers, information technology systems, or internal controls and procedures may not be adequate to support our operations. Any change or upgrade to our systems to support the growth and increasing complexity of our business involves risk and we may experience problems or delays as we make upgrades or changes to our systems.
Our operations, vendor base, fulfillment centers, information technology systems, or internal controls and procedures may not be adequate to support our changing operations. Any change or upgrade to our systems to support the increasing complexity of our business involves risk and we may experience problems or delays as we make upgrades or changes to our systems.
Some of the factors that may negatively influence consumer spending include high levels of unemployment; higher consumer debt levels; reductions in net worth, declines in asset values, and related market and macroeconomic uncertainty; home foreclosures and reductions in home values; fluctuating interest rates, increased inflationary pressures and credit availability; rising fuel and other energy costs; rising commodity prices; and general uncertainty regarding the overall future political and economic environment.
Some of the factors that may negatively influence consumer spending include high levels of unemployment; higher consumer debt levels; reductions in net worth and declines in asset values; macroeconomic uncertainty; recessionary concerns; home foreclosures and reductions in home values; fluctuating interest rates, increased inflationary pressures and credit availability; rising fuel and other energy costs; rising commodity prices; and general uncertainty regarding the overall future political and economic environment.
Natural disasters, such as earthquakes, hurricanes, tornadoes, floods, fires, and other adverse weather events and climate conditions, which may become more frequent and more severe with the increasing effects of climate change; unforeseen public health crises, such as the ongoing COVID-19 pandemic or other pandemics and epidemics; political crises, such as terrorist attacks, war, and other political instability, including the ongoing conflict between Ukraine and Russia; or other catastrophic events, whether occurring in the United States or internationally, could disrupt our operations in or cause us to close one or more of our offices and fulfillment centers or could disrupt, delay, or otherwise negatively impact the operations of one or more of our third-party providers or vendors.
Natural disasters, such as earthquakes, hurricanes, tornadoes, floods, fires, snow or ice storms, and other adverse weather events and climate conditions, which we expect to become more frequent and more severe with the increasing effects of climate change; unforeseen public health crises, such as the COVID-19 pandemic or other pandemics and epidemics; political crises, such as terrorist attacks, war, and other political instability, including the ongoing conflict between Ukraine and Russia; or other catastrophic events, whether occurring in the United States or internationally, could disrupt our operations or cause us to close one or more of our offices and fulfillment centers or could disrupt, delay, or otherwise negatively impact the operations of one or more of our third-party providers or vendors.
In the first and second fiscal quarters of fiscal year 2022, we spent less on marketing because we were experiencing weaker-than-expected conversion of new clients and decided to pull back to focus on evolving the Freestyle offering and refining the client onboarding experience.
For instance in the first and second quarters of fiscal 2022, we spent less on marketing because we were experiencing weaker-than-expected conversion of new clients and decided to pull back to focus on evolving the Freestyle offering and refining the client onboarding experience.
If we do not continue to acquire new merchandise vendors or retain our existing merchandise vendors on acceptable commercial terms, we may not be able to maintain a broad selection of products for our clients, and our operating results may suffer. In addition, our Exclusive Brands are sourced from third-party vendors and contract manufacturers.
If we do not continue to acquire new merchandise vendors or retain our existing merchandise vendors on acceptable commercial terms, we may not be able to maintain a broad selection of products for our clients, and our operating results may suffer. In addition, our Owned Private Label Brands are sourced from third-party vendors and contract manufacturers.
Expansion of our merchandise offerings and geographic scope may also strain our management and operational resources, specifically the need to hire and manage additional merchandise buyers to source new merchandise and to allocate new categories across our distribution network. We may also face greater competition in specific categories or regions from companies that are more focused on these areas.
Expansion of our merchandise offerings may also strain our management and operational resources, specifically the need to hire and manage additional merchandise buyers to source new merchandise and to allocate new categories across our distribution network. We may also face greater competition in specific categories from companies that are more focused on these areas.
General Risk Factors • Future securities sales and issuances could result in significant dilution to our stockholders and impair the market price of our Class A common stock. • If we are unable to maintain effective internal control over financial reporting, investors may lose confidence in the accuracy of our reported financial information and this may lead to a decline in our stock price. • We may require additional capital to support business growth, and this capital might not be available or may be available only by diluting existing stockholders. • If securities or industry analysts either do not publish research about us or publish inaccurate or unfavorable research about us, our business, or our market, or if they change their recommendations regarding our common stock adversely, the trading price or trading volume of our Class A common stock could decline. 13 RISK FACTORS Investing in our Class A common stock involves a high degree of risk.
General Risk Factors • Future securities sales and issuances could result in significant dilution to our stockholders and impair the market price of our Class A common stock. • If we are unable to maintain effective internal control over financial reporting, investors may lose confidence in the accuracy of our reported financial information and this may lead to a decline in our stock price. • We may not be able to generate sufficient capital to support and grow our business, and outside capital might not be available or may be available only by diluting existing stockholders. • If securities or industry analysts either do not publish research about us or publish inaccurate or unfavorable research about us, our business, or our market, or if they change their recommendations regarding our Class A common stock adversely, the trading price or trading volume of our Class A common stock could decline. 13 RISK FACTORS Investing in our Class A common stock involves a high degree of risk.
XPCC controls many of the cotton farms and much of the textile industry in the region, and many large factories in XUAR product fabrics and yarn for apparel.
XPCC controls many of the cotton farms and much of the textile industry in the region, and many large factories in XUAR produce fabrics and yarn for apparel.
Additionally, as we enter into new categories and markets, we may not have as high purchasing power as we do in our current offerings, which could increase our costs of goods sold and further reduce our margins.
If we enter into new categories, we may not have as high purchasing power as we do in our current offerings, which could increase our costs of goods sold and further reduce our margins.
We compete with eCommerce companies that market the same or similar merchandise and services that we offer; local, national, and global department stores; specialty retailers; discount chains; independent retail stores; and the online offerings of these traditional retail competitors. Additionally, we experience competition for consumer discretionary spending from other product and experiential categories.
The retail apparel industry is highly competitive. We compete with eCommerce companies that market the same or similar merchandise and services that we offer; local, national, and global department stores; specialty retailers; discount chains; independent retail stores; and the online offerings of these traditional retail competitors. Additionally, we experience competition for consumer discretionary spending from other product and experiential categories.
Additionally, our products or materials (including potentially non-cotton materials) could be held or delayed by the US CBP, which would cause delays and unexpectedly affect our inventory levels.
Additionally, our products or materials (including potentially non-cotton materials) could be held or delayed by the U.S. CBP, which would cause delays and unexpectedly affect our inventory levels.
If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly limited, and our business and prospects could fail or be adversely affected.
If we are unable to generate sufficient capital or obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to support our business and to respond to business challenges could be significantly limited, and our business and prospects could fail or be adversely affected.
If our new offerings are not accepted by our clients or do not attract new clients, or if we are not able to attract clients in new markets, our sales may fall short of expectations, our brand and reputation could be adversely affected, and we may incur expenses that are not offset by sales.
If our new offerings are not accepted by our clients or do not attract new clients, our sales may fall short of expectations, our brand and reputation could be adversely affected, and we may incur expenses that are not offset by sales.
We may not be able to return to or sustain our revenue growth rate and we may not be profitable in the future. Our past revenue growth and profitability should not be considered indicative of our future performance.
We may not be able to return to revenue growth and we may not be profitable in the future. Our past revenue growth and profitability should not be considered indicative of our future performance.
While we take measures to ensure merchandise quality and avoid damage, we cannot control merchandise while it is out of our possession or prevent all damage while in our fulfillment centers. We may incur additional expenses and our reputation could be harmed if clients and potential clients believe that our merchandise is not of high quality or may be damaged.
While we take measures to ensure merchandise quality and avoid damage, we cannot control merchandise while it is out of our possession. We may incur additional expenses and our reputation could be harmed if clients and potential clients believe that our merchandise is not of high quality or may be damaged.
While we now collect, remit, and report sales tax in all states that impose a sales tax, it is still possible that one or more jurisdictions may assert that we have liability from previous periods for which we did not collect sales, use, or other similar taxes, and if such an assertion or assertions were successful it could result in substantial tax liabilities, including for past sales taxes and penalties and interest, which could materially adversely affect our business, financial condition, and operating results .
While we now collect, remit, and report sales tax in all states that impose a sales tax, it is still possible that one or more jurisdictions may assert that we have liability from previous periods for which we did not collect sales, use, or other similar taxes, and if such an assertion or assertions were successful it could result in substantial tax liabilities, including for past sales taxes and penalties and interest, which could materially adversely affect our business, financial condition, and operating results . 26 Federal income tax reform could have unforeseen effects on our financial condition and results of operations .
We are also party to an amended and restated credit agreement with Silicon Valley Bank and other lenders that contains covenants limiting our ability to, among other things, dispose of assets, undergo a change in control, merge or consolidate, make acquisitions, incur debt, incur liens, pay dividends, repurchase stock, and make investments, in each case subject to certain exceptions, and contains financial covenants requiring us to maintain minimum free cash flow and an adjusted current ratio above specified levels, measured in each case at the end of each fiscal quarter.
