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What changed in Stitch Fix, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Stitch Fix, Inc.'s 2023 and 2024 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 2024 report.

+332 added−395 removedSource: 10-K (2024-09-25) vs 10-K (2023-09-20)

Top changes in Stitch Fix, Inc.'s 2024 10-K

332 paragraphs added · 395 removed · 264 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeWe 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.
Biggest changeWith Freestyle, a client can visit our website or mobile application and make direct purchases of apparel, shoes, and accessories from a set of curated items and outfits within a range of categories. Freestyle purchases can be exchanged or returned using a prepaid-postage label included in each shipment. No styling fee is charged for Freestyle purchases.
We make copies of these reports available free of charge through our investor relations website as soon as reasonably practicable after we file or furnish them with the SEC. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding Stitch Fix and other issuers that file electronically with the SEC.
We make copies of these reports available free of charge through our investor relations website as soon as reasonably practicable after we file or furnish them with the SEC. The SEC maintains a website at www.sec.gov that contains 8 reports, proxy and information statements and other information regarding Stitch Fix and other issuers that file electronically with the SEC.
Apparel, shoes, and accessories sold by us are also subject to regulation by governmental agencies in the United States and in the UK. These regulations relate principally to product labeling, licensing requirements, flammability testing, and product safety. We are also subject to environmental laws, rules, and regulations.
Apparel, shoes, and accessories sold by us are also subject to regulation by governmental agencies in the United States. These regulations relate principally to product labeling, licensing requirements, flammability testing, and product safety. We are also subject to environmental laws, rules, and regulations.
Our advanced data science capabilities harness the power of our data for our stylists and clients by generating predictive recommendations to streamline the curation process, and in the case of Freestyle, generate highly personalized items and outfit recommendations in near real-time.
Our advanced data science capabilities harness the power of our data for our Stylists and clients by generating predictive recommendations to streamline the curation process, and in the case of Freestyle, generate personalized items and outfit recommendations in near real-time.
Diversity, Equity, and Inclusion The goal of our Diversity, Equity, and Inclusion strategy is to ensure that our people and business practices allow us to build a company, products, and experiences that reflect the richness of the communities in which we operate.
Diversity, Equity, and Inclusion The goal of our diversity, equity, and inclusion strategy is to ensure that our people and business practices allow us to build our Company, products, and experiences that reflect the richness of the communities in which we operate.
Information contained on or accessible through our websites is not incorporated into, and does not form a part of, this Annual Report or any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only. 11
Information contained on or accessible through our websites is not incorporated into, and does not form a part of, this Annual Report or any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only. 9
They can keep some, all, or none of the items in the Fix and easily return any items in a prepaid-postage bag provided in the Fix. In each Fix, a stylist sends a client items from a broad range of merchandise recommended for the client by our algorithms.
Clients can keep some, all, or none of the items in the Fix and easily return any items in a prepaid-postage bag provided. In each Fix, a Stylist sends a client items from a broad range of merchandise recommended for the client by our algorithms.
By paying employees fairly and consistently based on the role they perform, location, and according to market data, companies can ensure that employees are not paid based on factors like gender, race, or ethnicity.
By paying employees fairly and consistently based on the role they perform, their impact, location, and according to market data, we can ensure that employees are not paid based on factors like gender, race, or ethnicity.
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.
Clients that complete our style profile provide us with 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 draw attention to or cover up.
Each Stitch Fix Community is led by employees who are supported by an Executive Sponsor, recognized for their leadership, and compensated for their time with learning and development investments and annual special equity grants. 10 Corporate and Available Information We were incorporated in Delaware in 2011 under the name rack habit inc.
Each Stitch Fix Community is led by employees who are supported by an Executive Sponsor, recognized for their leadership, and compensated for their time and with learning and development investments. Corporate and Available Information We were incorporated in Delaware in 2011 under the name rack habit inc. We changed our name to Stitch Fix, Inc. in October 2011.
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.
As of such date, 82% of our employees, 33% of our management team, and 43% of our Board of Directors identified as women. Employee Relations None of our employees are 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.
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.
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 or how popular the piece is with a particular client segment. 5 Our algorithms use our data set to match merchandise to each of our clients.
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.
Historically, our net sales have not been concentrated in a particular period or season, with 27%, 25%, 24%, and 24% of our annual net sales being recognized during the first, second, third, and fourth quarters of the fiscal year ended August 3, 2024 , respectively.
Our algorithms use our data set to match merchandise to each of our clients. For every combination of client and merchandise, we compute the probability the clients will keep that item based on their and other clients’ preferences and purchase history as well as the attributes and past performance of the merchandise.
For every combination of client and merchandise, we compute the probability the clients will keep that item based on their and other clients’ preferences and purchase history as well as the attributes and past performance of the merchandise.
We know these subjective factors can play a role in compensation, to the employee’s disadvantage or to their advantage, and so our compensation philosophy is rooted in pay equity as a guiding principle. We established a system of equal pay from Stitch Fix’s inception.
We know these subjective factors can play a role in compensation, to the employee’s disadvantage or to their advantage, and so our compensation philosophy is rooted in pay equity as a guiding principle.
We changed our name to Stitch Fix, Inc. in October 2011. Our principal executive offices are located at 1 Montgomery Street, Suite 1100, San Francisco, California, 94104, and our telephone number is (415) 882-7765. Our website is located at www.stitchfix.com, and our investor relations website is located at https://investors.stitchfix.com. We file or furnish electronically with the U.S.
Our principal executive offices are located at 1 Montgomery Street, Suite 1500, San Francisco, California, 94104, and our telephone number is (415) 882-7765. Our website is located at www.stitchfix.com, and our investor relations website is located at https://investors.stitchfix.com. We file or furnish electronically with the U.S.
We believe a fair and unbiased compensation structure is a critical component to drive a more inclusive culture within our own walls and beyond — and ultimately helps us attract and retain the highest caliber talent.
We believe a fair and unbiased compensation structure is a critical component to drive a more inclusive culture within our own walls and beyond and ultimately helps us attract and retain the highest caliber talent. On an annual basis, we retain a third party to audit our pay data.
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.
This is 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.
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.
Over time, through their feedback on Fixes and Freestyle orders they receive, clients share additional information about their preferences as well as detailed data about both the merchandise they keep and return.
With that in mind, we continue to be vigilant and review areas like leveling and promotions in our organization to ensure that we are working to identify and mitigate any biases in these processes.
We will continue to analyze these numbers each year to ensure we maintain pay equity. We will continue to be vigilant and review areas like leveling and promotions in our organization to ensure that we are working to identify and mitigate any biases in these processes.
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.
We compete with eCommerce companies that market the same or similar merchandise and services that we offer; local, national, and global retail stores; specialty retailers; discount chains; and the online offerings of these traditional retail competitors and less traditional online retailers. Additionally, we compete for our clients’ consumer discretionary spending from other shopping categories and experiences.
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.
We have also established employee resource groups, which we call Stitch Fix Communities. 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 and to build on our mission of inspiring people to be their best, authentic selves.
After completing their initial style profiles, clients choose their preferred order frequency and can select the exact date by which they want to receive their Fix. We currently offer two types of Fix scheduling: • Auto-ship . A client can elect to auto-ship Fixes every two to three weeks, monthly, bi-monthly, or quarterly. • On-demand .
After onboarding to the service, clients choose their preferred order frequency and can select the exact date by which they want to receive their Fix. We currently offer two types of Fix scheduling: • Auto-ship . Clients can elect to receive Fixes on a regular cadence aligned to their style needs. • On-demand .
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.
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. 6 Inventory Management and Fulfillment We operate three fulfillment centers in the United States (located in Arizona, Georgia, and Indiana).
These algorithmic recommendations are based on the clients’ personal style profile, their own order behavior, the aggregate historical behavior of our client base, and the aggregate historical data we have collected on each item of merchandise we have available. We have numerous touch points with our clients.
These algorithmic recommendations are based on the client's individual style preferences and order behavior, as well as the aggregate historical behavior of our client base, and the aggregate historical data we have collected on each item of merchandise we have available.
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 do not estimate any significant capital expenditures for environmental control matters either in the current fiscal year or in the near future. 7 Human Capital Headcount As of August 3, 2024, we had approximately 4,570 full-time and part-time employees, including 2,002 Stylists, 1,770 fulfillment center employees, 280 engineers and data scientists, 82 client support employees, 122 merchandising employees, and 317 general and administrative employees.
For clients who prefer the assistance of a stylist, these stylists add a critical layer of contextual, human decision making that augments and improves our algorithms’ selections and creates the ultimate personalization experience. Our Differentiated Value Proposition Our Value Proposition to Clients Our clients love our service for many reasons.
Our Stylists add a critical layer of contextual, human decision making that augments and improves our algorithms’ selections and creates the ultimate personalized experience. Our Differentiated Value Proposition Our Value Proposition to Clients Our clients love our service for many reasons. We help clients find apparel, shoes, and accessories they will love in a way that is convenient and fun.
We value our employees’ feedback and conduct anonymous employee engagement and satisfaction surveys at least annually, with quarterly pulse surveys, which we use to determine what is important to our employees and to evolve Company practices and policies. Pay Equity We believe pay equity is equal pay for work of equal value.
We value our employees’ feedback and conduct confidential employee engagement and satisfaction surveys at least annually, which we use to determine what is important to our employees and to evolve Company practices and policies. Pay Equity Pay equity is at the center of our compensation philosophy and we reward employees based on their individual impact.
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.
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.
We have hired independent firms that conduct initial and ongoing audits of the working conditions at the factories producing our Owned Private Label Brands.
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. We have hired independent firms that conduct initial and ongoing audits of the working conditions at the factories producing our Owned Private Label Brands.
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.
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. We will continue to develop products when we identify opportunities to meet client needs.
This feedback loop drives important network effects, as our client-provided data informs not only our personalization capabilities for the specific client, but also helps us better serve other clients.
This feedback loop drives important network effects, as our client-provided data informs not only our personalization capabilities for the specific client, but also helps us better serve other clients. We believe our proprietary merchandise data set is differentiated from other retailers. We encode each of our SKUs with numerous attributes to help our algorithms make better recommendations for our clients.