Our amended and restated credit agreement also contains covenants limiting our ability to, among other things, dispose of assets, undergo a change in control, merge or consolidate, make acquisitions, incur debt, incur liens, pay dividends, repurchase stock, and make investments, in each case subject to certain exceptions, and contains financial covenants requiring us to maintain minimum free cash flow and an adjusted current ratio above specified levels, measured in each case at the end of each fiscal quarter.
The loss of an Exclusive Brand vendor due to failure to comply with our standards could cause inventory delays, impact our clients’ experiences, and otherwise harm our operating results. In addition, failure of our vendors to comply with applicable laws and regulations and contractual requirements could lead to litigation against us, resulting in increased legal expenses and costs.
The loss of an Owned Private Label Brands vendor due to failure to comply with our standards could cause inventory delays, impact our clients’ experiences, and otherwise harm our operating results. In addition, failure of our vendors to comply with applicable laws and regulations and contractual requirements could lead to litigation against us, resulting in increased legal expenses and costs.
Even if our existing clients continue to find our service and merchandise appealing, they may decide to receive fewer Fixes or purchase fewer items from their Fixes or through Freestyle over time as their demand for new apparel declines or due to macroeconomic conditions or uncertainty.
Even if our existing clients continue to find our service and merchandise appealing, they may decide to receive fewer Fixes or purchase fewer items from their Fixes or through Freestyle as their demand for new apparel declines, due to macroeconomic conditions, or for other reasons.
Additionally, if we or our third-party partner are unable to adequately staff our fulfillment centers to meet demand, or if the cost of such staffing is higher than projected due to competition, mandated wage increases, regulatory changes, international expansion, or other factors, our operating results will be further harmed.
If we are unable to adequately staff our fulfillment centers to meet demand, or if the cost of such staffing is higher than projected due to competition, mandated wage increases, regulatory changes, or other factors, our operating results will be further harmed.
If we are not able to negotiate acceptable pricing and other terms with these entities, shipping prices increase at unexpected levels, or our shipping vendors experience performance problems or other difficulties, it could negatively impact our operating results and our clients’ experience.
We currently rely on three major vendors for our shipping. If we are not able to negotiate acceptable pricing and other terms with these entities, shipping prices increase at unexpected levels, or our shipping vendors experience performance problems or other difficulties, it could negatively impact our operating results and our clients’ experience.
If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our Class A common stock in the public market, then the trading price of our Class A common stock could decline.
Future sales of shares by existing stockholders could cause our stock price to decline. If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our Class A common stock in the public market, then the trading price of our Class A common stock could decline.
You should consider our business and prospects in light of the risks and difficulties we may encounter. 19 Our future success will depend in large part upon our ability to, among other things: • cost-effectively acquire new clients and engage with and retain existing clients; • overcome the impacts of the ongoing COVID-19 pandemic; • adequately and effectively staff our fulfillment centers; • manage our inventory effectively; • anticipate and respond to macroeconomic changes; • increase our market share; • increase consumer awareness of our brand and maintain our reputation; • successfully expand our offering and geographic reach; • anticipate and respond to changing style trends and consumer preferences; • compete effectively; • avoid interruptions in our business from information technology downtime, cybersecurity breaches, or labor stoppages; • effectively manage our growth; • continue to enhance our personalization capabilities; • hire, integrate, and retain talented people at all levels of our organization; • maintain the quality of our technology infrastructure; • develop new features to enhance the client experience; and • retain our existing merchandise vendors and attract new vendors.
Our future success will depend in large part upon our ability to, among other things: • cost-effectively acquire new clients and engage with and retain existing clients; • manage our inventory effectively; • adequately and effectively staff our fulfillment centers; • anticipate and respond to macroeconomic changes; • increase our market share; • increase consumer awareness of our brand and maintain our reputation; • successfully expand our offering; • anticipate and respond to changing style trends and consumer preferences; • compete effectively; • avoid interruptions in our business from information technology downtime, cybersecurity breaches, or labor stoppages; • effectively manage our growth; • continue to enhance our personalization capabilities; • hire, integrate, and retain talented people at all levels of our organization; 19 • maintain and improve the quality of our technology infrastructure; • develop new features to enhance the client experience; and • retain our existing merchandise vendors and attract new vendors.
Our standard vendor terms and conditions require vendors to comply with applicable laws. We have hired independent firms that conduct audits of the working conditions at the factories producing our Exclusive Brand products.
Our standard vendor terms and conditions require vendors to comply with applicable laws. We have hired independent firms that conduct audits of the working conditions at the factories producing our Owned Private Label Brands products.
Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our Class A common stock.
Additionally, if we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our Class A common stock.
Some of the merchandise we sell, including the children’s merchandise sold through Stitch Fix Kids, may expose us to product liability claims and litigation or regulatory action relating to personal injury or environmental or property damage.
Some of the merchandise we sell, including our children’s merchandise, may expose us to product liability claims and litigation or regulatory action relating to personal injury or environmental or property damage.
If we are unable to manage the growth of our organization effectively, or if growth initiatives are not introduced timely, do not produce the anticipated results, or cause unanticipated issues, our business, financial condition, and operating results may be adversely affected.
If new offerings and initiatives are delayed, it could affect our inventory levels. If we are unable to manage the growth of our organization effectively, or if growth initiatives are not introduced timely, do not produce the anticipated results, or cause unanticipated issues, our business, financial condition, and operating results may be adversely affected.
Risks Relating to our Industry, the Market, and the Economy • We rely on consumer discretionary spending and may be adversely affected by economic downturns and other macroeconomic conditions or trends. • Our industry is highly competitive and if we do not compete effectively our operating results could be adversely affected. • Our operating results have been, and could be in the future, adversely affected by natural disasters, public health crises, political crises, or other catastrophic events. 12 Cybersecurity, Legal and Regulatory Risks • System interruptions that impair client access to our website or other performance failures in our technology infrastructure could damage our business. • Compromises of our data security could cause us to incur unexpected expenses and may materially harm our reputation and operating results. • Some of our software and systems contain open source software, which may pose particular risks to our proprietary applications. • Adverse litigation judgments or settlements resulting from legal proceedings in which we are or may be involved could expose us to monetary damages or limit our ability to operate our business. • Any failure by us or our vendors to comply with product safety, labor, or other laws, or our standard vendor terms and conditions, or to provide safe factory conditions for our or their workers, may damage our reputation and brand, and harm our business. • Our use of personal information and other data subjects us to privacy laws and obligations, and our compliance with or failure to comply with such obligations could harm our business. • Unfavorable changes or failure by us to comply with evolving internet and eCommerce regulations could substantially harm our business and operating results. • If the use of “cookie” tracking technologies is further restricted, regulated, or blocked, or if changes in technology cause cookies to become less reliable or acceptable as a means of tracking consumer behavior, the amount or accuracy of internet user information we collect would decrease, which could harm our business and operating results. • If we cannot successfully protect our intellectual property, our business would suffer. • We may be accused of infringing intellectual property rights of third parties.
Cybersecurity, Legal and Regulatory Risks • System interruptions that impair client access to our website or other performance failures in our technology infrastructure could damage our business. • Compromises of our data security or that of our third-party service providers could cause us to incur unexpected expenses and may materially harm our reputation and operating results. • Some of our software and systems contain open source software, which may pose particular risks to our proprietary applications. • Adverse litigation judgments or settlements resulting from legal proceedings in which we are or may be involved could expose us to monetary damages or limit our ability to operate our business. 12 • Any failure by us or our vendors to comply with product safety, labor, or other laws, or our standard vendor terms and conditions, or to provide safe factory conditions for our or their workers, may damage our reputation and brand, and harm our business. • Our use of personal information, personal data, and sensitive information subjects us to privacy laws and other obligations (such as cybersecurity and data protection in contracts), and our compliance with or failure to comply with such obligations could harm our business. • Unfavorable changes or failure by us to comply with evolving internet and eCommerce regulations could substantially harm our business and operating results. • If the use of “cookie” tracking technologies is further restricted, regulated, or blocked, or if changes in technology cause cookies to become less reliable or acceptable as a means of tracking consumer behavior, the amount or accuracy of internet user information we collect would decrease, which could harm our business and operating results. • If we cannot successfully protect our intellectual property, our business would suffer. • We may be accused of infringing intellectual property rights of third parties.
The loss of one of our Exclusive Brand vendors for any reason, or our inability to source any additional vendors needed for our Exclusive Brands, could require us to source Exclusive Brand merchandise from another vendor or manufacturer, which could cause inventory delays, impact our clients’ experiences, and otherwise harm our operating results. We may incur significant losses from fraud.
The loss of one of our Owned Private Label Brand vendors for any reason, or our inability to source any additional vendors needed for our Owned Private Label Brands, could require us to source Owned Private Label Brands merchandise from another vendor or manufacturer, which could cause inventory delays, impact our clients’ experiences, and otherwise harm our operating results.
Wayfair, Inc. , that state and local jurisdictions may, at least in certain circumstances, enforce a sales and use tax collection obligation on remote vendors that have no physical presence in such jurisdiction. As of June 30, 2021, all states have enacted legislation to begin, requiring sales and use tax collection by remote vendors and/or by online marketplaces.
Wayfair, Inc. , that state and local jurisdictions may, at least in certain circumstances, enforce a sales and use tax collection obligation on remote vendors that have no physical presence in such jurisdiction. All states have now enacted legislation to require sales and use tax collection by remote vendors and by online marketplaces.
The program could affect the trading price of our stock and increase volatility, and any announcement of a termination of this program may result in a decrease in the trading price of our stock.
The program could affect the trading price of our stock and increase volatility, and any announcement of a termination of this program may result in a decrease in the trading price of our stock. In addition, this program could diminish our cash and cash equivalents and marketable securities.
Capacity constraints in our fulfillment centers could affect the amount and types of inventory we have available to offer to clients, which will affect our results of operations.
These hiring difficulties have caused capacity constraints in our fulfillment centers in the past and could in the future cause capacity constraints. Capacity constraints in our fulfillment centers could affect the amount and types of inventory we have available to offer to clients, which will affect our results of operations.
Our revenue decreased by 1.4% in fiscal 2022 compared to 2021, increased by 22.8% in fiscal 2021 compared to fiscal 2020, and increased 8.5% in fiscal 2020 compared to fiscal 2019.
Our revenue decreased by 21.0% in fiscal 2023 compared to fiscal 2022, decreased by 1.4% in fiscal 2022 compared to fiscal 2021, and increased by 22.8% in fiscal 2021 compared to fiscal 2020.
Federal income tax reform could have unforeseen effects on our financial condition and results of operations . New income or other tax laws or regulations could be enacted at any time, which could adversely affect our business operations and financial performance. Further, existing tax laws and regulations could be interpreted, modified, or applied adversely to us.
New income or other tax laws or regulations could be enacted at any time, which could adversely affect our business operations and financial performance. Further, existing tax laws and regulations could be interpreted, modified, or applied adversely to us.
These efforts resulted in significantly less capacity in our fulfillment centers during the third quarter of fiscal year 2020, which resulted in delayed Fix shipments, a significant Fix backlog, delayed inventory and return processing, extended wait times for clients, and inventory management challenges.
These efforts resulted in significantly less capacity in our fulfillment centers during the third quarter of fiscal year 2020, which resulted in delayed Fix shipments, a significant Fix backlog, delayed inventory and return processing, extended wait times for clients, and inventory management challenges. The COVID-19 pandemic and resulting economic disruption also led to significant volatility in the capital markets.
And on August 26, 2022, a class action lawsuit alleging violations of federal securities laws was filed by certain of our stockholders naming as defendants us, certain of our officers and directors and certain of our affiliated stockholders for allegedly making materially false and misleading statements regarding our Freestyle offering.
And on August 26, 2022, a class action lawsuit alleging violations of federal securities laws was filed by certain of our stockholders naming as defendants us, certain of our officers and directors for allegedly making materially false and misleading statements regarding our Freestyle offering. We may be the target of additional litigation of this type in the future as well.
We may be the target of additional litigation of this type in the future as well. Such securities litigation could subject us to substantial costs, divert resources and the attention of management from our business, and seriously harm our business. Moreover, because of these fluctuations, comparing our operating results on a period-to-period basis may not be meaningful.
Such securities litigation could subject us to substantial costs, divert resources and the attention of management from our business, and seriously harm our business. Moreover, because of these fluctuations, comparing our operating results on a period-to-period basis may not be meaningful. You should not rely on our past results as an indication of our future performance.
Google intends to further restrict the use of third-party cookies in its Chrome browser in 2023, consistent with similar actions taken by the owners of other browsers, such as Apple in its Safari browser, and Mozilla in its Firefox browser.
Google has updated its timetable for restricting the use of third-party cookies in its Chrome browser, consistent with similar actions taken by the owners of other browsers, such as Apple in its Safari browser, and Mozilla in its Firefox browser.
Our marketing expenses have varied from period to period, and we expect this trend to continue as we test new channels and refine our marketing strategies. We may increase our marketing spend and cannot be certain that increases in marketing spend will yield more clients, achieve meaningful payback on our investments, or be cost effective.
Our marketing expenses have varied from period to period, and we expect this trend to continue as we evolve our marketing strategies and employ a disciplined approach to marketing spend. If we increase our marketing spend, we cannot be certain that these increases will yield more clients, achieve meaningful payback on our investments, or be cost effective.
If we do not predict client demand and tastes well or if our algorithms do not help us reorder or write off the right products in a timely manner, we may not effectively manage our inventory and we may experience future significant inventory write-offs, which would adversely affect our operating results.
If we do not predict client demand accurately, do not reorder or write off the right products in a timely manner, or otherwise do not effectively manage our inventory, we may experience significant inventory write-offs or insufficient inventory to meet demand, which would adversely affect our operating results.
We may in the future have difficulty hiring employees in fulfillment centers due to increased competition or otherwise and we may have to increase wages for our fulfillment center employees, which would impact our operating results. These hiring difficulties have caused in the past and could in the future cause additional capacity constraints in our fulfillment centers.
These wage increases impacted our operating results. We may in the future have difficulty hiring employees in fulfillment centers due to increased competition or otherwise and we may have to increase wages for our fulfillment center employees, which would impact our operating results.
The ability to use our net operating loss carryforwards depends on the availability of future taxable income. In addition, as of July 30, 2022, we had federal and California research and development tax credit carryforwards of $38.7 million and $21.4 million, respectively.
The ability to use our net operating loss carryforwards depends on the availability of future taxable income. In addition, as of July 29, 2023, we had federal and California research and development tax credit carryforwards of $49.5 million and $23.9 million, respectively.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeIn addition, we have one fulfillment center that is leased and operated by a third-party logistics contractor in the UK. We believe our facilities, including our planned expansions, are sufficient for our current needs.
Biggest changeIn addition, we have one fulfillment center that is leased and operated by a third-party logistics contractor in the UK. In June 2023, we announced the intended closures of our fulfillment centers in Pennsylvania and Texas.
Item 2. Properties. Our principal physical properties are located in the United States and UK. Our corporate headquarters are located in San Francisco, California, and comprise approximately 134,000 square feet of space. Given our commitment to a more distributed workforce, and our recent reduction in headcount, we are actively marketing a portion of this space for sublease.
Item 2. Properties. Our principal physical properties are located in the United States and the UK. Our corporate headquarters are located in San Francisco, California, and comprise approximately 134,000 square feet of space. Given our more distributed workforce, and our recent reduction in headcount, we are actively marketing a portion of this space for sublease.
We also lease and operate six fulfillment centers in the United States. We currently utilize a total of approximately 3,755,000 square feet, at which we receive merchandise from vendors, ship products to clients and receive and process returns from clients. These facilities are located in Arizona, Texas, Pennsylvania, Indiana, Utah, and Georgia.
We also currently lease and operate five fulfillment centers in the United States. We currently utilize a total of approximately 3,235,000 square feet, at which we receive merchandise from vendors, ship products to clients, and receive and process returns from clients. These facilities are located in Arizona, Indiana, Georgia, Pennsylvania, and Texas.
Added
Additionally, in June 2023, we also announced that we would enter a consultation period, in accordance with UK law, to explore exiting the market in the UK. On August 24, 2023, we ended the consultation period, and made the decision to exit our business and wind down our operations in the 31 UK.
Added
Refer to Note 13, “Restructuring” within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report for more details. We believe our facilities are sufficient for our current needs.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAn investment of $100 (with reinvestment of all dividends) is assumed to have been made in our Class A common stock and in each index on November 17, 2017, the date our Class A common stock began trading on the Nasdaq, and its relative performance is tracked through July 30, 2022.
Biggest changeAn investment of $100 (with reinvestment of all dividends) is assumed to have been made in our Class A common stock and in each index on July 28, 2018, and its relative performance is tracked through July 29, 2023.
The comparisons are based on historical data and are not indicative of, nor intended to forecast, the future performance of our Class A common stock. 33 The information under “Cumulative Stock Performance Graph” is not deemed to be “soliciting material” or “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act, and is not to be incorporated by reference in any filing of Stitch Fix under the Securities Act or the Exchange Act, whether made before or after the date of this Annual Report and irrespective of any general incorporation language in those filings.
The comparisons are based on historical data and are not indicative of, nor intended to forecast, the future performance of our Class A common stock. 32 The information under “Cumulative Stock Performance Graph” is not deemed to be “soliciting material” or “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act, and is not to be incorporated by reference in any filing of Stitch Fix under the Securities Act or the Exchange Act, whether made before or after the date of this Annual Report and irrespective of any general incorporation language in those filings.
During the fourth quarter of 2022, we did not repurchase any shares of our common stock and we had $120.0 million remaining in share repurchase capacity as of July 30, 2022. Item 6. Selected Financial Data. No disclosure required by Item 301 of Regulation S-K as in effect on the date of this Annual Report. 34
During fiscal 2023, we did not repurchase any shares of our common stock and we had $120.0 million remaining in share repurchase capacity as of July 29, 2023. Item 6. Selected Financial Data. No disclosure required by Item 301 of Regulation S-K as in effect on the date of this Annual Report. 33
Holders of Record As of the close of business on September 16, 2022, there were 40 stockholders of record of our Class A common stock and 14 stockholders of record of our Class B common stock.