Currently, clients can engage with us in one of two ways that, combined, form an ecosystem of personalized experiences across styling, shopping, and inspiration: (1) by receiving a personalized shipment of items informed by our algorithms and sent by a Stitch Fix stylist (a “Fix”); or (2) by purchasing directly from our website or mobile app based on a personalized assortment of outfit and item recommendations (“Freestyle”).
Clients engage with us by (1) receiving a curated shipment of items informed by our algorithms and chosen by a Stitch Fix Stylist (a “Fix”); or (2) purchasing directly from our website or mobile app based on an individualized assortment of outfit and item recommendations (“Freestyle”). Clients choose to schedule regular shipments or order a Fix on demand.
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.
Sourcing We purchase our merchandise directly from our brand partners or Owned Private Label Brands merchandise vendors, who are responsible for the entire manufacturing process. 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.
A Fix is a Stitch Fix-branded box containing a personalized assortment of apparel, shoes, and accessories informed by our algorithms and sent by Stitch Fix stylists and delivered to the clients to try on in the comfort of their own homes.
Once clients have onboarded, they can engage with us by receiving a Fix or by purchasing directly through Freestyle. A Fix is a Stitch Fix-branded box containing a curated assortment of apparel, shoes, and accessories informed by our algorithms and chosen by Stitch Fix Stylists then delivered to the client to try on in the comfort of their own home.
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.
We offer a wide selection of clothing and accessories across multiple price points and styles from our brand partners and our own private brands. Many of our brand partners also design and supply items exclusively for our clients. At Stitch Fix, we build trusted and long-term relationships.
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 believe that we are able to compete effectively because we offer clients a personalized and fun shopping experience that our competitors are unable to match. 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.
Further, we provide our brand partners with insights based on client feedback that help our brand partners improve and evolve their merchandise to better meet consumer demand. 6 Our Strengths Since we were founded in 2011, we have shipped millions of orders to our clients.
By introducing our clients to brands they may not have shopped for, we help our brand partners reach clients they may not have otherwise reached. Further, we provide our brand partners with insights based on client feedback that help them improve and evolve their merchandise to better meet consumer demand.
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.
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. Competition The retail apparel industry is highly competitive.
While we have confidence in our approach and philosophy, we want to ensure that our compensation system withstands external review by applying appropriate and accepted methods and standards.
While we have confidence in our approach and philosophy, we want to ensure that our compensation system withstands external review by applying appropriate and accepted methods and standards. The results have continued to show there is no statistically significant difference in pay across gender, race or any other protected classes at Stitch Fix.
For our Style Pass clients, we charge a $49 annual fee in the United States, the only country where Style Pass is offered, which provides unlimited styling for the year and is credited toward the merchandise purchased over the course of the year.
For our Style Pass clients, we charge a $49 annual fee, which provides unlimited styling for the year and is credited toward the merchandise purchased over the course of the year. If clients choose to keep all items chosen for them by their Stylist, they receive a discount on the entire shipment.
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.
To ensure that our ongoing diversity, equity, and inclusion strategy is informed by and rooted in data, we review and analyze equity and representation data regularly. 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.
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.
In fiscal year 2024, we shipped out our 100 millionth Fix, and, as of August 3, 2024, we had approximately 2,508,000 active clients. 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.
Our data science capabilities consist of our rich data set and our proprietary algorithms, which fuel our business by enhancing the client experience and driving business model efficiencies. 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 rich data set and our proprietary algorithms fuel our business by enhancing the client experience and driving business model efficiencies.
When we serve our clients well, we help them discover and define their styles, we find jeans that fit and flatter their bodies, we reduce their anxiety and stress when getting ready in the morning, we give them confidence in job interviews and on first dates, and we give them time back in their lives to invest in themselves or spend with their families.
We help our clients discover and define their style. We reduce their anxiety and stress when getting ready in the morning. And, we give them time back in their lives to invest in themselves. We do this through our unique business model that pairs expert Stylists with best-in-class artificial intelligence (“AI”) and recommendation algorithms.
In addition to a personalized selection of apparel, shoes, and accessories, each Fix also includes a personal note from the stylist and a style card to provide clients with outfit ideas for each item.
Clients can choose to schedule a one-time Fix at any time. Clients can increase or decrease the Fix frequency at any time, and can also easily reschedule any given shipment to better accommodate their needs. In addition to a personalized selection of apparel, shoes, and accessories, each Fix also includes a personal note from the Stylist.
Our algorithms filter over one thousand SKUs to recommend a subset of relevant merchandise to our stylists or clients, who leverage the information to select or purchase merchandise. We source merchandise from brand partners and also create our own merchandise to serve unmet client needs. We offer apparel, shoes, and accessories across a range of price points.
Our Merchandise, Brand Partners, and Owned Private Label Brands Having a wide range of styles and brands is essential to our success. Our algorithms filter through our merchandise assortment to recommend a subset of relevant merchandise to our Stylists or clients, who leverage the information to select or purchase merchandise.
Our Value Proposition to Brand Partners We believe that we are a preferred channel for our brand partners. By introducing our clients to brands they may not have shopped for, we help our brand partners reach clients they may not have otherwise reached.
Clients also value the quality and variety of merchandise we offer including the familiar brands they know, exclusive styles, and new brands they might not be aware of. Our Value Proposition to Brand Partners We believe that we are a preferred channel for our brand partners.
Clients can choose to schedule automatic shipments or order a Fix on demand after they fill out a style profile on our website or mobile app. After receiving a Fix, our clients purchase the items they want to keep and return the other items, if any.
Then, after receiving a Fix, they can purchase the items they want to keep and return the other items, if any. Since our inception, Stitch Fix has been powered by AI and data science, and we continue to enhance these capabilities.
We compete primarily on the basis of client experience, brand, product selection, quality, convenience, and price. We believe that we are able to compete effectively because we offer clients a personalized and fun shopping experience that our competitors are unable to match.
We compete primarily on the basis of client experience, brand, product selection, quality, convenience, and price. Few things are more personal than getting dressed, but finding clothing that fits and looks great can be a challenge. Stitch Fix solves that problem.
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.
With Stitch Fix Communities, we invest in our employees’ learning and growth so that they are equipped to design and uphold equitable systems and processes, and we create opportunities for employees to share their perspectives with our leaders and connect with each other on a deeper level.
A client can shop new colors, prints, or sizes of any previously purchased items. Freestyle purchases can be exchanged or returned using a prepaid-postage bag included in each shipment. No styling fee is charged for Freestyle purchases. After clients receive their order, they are invited to provide feedback about the fit, price, style, and quality of the items.
After clients receive their order, they are invited to provide feedback about the fit, price, style, and quality of the items. This feedback informs both our algorithms and Stylists to improve each client’s experience.
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Item 1. Business. Overview Stitch Fix is transforming the way people find what they love. Stitch Fix was inspired by the vision of a client-first, client-centric new way of retail. What people buy and wear matters.
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Item 1. Business. Overview Stitch Fix is the leading online personal styling service that helps people discover the styles they will love that fit perfectly so they always look - and feel - their best. In 2011, Stitch Fix, Inc. (“we,” “our,” “us,” or “the Company”) introduced an innovative approach to shopping for clothing and accessories.
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Most of all, we are fortunate to play a small part in our clients looking, feeling, and ultimately being their best selves. Stitch Fix operates in the United States and United Kingdom. Since our founding in 2011, we have helped millions of men, women, and kids discover and buy what they love through personalized shipments of apparel, shoes, and accessories.
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We were inspired by the opportunity to create a client-first styling experience, offering an alternative to impersonal, time-consuming and inconvenient traditional shopping. For the past 13 years, our business has been grounded in our commitment to developing and fostering client relationships and making people happier and more confident in what they wear.
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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. Stitch Fix was founded with a focus on Women’s apparel.
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It is this combination that enables us to help people discover the styles they will love without having to spend hours browsing stores or sifting through endless choices online.
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In our first few years, we were able to gain a deep understanding of our clients and merchandise and build the capability to listen to our clients, respond to feedback, and deliver the experience of personalization. We have since extended those capabilities into Men’s, Kids, Petite, Maternity, and Plus apparel, as well as shoes and accessories.
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For example, we currently leverage AI and data science to match our Stylists to our clients and aid our Stylists in creating Fixes, help inform merchandise buying and inventory placement in our network, and optimize our approach to pricing and markdowns. Our large and growing data set provides the foundation for our proprietary algorithms.
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We are successful when we are able to help clients find what they love again and again, creating long-term, trusted relationships.
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The vast majority of our client data is directly shared by the client, rather than inferred, scraped, or obtained from other sources. We also gather extensive trend data as well as merchandise data, such as inseam, pocket shape, silhouette, and fit. We believe that both the data we have, as well as our algorithms, give us a significant competitive advantage.
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Our clients share personal information with us, 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 they like to flaunt or cover up.
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As our data set has grown, our algorithms have become more powerful, and we expect that to continue. Stitch Fix operates in the United States. When Stitch Fix first launched, we offered women’s apparel. Since then, we have expanded our assortment to include Men’s, Kids, Petite, Maternity, and Plus apparel, as well as shoes and accessories.
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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.
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How it Works When clients first sign up for Stitch Fix, they fill out an onboarding quiz through which they communicate their style, fit, and budget preferences.
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We also gather extensive merchandise data, such as inseam, pocket shape, silhouette, and fit. This large and growing data set provides the foundation for proprietary algorithms that we use throughout our business, including those that predict purchase behavior, forecast demand, optimize inventory, and enable us to design new apparel.
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Then, to demonstrate to our clients that we “get” their style, at the end of the sign-up process, we present them with their 4 StyleFile, a recently launched personalized snapshot that shares their individual style personality and the specific elements that contribute to it.
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We believe our data science capabilities give us a significant competitive advantage, and as our data set grows, our algorithms become more powerful. 4 With a Fix, we leverage our data science through a custom-built, web-based styling application that provides recommendations to our stylists from our broad selection of merchandise.
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Women’s and Men’s clients will also receive a QR code to a digital Style Card that provides clients with personalized, shoppable outfit ideas built around items sent in their individual Fix, as well as previously purchased items. We charge clients a styling fee of $20 for each Fix, which is credited toward the merchandise purchased.
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Our stylists then send the most relevant items from our merchandise to a client in their Fix. Our stylists provide a personal touch, offer styling advice and context to each item selected, and help us develop long-term relationships with our clients.