Holders of Record As of the close of business on September 15, 2023, there were 39 stockholders of record of our Class A common stock and 14 stockholders of record of our Class B common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeIncome Tax Provision (Benefit) Our income tax provision (benefit) consists of an estimate of federal, state, and international income taxes based on enacted federal, state, and international tax rates, as adjusted for allowable credits, deductions, uncertain tax positions, and changes in the valuation of our net federal and state deferred tax assets. 38 Results of Operations Comparison of the Fiscal Years Ended July 30, 2022, July 31, 2021, and August 1, 2020 The following table sets forth our results of operations for the periods indicated: For the Fiscal Year Ended 2022 vs. 2021 2021 vs. 2020 (in thousands) July 30, 2022 July 31, 2021 August 1, 2020 % Change % Change Revenue, net $ 2,072,812 $ 2,101,258 $ 1,711,733 (1.4) % 22.8 % Cost of goods sold 1,164,338 1,153,622 957,523 0.9 % 20.5 % Gross profit 908,474 947,636 754,210 (4.1) % 25.6 % Selling, general, and administrative expenses 1,116,519 1,010,997 805,874 10.4 % 25.5 % Operating loss (208,045) (63,361) (51,664) 228.3 % 22.6 % Interest income 930 2,610 5,535 (64.4) % (52.8) % Other expense, net (2,355) (366) (1,593) 543.4 % (77.0) % Loss before income taxes (209,470) (61,117) (47,722) 242.7 % 28.1 % Income tax provision (benefit) (2,349) $ (52,241) $ 19,395 (95.5) % (369.4) % Net loss $ (207,121) $ (8,876) $ (67,117) * (86.8) % * Not meaningful The following table sets forth the components of our results of operations as a percentage of revenue: For the Fiscal Year Ended July 30, 2022 July 31, 2021 August 1, 2020 Revenue, net 100.0 % 100.0 % 100.0 % Cost of goods sold 56.2 % 54.9 % 55.9 % Gross margin 43.8 % 45.1 % 44.1 % Selling, general, and administrative expenses 53.9 % 48.1 % 47.1 % Operating loss (10.0) % (3.0) % (3.0) % Interest income — % 0.1 % 0.3 % Other expense, net (0.1) % — % (0.1) % Loss before income taxes (10.1) % (2.9) % (2.8) % Income tax provision (benefit) (0.1) % (2.5) % 1.1 % Net loss (10.0) % (0.4) % (3.9) % Note: Due to rounding, percentages in this table may not sum to totals.
Biggest changeResults of Operations Comparison of the Fiscal Years Ended July 29, 2023, July 30, 2022, and July 31, 2021 The following table sets forth our results of operations for the periods indicated: For the Fiscal Year Ended 2023 vs. 2022 2022 vs. 2021 (in thousands) July 29, 2023 July 30, 2022 July 31, 2021 % Change % Change Revenue, net $ 1,638,423 $ 2,072,812 $ 2,101,258 (21.0) % (1.4) % Cost of goods sold 946,902 1,164,338 1,153,622 (18.7) % 0.9 % Gross profit 691,521 908,474 947,636 (23.9) % (4.1) % Selling, general, and administrative expenses 869,318 1,116,519 1,010,997 (22.1) % 10.4 % Operating loss (177,797) (208,045) (63,361) (14.5) % 228.3 % Interest income 6,220 930 2,610 * (64.4) % Other income (expense), net 1,094 (2,355) (366) (146.5) % * Loss before income taxes (170,483) (209,470) (61,117) (18.6) % 242.7 % Income tax provision (benefit) 1,490 $ (2,349) $ (52,241) (163.4) % (95.5) % Net loss $ (171,973) $ (207,121) $ (8,876) (17.0) % * * Not meaningful The following table sets forth the components of our results of operations as a percentage of net revenue: For the Fiscal Year Ended July 29, 2023 July 30, 2022 July 31, 2021 Revenue, net 100.0 % 100.0 % 100.0 % Cost of goods sold 57.8 % 56.2 % 54.9 % Gross margin 42.2 % 43.8 % 45.1 % Selling, general, and administrative expenses 53.1 % 53.9 % 48.1 % Operating loss (10.9) % (10.0) % (3.0) % Interest income 0.4 % — % 0.1 % Other income (expense), net 0.1 % (0.1) % — % Loss before income taxes (10.4) % (10.1) % (2.9) % Income tax provision (benefit) 0.1 % (0.1) % (2.5) % Net loss (10.5) % (10.0) % (0.4) % Note: Due to rounding, percentages in this table may not sum to totals.
We believe exclusion of these items facilitates a more consistent comparison of operating performance over time, however these costs do include cash outflows; • free cash flow does not represent the total residual cash flow available for discretionary purposes and does not reflect our future contractual commitments.
We believe exclusion of these items facilitates a more consistent comparison of operating performance over time, however these costs do include cash outflows; and • free cash flow does not represent the total residual cash flow available for discretionary purposes and does not reflect our future contractual commitments.
This model requires us to use certain estimates and assumptions such as: • Expected volatility of our common stock—based on an even blend of historical and implied volatility; • Expected term of our stock options—the period that our stock options are expected to be outstanding based on historical averages. • Expected dividend yield—as we have not paid and do not anticipate paying dividends on our common stock, our expected dividend yield is 0%; and • Risk-free interest rates—based on the U.S.
This model requires us to use certain estimates and assumptions such as: • Expected volatility of our common stock—based on an even blend of historical and implied volatility of our common stock; • Expected term of our stock options—the period that our stock options are expected to be outstanding based on historical averages. • Expected dividend yield—as we have not paid and do not anticipate paying dividends on our common stock, our expected dividend yield is 0%; and • Risk-free interest rates—based on the U.S.
Some of these limitations include: • adjusted EBITDA excludes interest income and other expense, net, as these items are not components of our core business; • adjusted EBITDA does not reflect our income tax provision (benefit), which may increase or decrease cash available to us; • adjusted EBITDA excludes the recurring, non-cash expenses of depreciation and amortization of property and equipment and, although these are non-cash expenses, the assets being depreciated and amortized may have to be replaced in the future; • adjusted EBITDA excludes the non-cash expense of stock-based compensation, which has been, and will continue to be for the foreseeable future, an important part of how we attract and retain our employees and a significant recurring expense in our business; and • adjusted EBITDA excludes costs incurred related to discrete restructuring plans and other one-time costs that are fundamentally different in strategic nature and frequency from ongoing initiatives.
Some of these limitations include: • adjusted EBITDA excludes interest income and other (income) expense, net, as these items are not components of our core business; • adjusted EBITDA does not reflect our provision (benefit) for income taxes, which may increase or decrease cash available to us; • adjusted EBITDA excludes the recurring, non-cash expenses of depreciation and amortization of property and equipment and, although these are non-cash expenses, the assets being depreciated and amortized may have to be replaced in the future; • adjusted EBITDA excludes the non-cash expense of stock-based compensation, which has been, and will continue to be for the foreseeable future, an important part of how we attract and retain our employees and a significant recurring expense in our business; • adjusted EBITDA excludes costs incurred related to discrete restructuring plans and other one-time costs that are fundamentally different in strategic nature and frequency from ongoing initiatives.
The first step is to evaluate the uncertain tax position for recognition by determining if the weight of available 42 evidence indicates that it is more likely than not that the position will be sustained upon examination based on its technical merits.
The first step is to evaluate the uncertain tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon examination based on its technical merits.
The critical accounting policies, estimates, and judgments that we believe to have the most significant impacts to our consolidated financial statements are described below. Inventory, net Inventory, net consists of finished goods which are recorded at the lower of cost or net realizable value using the first-in-first-out (FIFO) method.
The critical accounting policies, estimates, and judgments that we believe to have the most significant impacts to our consolidated financial statements are described below. Inventory, net Inventory, net consists of finished goods which are recorded at the lower of cost or net realizable value using the first-in-first-out (“FIFO”) method.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and related notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K, or Annual Report.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and related notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K (“Annual Report”).
Adjusted EBITDA We define adjusted EBITDA as net loss excluding interest income, other expense, net, income tax provision (benefit), depreciation and amortization, stock-based compensation expense, and restructuring and other one-time costs.
Adjusted EBITDA We define adjusted EBITDA as net loss excluding interest income, other income (expense), net, provision (benefit) for income taxes, depreciation and amortization, stock-based compensation expense, and restructuring and other one-time costs.
Cash provided by (used in) investing activities During the fiscal year ended July 30, 2022, cash provided by investing activities was $10.2 million, primarily related to net cash flow from purchases, sales, and maturities of $56.6 million in highly rated available-for-sale securities, partially offset by $46.4 million in purchases of property and equipment.
During fiscal 2022 , cash provided by investing activities was $10.2 million, primarily related to net cash flow from purchases, sales, and maturities of $56.6 million in highly rated available-for-sale securities, partially offset by $46.4 million in purchases of property and equipment.
Cash used in financing activities During the fiscal year ended July 30, 2022, cash used in financing activities was $60.3 million, which was primarily due to payments for tax withholding related to vesting of restricted stock units of $31.7 million and repurchases of common stock of $30.0 million, partially offset by proceeds from the exercise of stock options of $1.5 million.
Cash Used in Financing Activities During fiscal 2023 , cash used in financing activities was $15.5 million, which was primarily due to payments for tax withholding related to vesting of restricted stock units of $15.6 million. 41 During fiscal 2022 , cash used in financing activities was $60.3 million, which was primarily due to payments for tax withholding related to vesting of restricted stock units of $31.7 million and repurchases of common stock of $30.0 million, partially offset by proceeds from the exercise of stock options of $1.5 million.
Aside from these specific reserves, we have not made any material changes to our assumptions included in the calculations of the lower of cost or net realizable value reserves during the fiscal year ended July 30, 2022.
Aside from these specific reserves, we have not made any material changes to our assumptions included in the calculations of the lower of cost or net realizable value reserves during fiscal 2023 or fiscal 2022 .
Generally, changes in our merchandise mix have not caused significant fluctuations in our gross margin to date; however, categories, brands, product types, and price points do have a range of margin profiles. For example, our Exclusive Brands have generally contributed higher margins than our third-party brands, which have generally contributed lower margins.
Historically, changes in our merchandise mix have not caused significant fluctuations in our gross margin; however, categories, brands, product types, and price points do have a range of margin profiles. For example, our Owned Private Label Brands have generally contributed higher margins than our third-party brands, which have generally contributed lower margins.
We carry a mix of third-party branded merchandise, including premium brands, and our own Exclusive Brands. We also offer a wide variety of product types, including denim, dresses, blouses, skirts, shoes, jewelry, and handbags. We sell merchandise across a broad range of price points and may further broaden our price point offerings in the future.
We also offer a wide variety of product types, including denim, dresses, blouses, skirts, shoes, jewelry, and handbags. We sell merchandise across a broad range of price points and may further broaden our price point offerings in the future.
The change in our net operating assets and liabilities was primarily due to an increase of $71.3 million in our accounts payable balance due to timing of inventory receipts and payments, as well as increased efficiency in the management of our working capital.
The change in our net operating assets and liabilities was primarily due to an increase of $71.3 million in our accounts payable balance due to timing of inventory receipts and payments.
A discussion regarding our financial condition and results of operations for fiscal year ended July 31, 2021, compared to the fiscal year ended August 1, 2020, can be found under Item 7 in our Annual Report on Form 10-K for the fiscal year ended July 31, 2021, filed with the SEC on September 27, 2021, which is available on the SEC’s website at www.sec.gov and on the SEC Filings section of the Investor Relations section of our website at: https://investors.stitchfix.com.
A discussion regarding our financial condition and results of operations for fiscal 2022 , compared to fiscal 2021 , can be found under Item 7 in our Annual Report for fiscal 2022 , filed with the SEC on September 21, 2022, which is available on the SEC’s website at www.sec.gov and on the SEC Filings section of the Investor Relations section of our website at: https://investors.stitchfix.com.
The repurchase program may be modified, suspended, or terminated at any time. During the three months ended July 30, 2022, the Company made no repurchases of Class A common stock. As of July 30, 2022, the Company has repurchased 2,302,141 shares of Class A common stock for approximately $30.0 million under the 2022 Repurchase Program.
The repurchase program may be modified, suspended, or terminated at any time. The Company made no repurchases of Class A common stock in fiscal 2023. As of July 29, 2023, the Company had repurchased 2,302,141 shares of Class A common stock for approximately $30.0 million under the 2022 Repurchase Program.
The following table presents a reconciliation of cash flows provided by (used in) operating activities, the most comparable GAAP financial measure, to free cash flow for each of the periods presented: For the Fiscal Year Ended (in thousands) July 30, 2022 July 31, 2021 August 1, 2020 Free cash flow reconciliation: Cash flows provided by (used in) operating activities $ 55,395 $ (15,675) $ 42,877 Deduct: Purchases of property and equipment (46,351) (35,256) (30,207) Free cash flow $ 9,044 $ (50,931) $ 12,670 Cash flows provided by (used in) investing activities $ 10,233 $ 39,093 $ (70,461) Cash flows provided by (used in) financing activities $ (60,250) $ (38,885) $ (1,435) Operating Metrics July 30, 2022 July 31, 2021 August 1, 2020 Active clients (in thousands) 3,795 4,165 3,522 Active Clients We believe that the number of active clients is a key indicator of our growth and the overall health of our business.
The following table presents a reconciliation of net cash flows provided by (used in) operating activities, the most comparable GAAP financial measure, to free cash flow for each of the periods presented: For the Fiscal Year Ended (in thousands) July 29, 2023 July 30, 2022 July 31, 2021 Net cash provided by (used in) operating activities $ 57,830 $ 55,395 $ (15,675) Deduct: Purchases of property and equipment (19,012) (46,351) (35,256) Free cash flow $ 38,818 $ 9,044 $ (50,931) Net cash provided by investing activities $ 64,326 $ 10,233 $ 39,093 Net cash used in financing activities $ (15,539) $ (60,250) $ (38,885) Operating Metrics July 29, 2023 July 30, 2022 July 31, 2021 Active clients (in thousands) 3,297 3,795 4,165 Active Clients We believe that the number of active clients is a key indicator of our growth and the overall health of our business.
We consider each Women’s, Men’s, or Kids account as a client, even if they share the same household. We had 3,795,000 and 4,165,000 active clients as of July 30, 2022, and July 31, 2021, respectively, representing a year-over-year decline of 8.9%.
We consider each Women’s, Men’s, or Kids account as a client, even if they share the same household. We had 3,297,000 and 3,795,000 active clients as of July 29, 2023 and July 30, 2022, respectively, representing a year-over-year decline of 13.1%.
As we continue to accumulate data related to our common stock, we may have refinements to our estimates and assumptions which could impact our future stock-based compensation expense.
As we continue to accumulate data related to our common stock, we may have refinements to our estimates and assumptions which could impact our future stock-based compensation expense. 42 Income Taxes We are subject to income taxes in the United States and the UK.
A discussion regarding our financial condition and results of operation for the fiscal year ended July 30, 2022, compared to the fiscal year ended July 31, 2021, is presented below.
A discussion regarding our financial condition and results of operation for fiscal 2023 , compared to fiscal 2022 , is presented below.
Selling, General, and Administrative Expenses Selling, general, and administrative expenses (“SG&A”) consist primarily of compensation and benefits costs, including stock-based compensation expense, for our employees including our stylists, fulfillment center operations, data analytics, merchandising, engineering, marketing, client experience, and corporate personnel.
Our classification of cost of goods sold may vary from other companies in our industry and may not be comparable. 38 Selling, General, and Administrative Expenses Selling, general, and administrative expenses (“SG&A”) consist primarily of compensation and benefits costs, including stock-based compensation expense, for our employees including our stylists, fulfillment center operations, data analytics, merchandising, engineering, marketing, client experience, and corporate personnel.
We had $120.0 million remaining in share repurchase capacity as of July 30, 2022. 40 Cash Flows The following table summarizes our cash flows for the periods indicated (in thousands): For the Fiscal Year Ended (in thousands) July 30, 2022 July 31, 2021 August 1, 2020 Net cash provided by (used in) operating activities $ 55,395 $ (15,675) $ 42,877 Net cash provided by (used in) investing activities 10,233 39,093 (70,461) Net cash used in financing activities (60,250) (38,885) (1,435) Effect of exchange rate changes on cash and cash equivalents (4,228) 1,797 1,542 Net increase (decrease) in cash and cash equivalents $ 1,150 $ (13,670) $ (27,477) Cash provided (used in) by operating activities During the fiscal year ended July 30, 2022, cash provided by operating activities was $55.4 million, which consisted of a net loss of $207.1 million, adjusted by non-cash charges of $188.1 million and a change of $74.4 million in our net operating assets and liabilities.
Cash Flows The following table summarizes our cash flows for the periods indicated (in thousands): For the Fiscal Year Ended (in thousands) July 29, 2023 July 30, 2022 July 31, 2021 Net cash provided by (used in) operating activities $ 57,830 $ 55,395 $ (15,675) Net cash provided by investing activities 64,326 10,233 39,093 Net cash used in financing activities (15,539) (60,250) (38,885) Effect of exchange rate changes on cash and cash equivalents 1,885 (4,228) 1,797 Net increase (decrease) in cash and cash equivalents $ 108,502 $ 1,150 $ (13,670) Cash Provided by (Used in) Operating Activities During fiscal 2023 , cash provided by operating activities was $57.8 million, which consisted of a net loss of $172.0 million, adjusted by non-cash charges of $150.1 million and a change of $79.7 million in our net operating assets and liabilities.
Freestyle utilizes our algorithms to recommend a personalized assortment of outfit and item recommendations that will update throughout the day and will continue to evolve as we learn more about the client. For the fiscal year ended July 30, 2022, we reported $2.1 billion of revenue representing a year-over-year decline of 1.4% from the fiscal year ended July 31, 2021.