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Our Data Science and AI Advantage AI and data science are integrated across almost every facet of our business, and have been since day one. Of note, our data set is particularly powerful.
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Industry Overview Technology is Driving Transformation Across Industries Technological innovation has profoundly impacted how consumers discover and purchase products, forcing businesses to adapt to engage effectively with consumers. We believe that new business models that embrace these changes and truly focus on the consumer will be the winners in this changing environment.
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By pairing expert Stylists with best-in-class AI and recommendation algorithms, we leverage our assortment of private and national brands to meet each client’s individual tastes and needs, so our clients can express their personal style without having to spend hours in stores or sifting through endless choices online.
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The Apparel, Shoes, and Accessories Market is Massive, but Many Retailers have Failed to Adapt to Changing Consumer Behavior The apparel, shoes, and accessories market is large, but we believe many brick-and-mortar retailers have failed to adapt to evolving consumer preferences. Historically, brick-and-mortar retailers have been the primary source of apparel, shoes, and accessories sales.
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We source merchandise from brand partners and also create our own merchandise to serve unmet client needs. Brand Partners We partner with established and emerging brands across multiple price points, sizes, and styles to make sure that every client can find clothes and accessories they love.
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Over time, brick-and-mortar retail has changed and the era of salespersons who know each customer on a personal level has passed. We believe many of today’s consumers view the traditional retail experience as impersonal, time-consuming, and inconvenient.
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With many of our brand partners, we develop third-party branded items exclusively sold to Stitch Fix clients. Brands Exclusive to Stitch Fix We offer products exclusive to Stitch Fix through our Owned Private Label Brands. These products are designed to address an unmet client need.
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This has led to financial difficulties, bankruptcies, and store closures for many major department stores, specialty retailers, and retail chains. eCommerce is Growing, but has Further Depersonalized the Shopping Experience The internet has created new opportunities for consumers to shop for apparel. eCommerce continues to take market share from brick-and-mortar retail.
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Our merchants use our rich data set to help identify and develop the new products for our Owned Private Label Brands. We then pair our data with the expertise of our vendor partners to bring these new products to market. Owned Private Label Brands are a meaningful part of our business.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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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.
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 and the success of our efforts may vary from period to period. • If we are unable to manage our inventory effectively, our operating results could be adversely affected. • Operational constraints at out fulfillment centers 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 transformation or other business strategies, 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. • 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. • Our real estate leases subject us to various financial risks. • We may incur significant losses from fraud. • We are subject to payment-related risks.
Additionally, the impact of such weather events affecting one or more fulfillment center may be exacerbated due to the fact that we will have fewer fulfillment centers to continue operations during such a closure and therefore each individual fulfillment center will represent a larger portion of our overall business.
Additionally, the impact of such weather events affecting one or more fulfillment centers may be exacerbated due to the fact that we have fewer fulfillment centers to continue operations during such a closure and therefore each individual fulfillment center will represent a larger portion of our overall business.
Additionally, in January 2023, the Company and Elizabeth Spaulding, the Company’s then-current Chief Executive Officer, agreed that she would step down from her employment with the Company and the Board of Directors appointed Katrina Lake, the Company’s Founder and Executive Chairperson of the Board of Directors, as interim Chief Executive Officer. Ms.
Additionally, in January 2023, the Company and Elizabeth Spaulding, the Company’s then-current Chief Executive Officer, agreed that she would step down from her employment with the Company. The Board of Directors appointed Katrina Lake, the Company’s Founder and Executive Chairperson of the Board of Directors, as interim Chief Executive Officer. Ms.
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.
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; increased inflationary pressures; recessionary concerns; home foreclosures and reductions in home values; fluctuating interest rates and credit availability; rising fuel and other energy costs; rising commodity prices; and general uncertainty regarding the overall future political and economic environment.
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.
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. 10 • 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.
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.
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 clients effectively so they continue receiving Fixes after their first few tries, our active client growth will continue to suffer.
In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our amended and restated certificate of incorporation. This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions.
In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our amended and restated certificate of incorporation. This may require significant additional costs associated 26 with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions.
Furthermore, if we fail to comply with wage and hour laws for our nonexempt employees, many of whom work in our fulfillment centers, we could be subject to legal risk, including claims for back wages, unpaid overtime pay, and missed meal and rest periods, which could be on a class or representative basis.
Furthermore, if we fail to comply or allegedly fail to comply with wage and hour laws for our nonexempt employees, many of whom work in our fulfillment centers, we could be subject to legal risk, including claims for back wages, unpaid overtime pay, and missed meal and rest periods, which could be on a class or representative basis.
While we believe three fulfillment centers is the appropriate number to provide the greatest breadth and depth of inventory to our clients and stylists and will allow us to service the same number of existing clients with lower inventory levels, this decreased fulfillment system could cause operational constraints or decreased capacity that could significantly affect our client experience or revenue.
While we believe three fulfillment centers is the appropriate number to provide the greatest breadth and depth of inventory to our clients and Stylists and will allow us to service the same number of existing clients with lower inventory levels, this decreased fulfillment system could cause operational constraints or decreased capacity that could affect our client experience or revenue.
Additionally, as we are operating our business with fewer employees, we face additional risk that we might not be able to execute on our strategic plans and product roadmap, which may have an adverse effect on our business, financial condition, and operating results. We also face significant competition for personnel, particularly in our technology and product organizations.
Additionally, as we are operating our business with fewer employees, we face additional risk that we might not be able to execute on our strategic plans and product roadmap, which may have an adverse effect on our business, financial condition, and operating results. 16 We also face significant competition for personnel, particularly in our technology and product organizations.
As a result, fluctuations in our ultimate tax obligations may differ materially from amounts recorded in our financial statements and could adversely affect our business, financial condition, and operating results in the periods for which such determination is made. Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
As a result, fluctuations in our ultimate tax 23 obligations may differ materially from amounts recorded in our financial statements and could adversely affect our business, financial condition, and operating results in the periods for which such determination is made. Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
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.
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. 28 Item 1B. Unresolved Staff Comments. None.
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.
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. 11 RISK FACTORS Investing in our Class A common stock involves a high degree of risk.
Others may independently develop the same or similar technologies and processes, or may improperly acquire and use information about our technologies and processes, which may allow them to provide a service similar to ours, which could harm our competitive position. We may be accused of infringing intellectual property rights of third parties.
Others may independently develop the same or similar technologies and processes, or may improperly acquire and use information about our technologies and processes, which may allow them to provide a service similar to ours, which could harm our competitive position. 22 We may be accused of infringing intellectual property rights of third parties.
Also, in the past we have experienced challenges managing our inventory within the fulfillment centers given storage capacity constraints and challenges hiring fulfillment center employees. Any future such challenges could affect, the amount and types of inventory we have available to offer to clients, and therefore negatively affect our operating results.
Also, in the past we have experienced challenges managing our inventory within the fulfillment centers given 13 storage capacity constraints and challenges hiring fulfillment center employees. Any future such challenges could affect, the amount and types of inventory we have available to offer to clients, and therefore negatively affect our operating results.
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.
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.
If we are unable to protect our trademarks or domain names in the United States, the UK, or in other jurisdictions in which we may ultimately operate, our brand recognition and reputation would suffer, we would incur significant expense establishing new brands and our operating results would be adversely impacted.
If we are unable to protect our trademarks or domain names in the United States or in other jurisdictions in which we may ultimately operate, our brand recognition and reputation would suffer, we would incur significant expense establishing new brands and our operating results would be adversely impacted.
In addition, we have not historically collected state or local sales, use, or other similar taxes in certain jurisdictions in which we do have a physical presence, in reliance on applicable exemptions. On June 21, 2018, the U.S. Supreme Court decided, in South Dakota v.
In addition, we have not historically collected state or local sales, use, or other similar taxes in certain jurisdictions in which we do have a physical presence, in reliance on applicable exemptions. In June 2018, the U.S. Supreme Court decided, in South Dakota v.
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.
For example, freight delays caused by lockdowns due to COVID-19, port closures, port congestion, and shipping container and ship shortages have 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.
Building our brand will depend largely on our ability to continue to provide our clients with an engaging and personalized client experience, including valued personal styling services, high-quality merchandise, and appropriate price points, which we may not do successfully.
Building our brand will depend largely on our ability to continue to provide our clients with an engaging and personalized client experience, including valued personal styling services, high-quality and appealing merchandise, and appropriate price points, which we may not do successfully.
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.
These laws could also 21 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.
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.
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. Our Class B common stock has ten votes per share and our Class A common stock has one vote per share.
For instance, in fiscal year 2023, our number of active clients decreased throughout the year due to our inability to attract new clients and retain existing clients. This negatively affected our fiscal year 2023 revenue and is expected to affect our revenue in fiscal year 2024.
For instance, in fiscal year 2023, our number of active clients decreased throughout the year due to our inability to attract new clients and retain existing clients. This negatively affected our fiscal year 2024 revenue and is expected to continue to affect our revenue.
We are subject to income- and non-income-based taxes in the United States under federal, state, and local jurisdictions and in the UK. The governing tax laws and applicable tax rates vary by jurisdiction and are subject to interpretation .
We are subject to income- and non-income-based taxes in the United States under federal, state, and local jurisdictions. The governing tax laws and applicable tax rates vary by jurisdiction and are subject to interpretation .
Remote working environments present additional risks, uncertainties and costs that could affect our performance, including increased operational risk, uncertainty regarding office space needs, heightened vulnerability to cyber attacks due to increased remote work, potential reduced productivity, changes to our Company culture, potential strains to our business continuity plans, and increased costs to ensure our offices are safe and functional as hybrid offices that enable effective collaboration of both remote and in-person colleagues.
Remote working environments present additional risks, uncertainties and costs that could affect our performance, including increased operational risk, uncertainty regarding office space needs, heightened vulnerability to cyber attacks, potential reduced productivity, changes to our Company culture, potential strains to our business continuity plans, and increased costs to ensure our offices are safe and functional as hybrid offices that enable effective collaboration of both remote and in-person colleagues.
These delays affected our ability to recognize revenue within the quarter, and we may in the future experience these delays and the resulting impact to our financial results, including potentially during future holiday seasons.
These delays affected our ability to recognize revenue within the quarter, and we may in the future experience these delays and the resulting 14 impact to our financial results, including potentially during future holiday seasons.
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.
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, 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.
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.
These provisions: • 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 provisionsof 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.