Freestyle utilizes our algorithms to recommend a personalized assortment of outfits and items that will update throughout the day and will continue to evolve as we learn more about the client. For fiscal 2023 , we reported $1.6 billion of revenue representing a year-over-year decline of 21.0% as compared to fiscal 2022 .
We expect our cost of goods sold to fluctuate as a percentage of revenue primarily due to how we manage our inventory and merchandise mix. Our classification of cost of goods sold may vary from other companies in our industry and may not be comparable.
We expect our cost of goods sold to fluctuate as a percentage of revenue primarily due to how we manage our inventory and merchandise mix.
During the fiscal year ended July 31, 2021, cash provided by investing activities was $39.1 million, primarily related to net cash flow from purchases, sales, and maturities of $74.4 million in highly rated available-for-sale securities, partially offset by $35.3 million in purchases of property and equipment.
Cash Provided by Investing Activities During fiscal 2023 , cash provided by investing activities was $64.3 million, primarily related to net cash flow from purchases, sales, and maturities of $82.5 million in highly rated available-for-sale securities, partially offset by $19.0 million in purchases of property and equipment.
The following table presents a reconciliation of net loss, the most comparable GAAP financial measure, to adjusted EBITDA for each of the periods presented: For the Fiscal Year Ended (in thousands) July 30, 2022 July 31, 2021 August 1, 2020 Adjusted EBITDA: Net loss $ (207,121) $ (8,876) $ (67,117) Add (deduct): Interest income (930) (2,610) (5,535) Other expense, net 2,355 366 1,593 Income tax provision (benefit) (2,349) (52,241) 19,395 Depreciation and amortization 35,011 27,610 22,562 Stock-based compensation expense (1) 127,373 100,696 67,530 Restructuring and other one-time costs (2) 26,206 — — Adjusted EBITDA $ (19,455) $ 64,945 $ 38,428 (1) Excludes $1.1 million of stock-based compensation expense reflected in “Restructuring and other one-time costs” for the year ended July 30, 2022.
The following table presents a reconciliation of net loss, the most comparable GAAP financial measure, to adjusted EBITDA for each of the periods presented: For the Fiscal Year Ended (in thousands) July 29, 2023 July 30, 2022 July 31, 2021 Net loss $ (171,973) $ (207,121) $ (8,876) Add (deduct): Interest income (6,220) (930) (2,610) Other (income) expense, net (1,094) 2,355 366 Provision (benefit) for income taxes 1,490 (2,349) (52,241) Depreciation and amortization (1) 39,541 35,011 27,610 Stock-based compensation expense (2) 104,492 127,373 100,696 Restructuring and other one-time costs (3) 50,578 26,206 — Adjusted EBITDA $ 16,814 $ (19,455) $ 64,945 (1) For fiscal 2023, depreciation and amortization excluded $2.8 million reflected in “Restructuring and other one-time costs.” (2) For fiscal 2022, stock-based compensation expense excluded $1.1 million reflected in “Restructuring and other one-time costs.” (3) For fiscal 2023, restructuring charges were $44.7 million and other one-time costs were $5.8 million in retention bonuses for continuing employees.
We have not made any material changes to our revenue recognition accounting policies during the fiscal year ended July 30, 2022. Recent Accounting Pronouncements For recent accounting pronouncements, please see “Significant Accounting Policies” in Note 2 of the Notes to Consolidated Financial Statements included in this Annual Report.
We have not made any material changes to our revenue recognition accounting policies during fiscal 2023. Recent Accounting Pronouncements For recent accounting pronouncements, refer to Note 2, “Significant Accounting Policies” within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
We establish a reserve for excess and slow-moving inventory we expect to write off based on historical trends, which consider factors such as the age of the inventory and sell through rate for a particular item. In addition, we estimate and accrue shrinkage as a percentage of inventory out to the client and damaged items at 100% of cost.
We establish a reserve for excess and slow-moving inventory we expect to write off or sell below cost as clearance based on historical trends, which considers factors such as the age of the inventory and sell through rate for a particular item.
The fiscal years ended July 30, 2022 (“2022”) and July 31, 2021 (“2021”) consisted of 52 weeks. The fiscal year ended August 1, 2020 (“2020”) consisted of 53 weeks. Throughout this Annual Report, all references to quarters and years are to our fiscal quarters and fiscal years unless otherwise noted.
The fiscal years ended July 29, 2023 (“fiscal 2023”), July 30, 2022 (“fiscal 2022”), and July 31, 2021 (“fiscal 2021”) consisted of 52 weeks. The fiscal year ending August 3, 2024 (“fiscal 2024”) will be 53 weeks. Throughout this Annual Report, all references to quarters and years are to our fiscal quarters and fiscal years unless otherwise noted.
We are continuing to navigate the uncertainties presented by the current macroeconomic environment and remain focused on improving the conversion of new clients and our overall client experience. Net loss for the fiscal year ended July 30, 2022, was $207.1 million, compared to net loss of $8.9 million for the fiscal year ended July 31, 2021.
In addition, we are navigating the uncertainties presented by the current macroeconomic environment and remain focused on retaining current clients, improving the conversion of new clients, and enhancing our overall client experience for new and existing clients. Net loss for fiscal 2023 was $172.0 million, compared to net loss of $207.1 million for fiscal 2022 .
We calculate net revenue per active client based on net revenue over the preceding four fiscal quarters divided by the number of active clients, measured as of the last day of the period. Net revenue per active client was $546 and $505 as of July 30, 2022, and July 31, 2021, respectively, representing a year-over-year increase of 8.1%.
We calculate net revenue per active client based on net revenue over the preceding four fiscal quarters divided by the number of active clients, measured as of the last day of the period.
The increase was also related to restructuring and other one-time costs of $26.2 million recorded in the fourth quarter of fiscal 2022. 39 Income Tax Provision (Benefit) The following table summarizes our effective tax rate for the periods presented: For the Fiscal Year Ended (in thousands) July 30, 2022 July 31, 2021 August 1, 2020 Loss before income taxes $ (209,470) $ (61,117) $ (47,722) Income tax provision (benefit) (2,349) (52,241) 19,395 Effective tax rate 1.1 % 85.5 % (40.6) % We are subject to income taxes in the United States and the UK.
Provision for Income Taxes The following table summarizes our effective tax rate for the periods presented: For the Fiscal Year Ended (in thousands) July 29, 2023 July 30, 2022 July 31, 2021 Loss before income taxes $ (170,483) $ (209,470) $ (61,117) Income tax provision (benefit) 1,490 (2,349) (52,241) Effective tax rate (0.9) % 1.1 % 85.5 % We are subject to income taxes in the United States and the UK.
The non-cash charges were largely driven by $100.7 million of stock-based compensation expense, and $29.9 million of depreciation, amortization, and accretion.
The non-cash charges were largely driven by $104.5 million of stock-based compensation expense, $43.3 million of depreciation, amortization, and accretion, and $18.2 million in asset impairment charges.
We offer Style Pass to provide select U.S. clients with an alternative to paying a styling fee per Fix. Style Pass clients pay a nonrefundable annual fee for unlimited styling that is credited towards merchandise purchases. We deduct discounts, sales tax, and estimated refunds to arrive at net revenue, which we refer to as revenue throughout this Annual Report.
With our Fix offering, we charge a nonrefundable upfront fee, referred to as a “styling fee,” that is credited towards any merchandise purchased. We offer Style Pass to provide select U.S. clients with an alternative to paying a styling fee per Fix. Style Pass clients pay a nonrefundable annual fee for unlimited styling that is credited towards merchandise purchases.
We are party to a $100.0 million amended and restated credit agreement, entered into June 2, 2021 and amended on July 29, 2022 (the “Amended Credit Agreement”) with Silicon Valley Bank and other lenders. The Amended Credit Agreement includes a letter of credit sub-facility of $30.0 million and a swingline sub-facility of up to $40.0 million.
(as successor of Silicon Valley Bank)), and other lenders. The Amended Credit Agreement includes a letter of credit sub-facility of $30.0 million and a swingline sub-facility of up to $40.0 million.
To ensure sufficient availability of merchandise, we generally enter into purchase orders well in advance and frequently before apparel trends are confirmed by client purchases. As a result, we are vulnerable to demand and pricing shifts and availability of merchandise at time of purchase. We incur inventory write-offs and changes in inventory reserves that impact our gross margins.
As a result, we are vulnerable to demand and pricing shifts and availability of merchandise at the time of purchase. We incur inventory write-offs and changes in inventory reserves that impact our gross margins. Moreover, our inventory investments will fluctuate with the needs of our business.
We intend to leverage our data science and deep understanding of our clients’ needs to make targeted investments in technology and product. Merchandise Mix We offer apparel, shoes, and accessories across categories, brands, product types, and price points. We currently serve our clients in the following categories: Women’s, Petite, Maternity, Men’s, Plus, and Kids.
Merchandise Mix We offer apparel, shoes, and accessories across categories, brands, product types, and price points. We currently serve our clients in the following categories: Women’s, Petite, Maternity, Men’s, Plus, and Kids. We carry a mix of third-party branded merchandise, including premium brands, and our own Owned Private Label Brands.
Inventory shrinkage and damage estimates are made to reduce the inventory value for lost, stolen, or damaged items. If actual experience differs significantly from our estimates due to changes in client merchandise preferences, client demand, or economic conditions, additional merchandise inventory write-downs may be required which could adversely affect our operating results.
If actual experience differs significantly from our estimates due to changes in client merchandise preferences, client demand, or economic conditions, additional inventory write-downs may be required which could adversely affect our operating results. A 10% change in our inventory reserves estimate as of July 29, 2023 would result in a change in reserves of approximately $4.2 million.
During the fiscal year ended July 31, 2021, cash used in operating activities was $15.7 million, which consisted of a net loss of $8.9 million, adjusted by non-cash charges of $135.9 million and a change of $142.7 million in our net operating assets and liabilities.
During fiscal 2022 , cash provided by operating activities was $55.4 million, which consisted of a net loss of $207.1 million, adjusted by non-cash charges of $188.1 million and a change of $74.4 million in our net operating assets and liabilities.
Selling, general, and administrative expenses also include marketing and advertising costs, third-party logistics costs, facility costs for our fulfillment centers and offices, professional service fees, information technology costs, and depreciation and amortization expense. As a result of our restructuring and cost reduction actions, we expect SG&A in fiscal 2023 to decrease year over year.
SG&A also includes marketing and advertising costs, third-party logistics costs, facility costs for our fulfillment centers and offices, professional service fees, information technology costs, and depreciation and amortization expense.
Our classification of selling, general, and administrative expenses may vary from other companies in our industry and may not be comparable. Interest Income Interest income is generated from our cash equivalents and investments in available-for-sale securities.
Interest Income Interest income is generated from our cash equivalents and investments in available-for-sale securities.
This revenue trend is primarily due to our challenges in acquiring new clients during fiscal 2022, which has had and will continue to have a negative compounding effect on net revenue in fiscal 2023.
During fiscal 2023 and fiscal 2022 , we experienced a decline in net revenue year-over-year primarily due to our challenges in acquiring and retaining clients. We expect these challenges in acquiring and retaining active clients to continue having a negative compounding effect on net revenue in fiscal 2024.
We continue to analyze and evolve our merchandise mix and may increase or add third-party brands to improve the client experience and attract new active clients. Shifts in merchandise mix, particularly if we increase the number of third-party brands we offer, may affect or result in fluctuations in our gross margin from period to period.
We continue to evolve our merchandise mix to improve the client experience and attract new active clients. Shifts in merchandise mix will result in fluctuations in our gross margin from period to period. Components of Results of Operations Revenue We generate revenue from the sale of merchandise through our Fix and Freestyle offerings.
For more information on the components of net loss, refer to the section titled “Results of Operations” below. 35 Key Financial and Operating Metrics Non-GAAP Financial Measures We report our financial results in accordance with generally accepted accounting principles in the United States (“GAAP”).
However, our future results of operations will depend on our ability to successfully navigate current business challenges and the overall macroeconomic environment. 35 Key Financial and Operating Metrics Non-GAAP Financial Measures We report our financial results in accordance with generally accepted accounting principles in the United States (“GAAP”).
Our current marketing efforts include client referrals, affiliate programs, partnerships, campaigns with celebrities and influencers, display advertising, television, print, radio, video, content, direct 37 mail, social media, email, mobile “push” communications, search engine optimization, and keyword search campaigns. The launch of Freestyle to new-to-Stitch Fix clients has opened up new marketing opportunities and channels with which we have less experience.
At any given time, our advertising efforts may include, social media marketing, keyword search campaigns, affiliate programs, partnerships, campaigns with celebrities and influencers, display advertising, television, radio, video, content, direct mail, email, mobile “push” communications, SMS, and search engine optimization. Our marketing expenses have varied from period to period and we expect this trend to continue.
In light of our recent business momentum and an uncertain macroeconomic environment, we announced a restructuring plan on June 9, 2022, that reduces our future fixed and variable operating costs and allows us to centralize key capabilities, strengthen decision-making to drive efficiencies, and ensure we are allocating resources to our most critical priorities.
These actions were taken to reduce our future fixed and variable operating costs and allow us to centralize key capabilities, strengthen decision-making to drive efficiencies, and ensure we are allocating resources to our most critical priorities.
We may also use cash to repurchase shares of our common stock. We believe our existing cash, cash equivalents, investment balances, and the borrowing available under our Amended Credit Agreement, if needed, will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months and beyond.
Uses of Cash Our primary use of cash includes operating costs such as merchandise purchases, lease obligations, compensation and benefits, marketing, and other expenditures necessary to support our business. We believe our existing cash, cash equivalents, and investment balances will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months and beyond.
Financial Statements and Supplementary Data” to this Annual Report on Form 10-K. 41 Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with GAAP.
For information on our contractual obligations for operating leases, refer to Note 4, “Leases” within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report. Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with GAAP.
We also incurred other one-time cash charges of $8.5 million related to retention bonuses for continuing employees which was recognized in the fourth quarter of fiscal 2022.
For fiscal 2022, restructuring charges were $17.7 million and other one-time costs were $8.5 million in retention bonuses for continuing employees.
As of July 30, 2022, we had $235.0 million of enforceable and legally binding inventory purchase commitments predominantly due within one year. For information on our contractual obligations for operating leases, please see “Leases” in Note 4 of the Notes to Consolidated Financial Statements included in “Item 8.
Contractual Obligations and Other Commitments Our most significant contractual obligations relate to purchase commitments of inventory and operating lease obligations on our fulfillment centers and corporate offices. As of July 29, 2023, we had $168.0 million of enforceable and legally binding inventory purchase commitments, predominantly due within one year.
This restructuring plan reduced our workforce by approximately 15% of salaried positions and represented approximately 4% of our roles in total. We are continuing to evaluate other fixed and variable operating costs, including rationalizing our real estate footprint, to position ourselves for profitable growth in the future.
We are continuing to evaluate other fixed and variable operating costs, including further rationalizing our real estate footprint and continuing to optimize and be disciplined in our marketing strategy to better position ourselves for profitability.
As of July 30, 2022, and July 31, 2021, we had approximately 3,795,000 and 4,165,000 active clients, respectively, representing a year-over-year decline of 8.9%.
As of July 29, 2023, and July 30, 2022, we had approximately 3,297,000 and 3,795,000 active clients, respectively, representing a year-over-year decline of 13.1%. Refer to the section titled “Key Financial and Operating Metrics” below for information on how we define and calculate active clients.
As of July 30, 2022, we did not have any borrowings outstanding under the Credit Agreement.
As of July 29, 2023, we did not have any borrowings outstanding on the revolving line of credit under the Amended Credit Agreement and we had $78.1 million in borrowing capacity as reduced by outstanding letters of credit.
Factors Affecting Our Performance Inventory Management We leverage our data science to buy and manage our inventory, including merchandise assortment and fulfillment center optimization. Because our merchandise assortment directly correlates to client success, we may at times optimize our inventory to prioritize long-term client success over short-term gross margin impact.
Because our merchandise assortment directly correlates to client success, we may at times optimize our inventory to prioritize long-term client success over short-term gross margin impact. To ensure sufficient availability of merchandise, we generally enter into purchase orders well in advance and frequently before apparel trends are confirmed by client purchases.
We also recognize revenue resulting from estimated breakage income on gift cards.
We deduct discounts, sales tax, and estimated refunds to arrive at net revenue, which we refer to as revenue throughout this Annual Report. We also recognize revenue resulting from estimated breakage income on gift cards.
Liquidity and Capital Resources Sources of Liquidity Our principal source of liquidity is our cash flow from operations. As of July 30, 2022, we had $130.9 million of cash and cash equivalents and $99.8 million of investments. Our investment balance includes $82.0 million of short-term investments with contractual maturities of 12 months or less as of July 30, 2022.
As of July 29, 2023, we had $239.4 million of cash and cash equivalents and $18.2 million of short-term investments with contractual maturities of 12 months or less.
The decline in active clients was driven by client conversion challenges, lower site traffic, and the lapping of our high-dollar value referral program which ended in fiscal 2021. Net Revenue per Active Client We believe that net revenue per active client is an indicator of client engagement and satisfaction.
The decline in active clients is due to the addition of fewer new clients, as well as clients becoming inactive, both of which we believe have been influenced by the macroeconomic environment. Net Revenue per Active Client We believe that net revenue per active client is an indicator of client engagement and satisfaction.
Revenue and Gross Margin Revenue in the fiscal year ended July 30, 2022 decreased by $28.4 million, or 1.4%, from revenue in the fiscal year ended July 31, 2021.
Revenue and Gross Margin Revenue in fiscal 2023 decreased by $434.4 million, or 21.0%, as compared to revenue in fiscal 2022 . The decline in revenue was primarily attributable to a 13.1% decline in active clients from July 30, 2022 to July 29, 2023, which led to a decrease in sales of merchandise.
Other one-time costs primarily consists of $8.5 million in retention bonuses for continuing employees and we expect to incur an additional $5.4 million in retention bonuses during the first quarter of fiscal 2023 in connection with our one-time retention program. 36 Free Cash Flow We define free cash flow as cash flows from operating activities reduced by purchases of property and equipment that are included in cash flows from investing activities.