We must continue to implement our operational plans and strategies, and improve and expand our infrastructure of people and technology. Additionally, we expect to continue to introduce new offerings, business strategies and initiatives, and improve on existing offerings .
We must continue to implement our operational plans and strategies, and improve our infrastructure of people and technology. Additionally, we expect to continue to introduce new offerings, business strategies and initiatives, and improve on existing offerings .
As a result, any investment return our Class A common stock will depend upon increases in the value for our Class A common stock, which is not certain.
As a result, any investment return on our Class A common stock will depend upon increases in the value for our Class A common stock, which is not certain.
Baer’s succession to Chief Executive Officer is not managed successfully, including his ability to lead a team that can effectively implement the Company’s strategic plans, it could disrupt our business, affect our Company culture, cause retention concerns with respect to our colleagues, and affect our financial condition and operating results.
Baer’s succession to Chief Executive Officer is not managed successfully, including his ability to lead a team that can effectively implement the Company’s strategic plans, including our transformation strategy, it could disrupt our business, affect our Company culture, cause retention concerns with respect to our colleagues, and affect our financial condition and operating results.
We could also be adversely affected by negative publicity, litigation costs resulting from the defense of these claims, and the diversion of time and resources from our operations. If we are unable to acquire new merchandise vendors or retain existing merchandise vendors, our operating results may be harmed. We offer merchandise from hundreds of established and emerging brands.
We could also be adversely affected by negative publicity, litigation costs resulting from the defense of these claims, and the diversion of time and resources from our operations. If we are unable to acquire new merchandise vendors or retain existing merchandise vendors, our operating results may be harmed. We offer merchandise from both established and emerging brands.
To the extent that such changes have a negative impact on us, our suppliers or our customers, including as a result of related uncertainty, these changes may materially and adversely impact our business, financial condition, results of operations and cash flows. We may be subject to additional tax liabilities, which could adversely affect our operating results.
To the extent that such changes have a negative impact on us, our suppliers or our clients, including as a result of related uncertainty, these changes may materially and adversely impact our business, financial condition, results of operations and cash flows. We may be subject to additional tax liabilities, which could adversely affect our operating results.
We announced a restructuring plan in June 2022 that reduced our workforce by 15% of salaried positions and represents 4% of our roles in total, and announced a further reduction in force on January 5, 2023, affecting 6% of the Company’s then-current employee workforce, including approximately 20% of employees in salaried positions.
We announced a restructuring plan in June 2022 that reduced our workforce by 15% of salaried positions and represented 4% of our then-current roles in total, and announced a further reduction in force on January 5, 2023, affecting 6% of the Company’s then-current employee workforce, including approximately 20% of employees in salaried positions.
Lake served in that position until Matt Baer joined as Chief Executive Officer of the Company in June 2023. The recent frequent changes in our management team and senior leadership could cause retention and morale concerns among current employees, as well as operational risks. And if Mr.
Lake served in that position until Matt Baer joined as Chief Executive Officer in June 2023. The recent frequent changes in our management team and senior leadership could cause retention and morale concerns among current employees, as well as operational risks. And if Mr.
We also adjust our marketing activity from period to period or within a period as we launch new initiatives or offerings, such as Freestyle, run tests, or make decisions on marketing investments in response to anticipated rates of return, such as when we identify favorable cost per acquisition trends.
We adjust our marketing activity from period to period or within a period as we launch new initiatives or offerings, run tests, or make decisions on marketing investments in response to anticipated rates of return, such as when we identify favorable cost per acquisition trends.
We have not always predicted demand and clients’ preferences with accuracy, which has negatively impacted revenue or resulted in significant write-offs when we have sub-optimal inventory assortment. For instance, in the fourth quarter of fiscal 2022, we experienced weaker consumer demand, which caused us to have higher inventory levels and increased inventory reserves that affected our financial results.
We have not always predicted demand and clients’ preferences with accuracy, which has negatively impacted revenue or resulted in significant write-offs when we have sub-optimal inventory assortment. For instance, in the fourth quarter of fiscal 2022, we experienced weaker consumer demand, which led to have higher inventory levels and increased inventory reserves that affected our financial results.
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.
Although we maintain liability insurance, we 20 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.
In general, we have not historically collected state or local sales, use, or other similar taxes in any jurisdictions in which we do not have a tax nexus, in reliance on court decisions and/or applicable exemptions that restrict or preclude the imposition of obligations to collect such taxes with respect to the online sales of our products.
In general, we had not historically collected state or local sales, use, or other similar taxes in any jurisdictions in which we do not have a tax nexus, in reliance on court decisions and/or applicable exemptions that restrict or preclude the imposition of obligations to collect such taxes with respect to the online sales.
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.
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, transformation strategy, and product roadmap could suffer, which may have an adverse effect on our business, financial condition, and operating results.
Any such employee litigation could be attempted on a class or representative basis. For example, in August 2020, a representative action under California’s Private Attorneys General Act was filed against us alleging various violations of California’s wage and hour laws relating to our current and former non-exempt stylist employees.
Any such employee litigation could be attempted on a class or representative basis, or other form of multi-plaintiff litigation. For example, in August 2020, a representative action under California’s Private Attorneys General Act was filed against us alleging various violations of California’s wage and hour laws relating to our current and former non-exempt Stylist employees.
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.
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 retail stores; specialty retailers; discount chains; the online offerings of traditional retail competitors; and less traditional online retailers. Additionally, we experience competition for consumer discretionary spending from other product and experiential categories.
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.
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; • 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, adverse weather events and climate conditions, or responses to these events. 24 In addition, extreme price and volume fluctuations in the stock markets have affected and continue to affect many eCommerce and other technology companies’ stock prices.
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.
If our existing clients no longer find our service and merchandise appealing or appropriately priced, they may make fewer purchases or may stop using Stitch Fix altogether.
In addition, we rely on a variety of third-party, cloud-based solution vendors for key elements of our technology infrastructure. These systems are vulnerable to damage or interruption and we have experienced interruptions in the past.
In addition, we rely on a variety of third-party, cloud-based solution vendors for key elements of our technology infrastructure. These systems may be vulnerable to damage or interruption and we have experienced interruptions in the past.
Cybersecurity, Legal and Regulatory Risks System interruptions that impair client access to our website or other performance failures or supply chain issues in our technology infrastructure could damage our business. The satisfactory performance, reliability, and availability of our website, mobile application, internal applications, and technology infrastructure (and those of our third-party vendors and service providers) are critical to our business.
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. The satisfactory performance, reliability, integrity and availability of our website, mobile application, internal applications, and technology infrastructure (and those of our third-party vendors and service providers) are critical to our business.
In fact, the COVID-19 pandemic disrupted our operations in and caused us to temporarily close our offices and require that most of our employees work from home; disrupted our operations in and caused us to close fulfillment centers; required us to implement various operational changes to ensure the health and safety of our employees; had a range of negative effects on the operations of our third-party providers and vendors, including our merchandise supply chain and shipping partners; and negatively impacted consumer spending and the economy generally due to measures taken to contain the spread of COVID-19, such as government-mandated business closures, office closures, state and local orders to “shelter in place,” and travel and transportation restrictions, and otherwise.
In fact, the COVID-19 pandemic disrupted our operations in and caused us to temporarily close our offices and require that most of our employees work from home; disrupted our operations in and caused us to close fulfillment centers; required us to implement various operational changes to ensure the health and safety of our employees; had a range of negative effects on the operations of our third-party providers and vendors, including our merchandise supply chain and shipping partners; and negatively impacted consumer spending and the economy generally due to measures taken to contain the spread of COVID-19, such as government-mandated business closures, office closures, and travel and transportation restrictions.
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.
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, 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 employees, contractors, vendors, or other third parties with whom we do business may attempt to circumvent security measures in order to misappropriate such personal information, confidential information, or other data, or may inadvertently release or compromise such data.
In addition, our employees, contractors, vendors, or other third parties with whom we do business may accidentally or intentionally circumvent security measures in order to misappropriate such personal information, confidential information, or other data, or may inadvertently release or compromise such data.
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.
There can be no assurance, however, that we or our vendors will not suffer a data compromise, that malicious actors 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.
Additionally, the Federal Trade Commission and many state attorneys general are interpreting federal and state consumer protection laws as imposing standards for the online collection, use, dissemination, and security of data. Further, the SEC has adopted new rules that require us to provide greater disclosures around proactive security protections that we employ and reactive issues (e.g., security incidents).
Additionally, the Federal Trade Commission and many state attorneys general are interpreting federal and state consumer protection laws as imposing standards for the online collection, use, dissemination, and security of data. Further, the SEC has adopted new rules that require us to provide greater disclosures around proactive security protections that we employ and regarding security incidents.
Increased shipping or freights costs or shipping and freight delays could be caused or exacerbated by labor disputes, shortages, or strikes, inclement weather, fire, flood, power loss, earthquakes, public health crises such as the COVID-19 pandemic, acts of war or terrorism, and periods of high e-commerce volume.
Increased shipping or freight costs or shipping and freight delays could be caused or exacerbated by labor disputes, shortages, or strikes, inclement weather, fire, flood, power loss, earthquakes, public health crises such as a pandemic, acts of war or terrorism, and periods of high e-commerce volume.
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.
Natural disasters, such as earthquakes, hurricanes, tornadoes, floods, fires, severe winter weather, 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 international conflicts; 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.
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 .
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 .
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. Although our Board of Directors has authorized this repurchase program, the program does not obligate us to repurchase any specific dollar amount or to acquire any specific number of shares.
During fiscal 2024, we did not repurchase any shares of our common stock and we had $120.0 million remaining in share repurchase capacity as of August 3, 2024. Although our Board of Directors has authorized this repurchase program, the program does not obligate us to repurchase any specific dollar amount or to acquire any specific number of shares.
We have had senior employees leave Stitch Fix, including most recently the roles of Chief Financial Officer and Chief Technology Officer, and cannot necessarily anticipate when this will happen in the future and whether we will be able to promptly replace such employees.
We have had senior employees leave Stitch Fix, including recently the roles of Chief Merchandising Officer and Chief Accounting Officer, and cannot necessarily anticipate when this will happen in the future and whether we will be able to promptly replace such employees.
Numerous laws, rules, and regulations in the United States and internationally, including the European Union’s (“EU”) General Data Protection Regulation (the “GDPR”), California’s Consumer Privacy Act (the “CCPA”) and the UK’s Data Protection Act (the “UK GDPR”), govern privacy and the collection, use, and protection of personal information.
Numerous laws, rules, and regulations in the United States and internationally, including the European Union’s General Data Protection Regulation (the “GDPR”), California’s Consumer Privacy Act (the “CCPA”), California Privacy Rights Act of 2020 (“CPRA”), and the UK’s Data Protection Act (the “UK GDPR”), govern privacy and the collection, use, and protection of personal information.
While we were able to settle this matter, future litigation concerning our styling employees could be expensive and time-consuming regardless of whether the claims against us are valid or whether we are ultimately determined to be liable, and could divert management’s attention from our business.
While we were able to settle this matter, and we no longer employ Stylists in California, future litigation concerning our styling employees could be expensive and time-consuming regardless of whether the claims against us are valid or whether we are ultimately determined to be liable, and could divert management’s attention from our business.
Specifically, the Sarbanes-Oxley Act requires management to assess the effectiveness of our internal controls over financial reporting and to report any material weaknesses in such internal control. We have experienced material weaknesses and significant deficiencies in our internal controls previously. Management has concluded that our internal control over financial reporting was effective as of July 29, 2023.
Specifically, the Sarbanes-Oxley Act requires management to assess the effectiveness of our internal controls over financial reporting and to report any material weaknesses in such internal control. We have experienced material weaknesses and significant deficiencies in our internal controls previously. Management has concluded that our internal control over financial reporting was effective as of August 3, 2024.
In addition, our use of open source software may present additional security risks because the source code for open source software is publicly available, which may make it easier for hackers and other third parties to determine how to breach our website and systems that rely on open source software.
In addition, our use of open source software may present additional security risks because the source code for open source software is publicly available, which may make it easier for malicious actors to determine how to breach our website and systems that rely on open source software.
Search engines frequently change the algorithms that determine the ranking and display of results of a user’s search, which could reduce the number of organic visits to our websites, in turn reducing new client acquisition and adversely affecting our operating results.
We currently obtain a significant number of visits to our websites via organic search engine results. Search engines frequently change the algorithms that determine the ranking and display of results of a user’s search, which could reduce the number of organic visits to our websites, in turn reducing new client acquisition and adversely affecting our operating results.
This may impact our ability to receive inventory and manage our assortment. 15 Our inventory levels also may be affected by product launch delays, consumer demand fluctuations due to macroeconomic factors, uncertainty or otherwise, disruptions in our systems due to upgrades, launches or otherwise, freight delays, vendor relationships, capacity constraints, and our inability to predict demand with respect to categories or products.
Our inventory levels also may be affected by product launch delays, consumer demand fluctuations due to macroeconomic factors, uncertainty or otherwise, disruptions in our systems due to upgrades, launches or otherwise, freight delays, vendor relationships, capacity constraints, and our inability to predict demand with respect to categories or products.
The patents we own in the United States and those that may be issued in the United States, in the UK, in Europe, and in the People’s Republic of China in the future may not provide us with any competitive advantages or may be challenged by third parties, and our patent applications may never be granted.
The patents we own in the United States and those that may be issued in the future may not provide us with any competitive advantages or may be challenged by third parties, and our patent applications may never be granted.
We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to pay any cash dividends on our Class A common stock in the foreseeable future.
We have never declared or paid cash dividends on our capital stock. We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to pay any cash dividends on our Class A common stock in the foreseeable future.
Furthermore, these types of events could impact our merchandise supply chain, including our ability to ship merchandise to or receive returned merchandise from clients in the impacted region, and could impact our ability or the ability of third parties to operate our sites and ship merchandise.
These types of events could impact our merchandise supply chain, including our ability to ship merchandise to or receive returned merchandise from clients in the impacted region, and could impact our ability or the ability of third parties to operate our sites and ship merchandise. In addition, these types of events could negatively impact consumer spending in the impacted regions.
The COVID-19 pandemic caused many risks as described above and throughout these risk factors to materialize and adversely affected our business and operating results. Any future resurgences of COVID-19 or the occurrence of another natural disaster, pandemic, or crisis could disrupt our operations or negatively impact consumer spending, adversely affecting our business and results of operations.
The COVID-19 pandemic caused many risks as described above and throughout these risk factors to materialize and adversely affected our business and operating results. Any future natural disasters, pandemics, or crises could disrupt our operations or negatively impact consumer spending, adversely affecting our business and results of operations.
Our revenue may continue to decline in future periods due to a number of factors, which may include our inability to attract and retain clients, general economic conditions, including a recession or decreased discretionary consumer spending, decreases in marketing spend, a decreased demand for our merchandise and service, increased competition, decreases in the growth rate of our overall market, or our failure to capitalize on growth opportunities. 17 We announced a restructuring plan in June 2022, intended to reduce our future fixed and variable operating costs.
Our revenue may continue to decline in future periods due to a number of factors, which may include our inability to attract and retain clients, general economic conditions, including a recession or decreased discretionary consumer spending, decreases in marketing spend, a decreased demand for our merchandise and service, increased competition, decreases in the growth rate of our overall market, or our failure to capitalize on growth opportunities.
This concentration of ownership will limit the ability of other stockholders to influence corporate matters and may cause us to make strategic decisions that could involve risks to you or that may not be aligned with your interests. This control may adversely affect the market price of our Class A common stock.
This concentration of ownership will limit the ability of other stockholders to influence corporate matters and may cause us to make strategic decisions that could involve risks to you or that may not be aligned with your interests.
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.
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.
Additionally, we have limited visibility into delays and limited control over shipping. We have also experienced increased costs of goods due to freight challenges, increases in the price of raw materials, inflationary pressures, rising fuel and other energy costs, and currency volatility. Any additional price increases will affect our operating results.
We have also experienced increased costs of goods due to increases in the price of raw materials, inflationary pressures, rising fuel and other energy costs, and currency volatility. Any additional price increases will affect our operating results.
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.
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. Google has also taken actions to give users the option to accept cookies or not.
We believe our ability to compete depends on many factors within and beyond our control, including: • effectively differentiating our service and value proposition from those of our competitors; • attracting new clients and engaging with and retaining existing clients; • our direct relationships with our clients and their willingness to share personal information with us; • further developing our data science capabilities; • maintaining favorable brand recognition and effectively marketing our services to clients; • delivering merchandise that each client perceives as personalized to them; • the amount, diversity, and quality of brands and merchandise that we or our competitors offer; • our ability to expand and maintain appealing Owned Private Label Brands and exclusive-to-Stitch Fix merchandise; • the price at which we are able to offer our merchandise; • the speed and cost at which we can deliver merchandise to our clients and the ease with which they can use our services to return merchandise; and • anticipating and quickly responding to changing apparel trends and consumer shopping preferences. 21 Many of our current competitors have, and potential competitors may have, longer operating histories; larger fulfillment infrastructures; greater technical capabilities; faster shipping times; lower-cost shipping; larger databases; more purchasing power; higher profiles; greater financial, marketing, institutional, and other resources; and larger customer bases than we do.
We believe our ability to compete depends on many factors within and beyond our control, including: • effectively differentiating our service and value proposition from those of our competitors; • attracting new clients and engaging with and retaining existing clients; • our direct relationships with our clients and their willingness to share personal information with us; • further developing our data science and AI capabilities; • maintaining favorable brand recognition and effectively marketing our services to clients; • delivering merchandise that each client perceives as personalized to them; • the amount, diversity, and quality of brands and merchandise that we or our competitors offer; • our ability to maintain and expand appealing Owned Private Label Brands and exclusive-to-Stitch Fix merchandise; • the price at which we are able to offer our merchandise; 18 • the speed and cost at which we can deliver merchandise to our clients and the ease with which they can use our services to return merchandise; and • anticipating and quickly responding to changing apparel trends and consumer shopping preferences.
As of July 29, 2023, we had federal and state net operating loss carryforwards of $152.7 million and $274.7 million , respectively. The federal net operating loss carryforwards may be carried forward indefinitely; state net operating loss carryforwards will expire, if not utilized, beginning in 2025.
As of August 3, 2024, we had federal and state net operating loss carryforwards of $186.7 million and $328.5 million , respectively. The federal net operating loss carryforwards may be carried forward indefinitely; state net operating loss carryforwards will expire, if not utilized, beginning in 2025.
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.
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 personally identifiable information, including but not limited to, name, address, social security numbers, client payment card information, and client style preferences.
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.
The ability to use our net operating loss carryforwards depends on the availability of future taxable income. In addition, as of August 3, 2024, we had federal and California research and development tax credit carryforwards of $57.1 million and $24.1 million , respectively.
Further, during the third quarter of our 2020 fiscal year, in response to the COVID-19 pandemic, we temporarily closed three of our fulfillment centers and implemented changes that resulted in operational constraints, which in turn temporarily reduced our ability to ship merchandise to clients and earn revenue.
Further, in response to the COVID-19 pandemic, we temporarily closed three of our fulfillment centers and implemented changes that resulted in operational constraints, which in turn temporarily reduced our ability to ship merchandise to clients and earn revenue. Any future pandemics may negatively affect capacity at our fulfillment centers.
In the third quarter of fiscal 2023, we announced the closure of two additional U.S. fulfillment centers because we believe our inventory would be better optimized across a smaller network of warehouses in the U.S., allowing us to deliver a better client experience with access to a greater breadth inventory for a given Fix, while at the same time operating with lower, more cash efficient, inventory levels.
In fiscal year 2024, we closed two fulfillment centers. We believe our inventory is better optimized across a smaller network of warehouses and allows us to deliver a better client experience with access to a greater breadth inventory for a given Fix, while at the same time operating with lower, more cash efficient, inventory levels.
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.
If we are unable to manage the transformation and potential growth of our organization effectively or if our strategies do not produce the anticipated results, or cause unanticipated issues, our business, financial condition, and operating results may be adversely affected.
In addition, extreme price and volume fluctuations in the stock markets have affected and continue to affect many eCommerce and other technology companies’ stock prices. Often, their stock prices have fluctuated in ways unrelated or disproportionate to the companies’ operating performance. In the past, stockholders have filed securities class action litigation following periods of market volatility.