Refer to Note 13, “Restructuring” within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report for more details. 36 Free Cash Flow We define free cash flow as cash flows from operating activities reduced by purchases of property and equipment that are included in cash flows from investing activities.
We believe that implementing broad-based marketing strategies that increase our brand awareness has the potential to strengthen Stitch Fix as a national consumer brand, help us acquire new clients, and drive revenue growth. We currently utilize both digital and offline channels to attract new visitors to our website or mobile app and subsequently convert them into clients.
We utilize both digital and offline channels to attract new visitors to our website or mobile app and subsequently convert them into clients. Our marketing costs are largely composed of advertising, client referrals, and public relations expenses.
A 10% change in our inventory reserves estimate as of July 30, 2022, would result in a change in reserves of approximately $6.0 million. In fiscal 2022, we recorded additional reserves related to excess spring and summer inventory.
During both fiscal 2023 and fiscal 2022 , we recorded additional specific reserves related to excess and slow-moving spring and summer inventory.
The negative impact on cash and cash equivalents was primarily due to the unfavorable impact of fluctuations in the exchange rate of the British pound sterling to the U.S. dollar. Contractual Obligations and Other Commitments Our most significant contractual obligations relate to purchase commitments of inventory and operating lease obligations on our fulfillment centers and corporate offices.
Effect of Exchange Rate Changes on Cash and Cash Equivalents Cash and cash equivalents at both July 29, 2023 and July 30, 2022 was impacted based on fluctuations in the exchange rate of the British pound sterling to the U.S. dollar.
Removed
During the first half of fiscal 2022, our year-over-year net revenue growth rate was lower than it had historically been, and during the third and fourth quarters of fiscal 2022, we experienced a decline in net revenue year-over-year.
Added
Despite lower revenues year-over-year, our net loss in fiscal 2023 was lower due to several restructuring actions as described below, which reduced fixed and variable operating expenses, in addition to a reduction in advertising expense.
Removed
However, our future results of operations will depend on our ability to successfully navigate current business challenges and the overall macroeconomic environment. Notwithstanding this restructuring plan, we will continue to invest strategically in both product and technology, while remaining financially disciplined.
Added
For more information on the components of net loss, refer to the section titled “Results of Operations” below. 34 Restructuring During fiscal 2023, in furtherance of and as an expansion of the restructuring plan announced in June 2022 (the “2022 Restructuring Plan”), we undertook several restructuring actions.
Removed
In connection with the restructuring plan, we incurred $10.9 million in cash expenses related to termination benefits, $6.2 million in non-cash asset impairment charges, and $0.7 million of other non-cash costs which were recognized in the fourth quarter of fiscal 2022.
Added
I n connection with activities taken for the 2022 Restructuring Plan, described further below, w e have recorded the following: For the Fiscal Year Ended (in thousands) July 29, 2023 July 30, 2022 Cash restructuring charges: Severance and employee-related benefits (1) $ 18,299 $ 10,869 Other (4) 3,526 — Non-cash restructuring charges: Asset impairments (1, 2) 18,190 6,154 Accelerated depreciation (1) 2,805 — Inventory impairment (3) 553 719 Other (1) 1,364 — Total restructuring $ 44,737 $ 17,742 (1) Recognized in selling, general, and administrative expenses on the consolidated statements of operations and comprehensive loss.
Removed
(2) Restructuring charges consist of $17.7 million in cash and noncash charges primarily related to termination benefits and asset impairment charges in connection with our June 9, 2022, restructuring plan.
Added
(2) Fiscal 2023 includes impairments of both operating lease right-of-use assets and property and equipment. (3) Recognized in cost of goods sold on the consolidated statements of operations and comprehensive loss. (4) Primarily comprised of losses expected to arise from firm purchase commitments for future receipts of inventory.
Removed
Moreover, our inventory investments will fluctuate with the needs of our business. For example, entering new locations, expanding to new categories, offering new functionalities such as Freestyle, or adding new fulfillment centers will all require additional investments in inventory.
Added
Below is a summary of the restructuring actions taken in fiscal 2023 and fiscal 2022 in connection with the 2022 Restructuring Plan: • In fiscal 2022, the 2022 Restructuring Plan reduced our then-current employee workforce by approximately 4%, including approximately 15% of our then-salaried positions. • In furtherance of and as an expansion of the 2022 Restructuring Plan, in January 2023, we implemented a plan of termination (the “January 2023 Reduction in Force”).
Removed
During the first six months of fiscal 2022, we experienced lower than expected inventory receipts largely due to global supply chain delays. We worked to mitigate these delays by ordering product in advance of our typical timelines.
Added
The January 2023 Reduction in Force reduced our then-current employee workforce by approximately 6%, including approximately 20% of our then-salaried positions.
Removed
During the second half of fiscal 2022, we experienced slight easing of these supply chain delays, and coupled with our mitigating strategies, inventory receipts were less severely impacted, a trend we expect to continue in fiscal 2023.
Added
In connection with the 2023 Reduction in Force, our then-Chief Executive Officer agreed that she would step down from her employment with the Company and from the Board of Directors, effective January 5, 2023. • In furtherance of and as an expansion of the 2022 Restructuring Plan, in June 2023, we announced the intended closure of our fulfillment centers in Bethlehem, Pennsylvania and Dallas, Texas. • Additionally, in June 2023, we also announced that we would enter a consultation period, in accordance with UK law, to explore exiting the market in the UK.
Removed
We will continue to actively manage global supply chain delays and plan to mitigate the impact of any anticipated delays on future inventory receipts. Client Acquisition and Engagement To grow our business, we must continue to acquire clients and successfully engage them.
Added
On August 24, 2023, we ended the consultation period, and made the decision to exit our business and wind down our operations in the UK. Related to the 2022 Restructuring Plan, we estimate we will incur between $9 million and $12 million in additional cash restructuring charges in fiscal 2024.
Removed
Our marketing expenses have varied from period to period, and we expect this trend to continue as we test new channels and refine our marketing strategies. The largest component of our marketing spend is advertising, which was $183.8 million for the fiscal year ended July 30, 2022, compared to $174.7 million for the fiscal year ended July 31, 2021.
Added
We expect these expenses will be incurred over the first three fiscal quarters of fiscal 2024, with substantially all of these cash payments to be completed by the end of the third fiscal quarter ending April 27, 2024.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

4 edited+2 added−2 removed0 unchanged
Biggest changeThese interest-earning instruments carry a degree of interest rate risk; however, for the fiscal year ended July 30, 2022, a hypothetical 10% change in interest rates would not have had a material impact on our consolidated financial statements. Foreign Currency Risk As of July 30, 2022, our revenue was earned in U.S. dollars and British pound sterling.
Biggest changeAs such, we do not expect a sudden change in market interest rates would have a material impact on our consolidated financial results. Foreign Currency Risk As of July 29, 2023, our revenue was earned in U.S. dollars and British pound sterling. Our operations in the UK exposes us to fluctuations in foreign currency exchange rates on our operating expenses.
We do not believe that inflation had a material effect on our business, financial condition, or results of operations for the fiscal year ended July 30, 2022. Nonetheless, our costs are subject to inflationary pressures, which we expect to continue, and if those pressures become significant, we may not be able to fully offset such higher costs through price increases.
Inflation Risk Our costs are subject to inflationary pressures, which we expect to continue, and if those pressures become significant, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition, and results of operations.
Our expansion into the UK exposes us to fluctuations in foreign currency exchange rates on our operating expenses. Fluctuations in foreign currency exchange rates may also result in transaction gains or losses on transactions in currencies other than the U.S. dollar or British pound sterling.
Fluctuations in foreign currency exchange rates may also result in transaction gains or losses on transactions in currencies other than the U.S. dollar or British pound sterling. For fiscal 2023, a hypothetical 10% increase or decrease in exchange rates would not have had a material impact on our consolidated financial results.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Interest Rate Risk We are primarily exposed to market risks through interest rate risk on our investments. As of July 30, 2022, we had $99.8 million in highly rated investments accounted for as available-for-sale securities, which are presented on our balance sheet at their fair market value.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Interest Rate Risk Our cash equivalents and investments in available-for-sale securities are exposed to market risk due to fluctuations in interest rates, which may affect our interest income and the fair market value of our investments.
Removed
For the fiscal year ended July 30, 2022, a hypothetical 10% increase or decrease in current exchange rates would not have had a material impact on our consolidated financial results. Inflation Risk The primary inflationary factors affecting our business are merchandise costs, shipping and freight costs, and labor costs.
Added
However, due to the short-term nature of our investment portfolio as of July 29, 2023, we do not believe an immediate 10% increase or decrease in interest rates would have a material effect on the fair market value of our portfolio.
Removed
Our inability or failure to do so could harm our business, financial condition, and results of operations. 43
Added
The primary inflationary factors affecting our business are merchandise costs, shipping and freight costs, and labor costs. Additionally, although difficult to quantify, we believe inflation is having an adverse effect on our clients’ discretionary spending habits, which has impacted and may continue to impact net revenue. 43

Other SFIX 10-K year-over-year comparisons