Often, their stock prices have fluctuated in ways unrelated or disproportionate to the companies’ operating performance. In the past, stockholders have filed securities class action litigation following periods of market volatility.
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. 29 Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: • any derivative action or proceeding brought on our behalf; • any action asserting a breach of fiduciary duty; • any action asserting a claim against us arising under the Delaware General Corporation Law, our amended and restated certificate of incorporation, or our amended and restated bylaws; and • any action asserting a claim against us that is governed by the internal-affairs doctrine.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: • any derivative action or proceeding brought on our behalf; • any action asserting a breach of fiduciary duty; • any action asserting a claim against us arising under the Delaware General Corporation Law, our amended and restated certificate of incorporation, or our amended and restated bylaws; and • any action asserting a claim against us that is governed by the internal-affairs doctrine.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 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.
Biggest changeItem 2. Properties. Our principal physical properties are located in the United States. 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 approximately 96,000 square feet of this space for sublease.
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.
We also currently lease and operate three fulfillment centers in the United States. We currently utilize a total of approximately 2,114,000 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, and Georgia.
Removed
In 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.
Added
We currently sublease approximately 1,012,000 square feet space at our former Salt Lake City, Utah fulfillment center. We believe our facilities are sufficient for our current needs. 29
Removed
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.
Removed
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 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings. The information contained in Note 8, “Commitments and Contingencies” under the heading “Contingencies” in the Notes to the Consolidated Financial Statements included within this Annual Report on Form 10-K is incorporated herein by reference. Item 4. Mine Safety Disclosures. None. PART II
Biggest changeItem 3. Legal Proceedings. The information contained in Note 8, “Commitments and Contingencies” under the heading “Contingencies” in the Notes to the Consolidated Financial Statements included within Item 8. Financial Statements and Supplementary Data to this Annual Report on Form 10-K is incorporated herein by reference. Item 4. Mine Safety Disclosures. Not applicable. 30 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeDuring 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
Biggest changeDuring fiscal 2024, we did not repurchase any shares of our common stock and we had $120.0 million remaining in share repurchase capacity as of August 3, 2024. Item 6. [Reserved] Not applicable. 32
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.
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. 31 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.
We currently intend to retain all available funds and future earnings to fund the development and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future.
We currently intend to retain all available funds and future earnings, if any, to fund the development and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future.
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.
Holders of Record As of the close of business on September 18, 2024, there were 36 stockholders of record of our Class A common stock and 14 stockholders of record of our Class B common stock.
An 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.
An 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 August 3, 2019, and its relative performance is tracked through August 3, 2024.

Item 7. Management's Discussion & Analysis

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

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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.
Biggest changeResults of Operations Comparison of the Fiscal Years Ended August 3, 2024, July 29, 2023, and July 30, 2022 The following table summarizes our financial results from continuing operations: For the Fiscal Year Ended 2024 vs. 2023 2023 vs. 2022 (in thousands) August 3, 2024 July 29, 2023 July 30, 2022 % Change % Change Revenue, net $ 1,337,468 $ 1,592,521 $ 2,017,804 (16.0) % (21.1) % Cost of goods sold 745,430 916,908 1,131,132 (18.7) % (18.9) % Gross profit 592,038 675,613 886,672 (12.4) % (23.8) % Selling, general, and administrative expenses 725,465 830,894 1,071,142 (12.7) % (22.4) % Operating loss (133,427) (155,281) (184,470) (14.1) % (15.8) % Interest income 11,250 5,841 924 92.6 % * Other income (expense), net 1,631 (25) (394) * (93.7) % Loss before income taxes (120,546) (149,465) (183,940) (19.3) % (18.7) % Provision (benefit) for income taxes (1,661) $ 871 $ (2,335) * * Net loss from continuing operations $ (118,885) $ (150,336) $ (181,605) (20.9) % (17.2) % * Not meaningful The components of our results from continuing operations as a percentage of net revenue were as follows: For the Fiscal Year Ended August 3, 2024 July 29, 2023 July 30, 2022 Revenue, net 100.0 % 100.0 % 100.0 % Cost of goods sold 55.7 % 57.6 % 56.1 % Gross margin 44.3 % 42.4 % 43.9 % Selling, general, and administrative expenses 54.2 % 52.2 % 53.1 % Operating loss (10.0) % (9.8) % (9.1) % Interest income 0.8 % 0.4 % — % Other income (expense), net 0.1 % — % — % Loss before income taxes (9.0) % (9.4) % (9.1) % Provision (benefit) for income taxes (0.1) % 0.1 % (0.1) % Net loss from continuing operations (8.9) % (9.4) % (9.0) % Note: Due to rounding, percentages in this table may not sum to totals.
Income Tax Provision (Benefit) Our provision (benefit) for income taxes 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.
Provision (Benefit) for Income Taxes Our provision (benefit) for income taxes consists of an estimate of federal and state income taxes based on enacted federal and state 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.
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.
Some of these limitations include: • Adjusted EBITDA excludes interest income and net other (income) expense 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 attributable to our continuing operations that are fundamentally different in strategic nature and frequency from ongoing initiatives.
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.
Our classification of cost of goods sold may vary from other companies in our industry and may not be comparable. 37 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.
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”).
However, our future results of operations will depend on our ability to successfully navigate current business challenges and the overall macroeconomic environment. 34 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”).
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.
We establish a reserve for excess and slow-moving inventory we expect to write off or sell below cost as liquidations based on historical trends, which considers factors such as the age of the inventory and sell through rate for a particular item.
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.
During fiscal 2024 and fiscal 2023 , 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 2025.
We believe free cash flow is an important metric because it represents a measure of how much cash from operations we have available for discretionary and non-discretionary items after the deduction of capital expenditures. These non-GAAP financial measures may be different than similarly titled measures used by other companies.
We believe free cash flow from continuing operations (“Free Cash Flow”) is an important metric because it represents a measure of how much cash from continuing operations we have available for discretionary and non-discretionary items after the deduction of capital expenditures. These non-GAAP financial measures may be different than similarly titled measures used by other companies.
As a result of our restructuring and cost reduction actions throughout fiscal 2023 and fiscal 2022 , we expect SG&A in fiscal 2024 to continue to decrease as compared to fiscal 2023 . Our classification of certain components within SG&A may vary from other companies in our industry and may not be comparable.
As a result of our restructuring and cost reduction actions throughout fiscal years 2024, 2023 , and 2022, we expect SG&A in fiscal 2025 to decrease as compared to fiscal 2024 . Our classification of certain components within SG&A may vary from other companies in our industry and may not be comparable.
However, management believes that certain non-GAAP financial measures provide users of our financial information with additional useful information in evaluating our performance. We believe that adjusted EBITDA is frequently used by investors and securities analysts in their evaluations of companies, and that this supplemental measure facilitates comparisons between companies.
However, management believes that certain non-GAAP financial measures provide users of our financial information with additional useful information in evaluating our performance. We believe that adjusted EBITDA from continuing operations (“Adjusted EBITDA”) is frequently used by investors and securities analysts in their evaluations of companies, and that this supplemental measure facilitates comparisons between continuing operations of companies.
In addition, we estimate and accrue shrinkage as a percentage of inventory out to the client and also accrue for damaged items and items we intend to clearance. Estimates are made to reduce the inventory value for lost, stolen, damaged, or clearanced items to net realizable value.
In addition, we estimate and accrue shrinkage as a percentage of inventory out to the client and also accrue for damaged items and items we intend to liquidate. Estimates are made to reduce the inventory value for lost, stolen, damaged, or liquidated items to net realizable value.
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.
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 Financial Statements and Supplementary Data of this Annual Report. Critical Accounting Policies and Estimates Our consolidated financial statements have been prepared in accordance with GAAP.
For fiscal 2022, restructuring charges were $17.7 million and other one-time costs were $8.5 million in retention bonuses for continuing employees.
For fiscal 2023, restructuring charges were $39.9 million and other one-time costs were $5.8 million in retention bonuses for continuing employees. For fiscal 2022, restructuring charges were $17.7 million and other one-time costs were $8.5 million in retention bonuses for continuing employees.
This was primarily offset by restructuring and other one-time costs, which increased as a percentage of net revenue from 1.3% in fiscal 2022 to 3.1% in fiscal 2023 .
This was partially offset by restructuring and other one-time costs, which increased as a percentage of net revenue from 1.3% in fiscal 2022 to 2.9% in fiscal 2023 .
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.
Despite lower revenues year-over-year, our net loss in fiscal 2024 was lower due to several restructuring actions that took place in both fiscal 2023 and fiscal 2024 as described below, which reduced fixed and variable operating expenses, in addition to a reduction in advertising expense.
The decrease was primarily attributable to higher product and transportation costs as a percentage of revenue, substantially offset by our improved inventory position, as we better aligned our inventory composition, which has led to lower inventory write-offs as a percentage of revenue.
The decrease was primarily attributable to higher product and transportation costs as a percentage of revenue in fiscal year 2023, substantially offset by our improved inventory position, as we better aligned our inventory composition, which led to lower inventory write-offs as a percentage of revenue.
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.
Refer to Note 13, “Restructuring” within the Notes to the Consolidated Financial Statements included in Part II, Item 8 Financial Statements and Supplementary Data of this Annual Report for more details. 35 Free Cash Flow We define Free Cash Flow as cash flows provided by operating activities from continuing operations, reduced by purchases of property and equipment that are included in cash flows from investing activities from continuing operations.
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.
For more information on the components of net loss from continuing operations, refer to the section titled “Results of Operations” below. 33 Restructuring During fiscal 2024 and 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.
The preparation of our financial statements requires us to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and the related disclosures. We base our estimates on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.
The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and the related disclosures. We base our estimates on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
Refer to Note 13, “Restructuring” within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report for further details of restructuring actions taken in fiscal 2023 and fiscal 2022.
Refer to Note 13, “Restructuring” within the Notes to the Consolidated Financial Statements included in Part II, Item 8 Financial Statements and Supplementary Data of this Annual Report for further details of restructuring actions taken.
Operations and Infrastructure We intend to leverage our data science and deep understanding of our clients’ needs to make targeted investments in technology and product, and plan to prioritize investments with near-term positive returns. In the second quarter of fiscal 2023, we decided to close our Salt Lake City fulfillment center in order to optimize network capacity.
Operations and Infrastructure We intend to leverage our data science and deep understanding of our clients’ needs to make targeted investments in technology and product. In the second quarter of fiscal 2023, we decided to close our Salt Lake City fulfillment center in order to optimize network capacity.
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.
During fiscal 2023 , cash provided by investing activities from continuing operations was $64.5 million, primarily related to net cash flow from purchases, sales, and maturities of $82.5 million of highly rated available-for-sale securities, partially offset by $18.9 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.
During fiscal 2022 , cash provided by investing activities was $11.6 million, primarily related to net cash flow from purchases, sales, and maturities of $56.6 million of highly rated available-for-sale securities, partially offset by $45.0 million in purchases of property and equipment.
These decreases were partially offset by a year-over-year increase of $24.4 million in restructuring and other one-time costs. SG&A expense was also impacted by a $83.9 million reduction in our advertising expense as compared to fiscal 2022, as a result of our decision to reduce advertising spend in fiscal 2023 .
These decreases were partially offset by a year-over-year increase of $19.5 million in restructuring and other one-time costs. SG&A expense was also impacted by a $78.3 million reduction in our advertising expense as compared to fiscal 2022 , as a result of our decision to reduce advertising spend in fiscal 2023 .
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.
During fiscal 2022 , cash used in financing activities from continuing operations was $59.6 million, which was primarily due to payments for tax withholding related to vesting of restricted stock units of $31.1 million and repurchases of common stock of $30.0 million, partially offset by proceeds from the exercise of stock options of $1.5 million.
SG&A as a percentage of revenue decreased to 53.1% in fiscal 2023 , as compared to 53.9% in fiscal 2022 . The decrease in SG&A margin was primarily related to reductions in advertising, which was 7.3% of net revenue in fiscal 2023 , as compared to 9.8% of net revenue in fiscal 2022 .
SG&A as a percentage of revenue decreased to 52.2% in fiscal 2023 , as compared to 53.1% in fiscal 2022 . The decrease in SG&A margin was primarily related to reductions in advertising, which was 7.0% of net revenue in fiscal 2023 , as compared to 9.4% of net revenue in fiscal 2022 .
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.
Adjusted EBITDA We define Adjusted EBITDA as net loss from continuing operations 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 related to our continuing operations.
Marketing expense is recorded in selling, general, and administrative expenses in the consolidated statements of operations and comprehensive loss, and the largest component of our marketing expense is advertising, which was $119.5 million in fiscal 2023, compared to $203.4 million in fiscal 2022.
Marketing expense is recorded in selling, general, and administrative expenses in the consolidated statements of operations and comprehensive loss. The largest component of our marketing expense is advertising, which was $111.4 million in fiscal 2024, compared to $111.6 million in fiscal 2023.
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.
Effect of Exchange Rate Changes on Cash and Cash Equivalents Cash and cash equivalents at both August 3, 2024 and July 29, 2023 were impacted based on fluctuations in the exchange rate of the British pound sterling to the U.S. dollar.
We define an active client as a client who checked out a Fix or was shipped an item via Freestyle in the preceding 52 weeks, measured as of the last day of that period. A client checks out a Fix when she indicates what items she is keeping through our mobile application or on our website.
We define an active client as a client who checked out a Fix or was shipped an item via Freestyle in the preceding 52 weeks, measured as of the last day of that period. Clients check out a Fix when they indicate which items they are keeping through our mobile application or on our website.
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 repurchase program may be modified, suspended, or terminated at any time. The Company made no repurchases of Class A common stock in fiscal 2024 or fiscal 2023 . As of August 3, 2024, the Company had repurchased 2,302,141 shares of Class A common stock for $30.0 million, and $120.0 million remained available under the 2022 Repurchase Program authorization.
Selling, General, and Administrative Expenses SG&A in fiscal 2023 decreased by $247.2 million, or 22.1%, as compared to fiscal 2022 , primarily due to a $149.5 million decrease in compensation and benefits expense, including lower stock-based compensation, largely driven by our restructuring actions and reductions in variable labor costs due to lower sales volumes.
SG&A in fiscal 2023 decreased by $240.2 million, or 22.4%, as compared to fiscal 2022 , primarily due to a $147.8 million decrease in compensation and benefits expense, including lower stock-based compensation, largely driven by our restructuring actions and reductions in variable labor costs due to lower sales volumes.
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 August 3, 2024, and July 29, 2023, we had approximately 2,508,000 and 3,121,000 active clients, respectively, representing a year-over-year decline of 19.6%. Refer to the section titled “Key Financial and Operating Metrics” below for information on how we define and calculate active clients.
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.
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 office. As of August 3, 2024, we had $132.9 million of enforceable and legally binding inventory purchase commitments, predominantly due within one year.
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%.
We consider each Women’s, Men’s, or Kids account as a client, even if they share the same household. We had 2,508,000 and 3,121,000 active clients as of August 3, 2024, and July 29, 2023, respectively, representing a year-over-year decline of 19.6%.
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.
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. We also offer a wide variety of product types, including denim, dresses, blouses, skirts, shoes, jewelry, and handbags.
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”).
Below is a summary of the restructuring actions taken to date 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 that reduced our then-current employee workforce by approximately 6%, including approximately 20% of our then-salaried positions. • In furtherance of and as an expansion of the 2022 Restructuring Plan, in June 2023, we announced the closure of our fulfillment centers in Bethlehem, Pennsylvania and Dallas, Texas.
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.
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.
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.
I n connection with activities taken for the 2022 Restructuring Plan and activities in furtherance of and as an expansion of the 2022 Restructuring Plan, described further below, w e have recorded the following: For the Fiscal Year Ended (in thousands) August 3, 2024 July 29, 2023 July 30, 2022 Cash restructuring charges: Severance and employee-related benefits (1) $ 10,065 $ 18,142 $ 10,869 Lease termination (1) 1,466 — — Other (1) 3,090 722 — Non-cash restructuring charges: Asset impairments (1, 2) 19,283 16,874 6,154 Accelerated depreciation (1) 9,021 2,805 — Inventory impairment (3) — — 719 Other (1) 913 1,364 — Total restructuring $ 43,838 $ 39,907 $ 17,742 (1) Recorded in selling, general, and administrative expenses on the consolidated statements of operations and comprehensive loss.
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.
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.
Revenue was also impacted by a 9.0% decline in net revenue per active client in fiscal 2023 , as compared to fiscal 2022 , as we have observed clients spending less in recent periods. 39 Gross margin for fiscal 2023 , decreased by 160 basis points as compared to fiscal 2022 .
Revenue was also impacted by a 9.3% decline in net revenue per active client in fiscal 2023 , as compared to fiscal 2022 , as clients spent less during the year. Gross margin for fiscal 2023 , decreased by 150 basis points as compared to fiscal 2022 .
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.
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.
Our effective tax rate and provision for income taxes increased in fiscal 2023 as compared to fiscal 2022 , primarily due to additional foreign income taxes and less reserve releases due to lapses in statutes of limitation. Liquidity and Capital Resources Sources of Liquidity Our principal source of liquidity is our cash flow from operations.
Our effective tax rate and provision for income taxes increased in fiscal 2023 as compared to fiscal 2022 , primarily due to increases in federal income taxes and less reserve releases due to lapses in statutes of limitation.
As such, we are no longer ordering product in advance of our typical timelines. 37 Client Acquisition and Engagement To grow our business, we must continue to acquire clients and successfully engage and retain them. Our marketing strategy aims to preserve liquidity and achieve profitability, while simultaneously attracting long-term customers to fuel a return to growth.
Moreover, our inventory investments will fluctuate with the needs of our business. 36 Client Acquisition and Engagement To grow our business, we must continue to acquire clients and successfully engage and retain them. Our marketing strategy aims to preserve liquidity and achieve profitability, while simultaneously attracting long-term customers to fuel a return to growth.
Our intention is to renew or replace the line of credit before the termination date. 40 For information on the terms of the Amended Credit Agreement, refer to Note 7, “Credit Agreement” within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
For information on the terms of the 2023 Credit Facility, refer to Note 7, “Credit Agreement” within the Notes to the Consolidated Financial Statements included in Part II, Item 8 Financial Statements and Supplementary Data of this Annual Report on Form 10-K.
The change in our net operating assets and liabilities was primarily due to a change of $78.4 million in our inventory balance due to a decline in inventory receipts to bring inventory balances in line with current demand, and a cash inflow of $53.0 million from income tax refunds, partially offset by a decrease of $63.4 million in our accounts payable and accrued liabilities due to timing of payments.
The change in net operating assets and liabilities was primarily due to a change of $76.0 million in our inventory balance due to a decline in inventory receipts to bring inventory balances in line with current demand, and a cash inflow of $53.0 million from income tax refunds, partially offset by a decrease of $60.1 million in accounts payable and accrued liabilities due to timing of payments. 40 During fiscal 2022 , cash provided by operating activities from continuing operations was $75.2 million, which consisted of a net loss from continuing operations of $181.6 million, adjusted by non-cash charges of $182.9 million and a change of $73.9 million in our net operating assets and liabilities.
(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.
(2) 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.
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.
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 $533 and $510 as of August 3, 2024, and July 29, 2023, respectively, representing a year-over-year increase of 4.5%.
The non-cash charges were largely driven by $128.5 million of stock-based compensation expense, $37.2 million of depreciation, amortization, and accretion, $16.6 million in inventory reserves, and $6.2 million in asset impairment charges.
The non-cash charges were primarily driven by $102.1 million of stock-based compensation expense, $42.1 million of depreciation and amortization, and $16.9 million in asset impairment charges.
In addition, this discussion contains forward-looking statements that reflect our plans, estimates, and beliefs, and involve risks and uncertainties.
Throughout this Annual Report, all references to quarters and years are to our fiscal quarters and fiscal years unless otherwise noted. In addition, this discussion contains forward-looking statements that reflect our plans, estimates, and beliefs, and involve risks and uncertainties.
A discussion regarding our financial condition and results of operation for fiscal 2023 , compared to fiscal 2022 , is presented below.
A discussion regarding our financial condition and results of operation for fiscal 2024 , compared to fiscal 2023 , and for fiscal 2023 compared to fiscal 2022, is presented below. Business Overview In 2011, Stitch Fix introduced an innovative approach to shopping for clothing and accessories.
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.
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 the time of purchase. We incur inventory write-offs and changes in inventory reserves that impact our gross margins.
Currently, clients can engage with us in one of two ways that, combined, form an ecosystem of personalized experiences across styling, shopping, and inspiration: (1) by receiving a personalized shipment of items informed by our algorithms and sent by a Stitch Fix stylist (a “Fix”); or (2) by purchasing directly from our website or mobile app based on a personalized assortment of outfit and item recommendations (“Freestyle”).
Clients engage with us by (1) receiving a curated shipment of items informed by our algorithms and chosen by a Stitch Fix Stylist (a “Fix”); or (2) purchasing directly from our website or mobile app based on an individualized assortment of outfit and item recommendations (“Freestyle”). Clients choose to schedule regular shipments or order a Fix on demand.
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.
The non-cash charges were primarily driven by $76.8 million of stock-based compensation expense and $44.5 million of depreciation, amortization, and accretion, $19.3 million of asset impairment, partially offset by $15.1 million of changes in inventory reserves.
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.
During fiscal 2023 , cash provided by operating activities from continuing operations was $73.2 million, which consisted of a net loss from continuing operations of $150.3 million, adjusted by non-cash charges of $145.0 million and a change of $78.5 million in our net operating assets and liabilities.
We also sell gift cards to clients and establish a liability based on the face value of such gift cards. If a gift card is not used, we will recognize estimated gift card breakage revenue proportionately to customer usage of gift cards over the expected gift card usage period, subject to requirements to remit balances to governmental agencies.
If a gift card is not used, we will recognize estimated gift card breakage revenue proportionately to customer usage of gift cards over the expected gift card usage period, subject to requirements to remit balances to governmental agencies. We have not made any material changes to our revenue recognition accounting policies during fiscal 2024.
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 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 from continuing operations for fiscal 2024 was $118.9 million, compared to a net loss from continuing operations of $150.3 million for fiscal 2023 .
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 .
A 10% change in our inventory reserves estimate as of August 3, 2024 would result in a change in reserves of approximately $2.4 million. 41 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 2024 or fiscal 2023 .
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 offer Style Pass to provide select 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.
As the macroeconomic environment is experiencing inflation, rising interest rates, recessionary concerns, tightening labor markets, and general uncertainty regarding the overall future political and economic environment, we have seen and expect to continue to see negative impacts on consumer confidence and consumer demand.
As the macroeconomic environment is experiencing inflation, rising interest rates, recessionary concerns, tightening labor markets, and general uncertainty regarding the overall future political and economic environment, we cannot predict whether or when such circumstances may improve or worsen or what impact such circumstances could have on our business.
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 sell merchandise across a broad range of price points and may further broaden our price point offerings in the future. 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.
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 use a 52- or 53-week fiscal year, with our fiscal year ending on the Saturday that is closest to July 31 of that year. The fiscal year ending August 3, 2024 (“fiscal 2024”) consists of 53 weeks, and the fiscal years ended, July 29, 2023 (“fiscal 2023”), and July 30, 2022 (“fiscal 2022”) consisted of 52 weeks.
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.
The decline in active clients is due to dormant clients outpacing new client additions during the year, which we largely attribute to client conversion and retention challenges. Net Revenue per Active Client We believe that net revenue per active client is an indicator of client engagement and satisfaction.
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 example, our Owned Private Label Brands have generally contributed higher margins than our third-party brands, which have generally contributed lower margins. 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.
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.
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. Revenue Recognition Revenue is recognized net of sales taxes, discounts, and estimated refunds. We record a refund reserve based on our historical refund patterns.
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.
Uses of Cash Our primary uses of cash include operating costs such as merchandise purchases, lease obligations, compensation and benefits, marketing, and other expenditures necessary to support our business.
Revenue Recognition Revenue is recognized net of sales taxes, discounts, and estimated refunds. We record a refund reserve based on our historical refund patterns. The impact of our refund reserve on our operating results may fluctuate based on changes in client refund activity over time.
The impact of our refund reserve on our operating results may fluctuate based on changes in client refund activity over time. We also sell gift cards to clients and establish a liability based on the face value of such gift cards.
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.
The following table presents a reconciliation of net loss from continuing operations, the most comparable GAAP financial measure, to Adjusted EBITDA for each of the periods presented: For the Fiscal Year Ended (in thousands) August 3, 2024 July 29, 2023 July 30, 2022 Adjusted EBITDA: Net loss from continuing operations $ (118,885) $ (150,336) $ (181,605) Add (deduct): Interest income (11,250) (5,841) (924) Other (income) expense, net (1,631) 25 394 Provision (benefit) for income taxes (1,661) 871 (2,335) Depreciation and amortization (1) 35,489 38,375 33,533 Stock-based compensation expense (2) 76,756 102,072 124,944 Restructuring and other one-time costs (3) 50,463 45,749 26,206 Adjusted EBITDA $ 29,281 $ 30,915 $ 213 (1) For fiscal 2024 and 2023, depreciation and amortization excluded $12.1 million and $2.8 million, respectively, 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 2024, restructuring charges were $43.8 million and other one-time costs were $6.7 million in one-time professional services fees.
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.
The non-cash charges were primarily driven by $126.1 million of stock-based compensation expense, $35.7 million of depreciation and amortization, $14.7 million in inventory reserves, and $6.2 million in asset impairment charges. The change in net operating assets and liabilities was primarily due to an increase of $67.4 million in accounts payable balance due to timing of inventory receipts and payments.
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. Refer to Note 13, “Restructuring” within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report for further details.
Refer to Note 13, “Restructuring” within the Notes to the Consolidated Financial Statements included in Part II, Item 8 Financial Statements and Supplementary Data of this Annual Report for further details. Merchandise Mix We offer apparel, shoes, and accessories across categories, brands, product types, and price points.
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.
The following table presents a reconciliation of net cash flows provided by operating activities from continuing operations, the most comparable GAAP financial measure, to Free Cash Flow for each of the periods presented: For the Fiscal Year Ended (in thousands) August 3, 2024 July 29, 2023 July 30, 2022 Free Cash Flow reconciliation: Net cash provided by operating activities from continuing operations $ 28,207 $ 73,230 $ 75,217 Deduct: Purchases of property and equipment from continuing operations (13,965) (18,863) (44,957) Free Cash Flow $ 14,242 $ 54,367 $ 30,260 Net cash provided by (used in) investing activities from continuing operations $ (78,742) $ 64,476 $ 11,627 Net cash used in financing activities from continuing operations $ (15,493) $ (15,085) $ (59,580) Operating Metrics August 3, 2024 July 29, 2023 July 30, 2022 Active Clients (in thousands) 2,508 3,121 3,590 Net Revenue per Active Client $533 $510 $562 Active Clients We believe that the number of active clients is a key indicator of the overall health of our business.
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.
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.
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.
We have $3.3 million in restructuring related liabilities as of August 3, 2024, and we expect substantially all cash payments in connection with expenses incurred to date related to the 2022 Restructuring Plan will be completed in the first quarter of fiscal 2025 .
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.
As of August 3, 2024, we had $162.9 million of cash and cash equivalents, which included $0.7 million held outside the U.S. in the UK, and $84.1 million of short-term investments with contractual maturities of 12 months or less.
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.
We also recognize revenue resulting from estimated breakage income on gift cards.
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.
Cash Flows The following table summarizes our cash flows for the periods indicated below: For the Fiscal Year Ended (in thousands) August 3, 2024 July 29, 2023 July 30, 2022 Net cash provided by operating activities from continuing operations $ 28,207 $ 73,230 $ 75,217 Net cash provided by (used in) investing activities from continuing operations (78,742) 64,476 11,627 Net cash used in financing activities from continuing operations (15,493) (15,085) (59,580) Net increase (decrease) in cash and cash equivalents from continuing operations $ (66,028) $ 122,621 $ 27,264 Cash Provided by Operating Activities from Continuing Operations During fiscal 2024 , cash provided by operating activities from continuing operations was $28.2 million, which consisted of a net loss from continuing operations of $118.9 million, adjusted by non-cash charges of $124.6 million and a $22.5 million change in net operating assets and liabilities.
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.
Provision for Income Taxes The following table summarizes our effective tax rate for the periods presented: For the Fiscal Year Ended (in thousands) August 3, 2024 July 29, 2023 July 30, 2022 Loss from continuing operations before income taxes $ (120,546) $ (149,465) $ (183,940) Provision (benefit) for income taxes (1,661) 871 (2,335) Effective tax rate 1.4 % (0.6) % 1.3 % Our effective tax rate and provision for income taxes decreased in fiscal 2024 as compared to fiscal 2023 , primarily due to reserve releases in fiscal 2024 from lapses in statutes of limitation and effective settlement of prior year tax positions.
In June 2023, we announced the intended closures of our fulfillment centers in Bethlehem, Pennsylvania and Dallas, Texas. In addition, 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.
In June 2023, we announced the intended closures of our fulfillment centers in Bethlehem, Pennsylvania and Dallas, Texas. The Bethlehem, Pennsylvania location ceased operations during the fiscal quarter ended October 28, 2023 and the Dallas, Texas location ceased operations during the fiscal quarter ended April 27, 2024.
(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.
The 2023 Credit Facility includes a sub-facility that provides for the issuance of letters of credit in an amount of up to $30.0 million.
Removed
We use a 52- or 53-week fiscal year, with our fiscal year ending on the Saturday that is closest to July 31 of that year. Each fiscal year generally consists of four 13-week fiscal quarters, with each fiscal quarter ending on the Saturday that is closest to the last day of the last month of the quarter.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeFluctuations 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.
Biggest changeOur operations in the UK, which are classified as discontinued operations, exposed us to fluctuations in foreign currency exchange rates on our operating expenses. Fluctuations in foreign currency exchange rates could have resulted in transaction gains or losses on transactions in currencies other than the U.S. dollar or British pound sterling.
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.
However, due to the short-term nature of our investment portfolio as of August 3, 2024, 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.
As 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.
As 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 During fiscal 2024, our revenue was earned in U.S. dollars and British pound sterling.
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
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. 42
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.
During fiscal 2024, a hypothetical 10% increase or decrease in exchange rates would not have had a material impact on our consolidated financial results. 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.
Added
Our inability or failure to do so could harm our business, financial condition, and results of operations. The primary inflationary factors affecting our business are merchandise costs, shipping and freight costs, and labor costs.

Other SFIX 10-K year-over-year comparisons