U.S. Markets closed

Stitch Fix Announces Third Quarter Fiscal Year 2019 Financial Results

SAN FRANCISCO, June 05, 2019 (GLOBE NEWSWIRE) -- Stitch Fix, Inc. (SFIX), the leading online personal styling service, has released its financial results for the third quarter of fiscal year 2019 ended April 27, 2019, and posted a letter to its shareholders on its investor relations website.

Third quarter highlights

  • Active clients of 3.1 million, an increase of 17% year over year
  • Net revenue of $408.9 million, an increase of 29% year over year
  • Net income of $7.0 million and adjusted EBITDA of $(0.3) million
  • Diluted earnings per share of $0.07

Q3 was another strong quarter for us, delivering net revenue of $408.9 million, exceeding our guidance and representing 29% year-over-year growth,” said Stitch Fix founder and CEO Katrina Lake. “We grew our active clients to 3.1 million, an increase of 17% year over year. At the same time, we continue to drive engagement with our existing client base, growing revenue per active client 8% year over year. These results demonstrate our ability to attract new clients and to serve our existing clients well. The continued strength of our Women’s category and the growth of our Men’s category give us even more confidence in our ability to scale new categories and geographies. As I look forward, I’m excited about the opportunities ahead to delight even more clients around the world.”

Please visit the Stitch Fix investor relations website at https://investors.stitchfix.com to view the financial results included in the letter to shareholders. The Company intends to continue to make future announcements of material financial and other information through its investor relations website. The Company will also, from time to time, disclose this information through press releases, filings with the Securities and Exchange Commission, conference calls, or webcasts, as required by applicable law.

Conference Call and Webcast Information

Katrina Lake, Founder and Chief Executive Officer of Stitch Fix, Paul Yee, Chief Financial Officer of Stitch Fix, and Mike Smith, President and Chief Operating Officer of Stitch Fix, will host a conference call at 2:00 p.m. Pacific Time today to discuss the Company’s financial results and outlook. A live webcast will be accessible on Stitch Fix’s investor relations website at investors.stitchfix.com. Interested parties can also access the call by dialing (800) 458-4121 in the U.S. or (323) 794-2093 internationally, and entering conference code 3401344.

A telephonic replay will be available through Wednesday, June 12, 2019, at (888) 203-1112 or (719) 457-0820, passcode 3401344. An archive of the webcast conference call will be available shortly after the call ends at https://investors.stitchfix.com.

About Stitch Fix, Inc.

Stitch Fix is reinventing the shopping experience by delivering one-to-one personalization to our clients, through the combination of data science and human judgment. Stitch Fix was founded in 2011 by CEO Katrina Lake. Since our founding, we’ve helped millions of men, women, and kids discover and buy what they love through personalized shipments of apparel, shoes, and accessories, hand-selected by Stitch Fix stylists and delivered to our clients’ homes.

Forward-Looking Statements

This press release and related conference call and webcast contain forward-looking statements within the meaning of the federal securities laws. All statements other than statements of historical fact could be deemed forward looking, including but not limited to statements regarding our future financial performance, including our guidance on financial results for the fourth quarter and full year of fiscal 2019; market trends, growth, and opportunity; profitability; competition; the timing and success of expansions to our offering and penetration of our target markets, such as the launch of our offering in the United Kingdom; our ability to leverage our engineering and data science capabilities to drive efficiencies in our business and enhance our ability to personalize; our plans related to client acquisition, including any impact on our costs and margins and our ability to determine optimal marketing and advertising methods; and our ability to successfully acquire, engage, and retain clients. These statements involve substantial risks and uncertainties, including risks and uncertainties related to our ability to generate sufficient net revenue to offset our costs; the growth of our market and consumer behavior; our ability to acquire, engage, and retain clients; our ability to provide offerings and services that achieve market acceptance; our data science and technology, stylists, operations, marketing initiatives, and other key strategic areas; risks related to international operations; and other risks described in the filings we make with the Securities and Exchange Commission (“SEC”). Further information on these and other factors that could cause our financial results, performance, and achievements to differ materially from any results, performance, or achievements anticipated, expressed, or implied by these forward-looking statements is included in filings we make with the SEC from time to time, including in the section titled “Risk Factors” in our Quarterly Report on Form 10-Q for the fiscal quarter ended January 26, 2019. These documents are available on the SEC Filings section of the Investor Relations section of our website at: http://investors.stitchfix.com. We undertake no obligation to update any forward-looking statements made in this press release to reflect events or circumstances after the date of this press release or to reflect new information or the occurrence of unanticipated events, except as required by law. The achievement or success of the matters covered by such forward-looking statements involves known and unknown risks, uncertainties, and assumptions. If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, our results could differ materially from the results expressed or implied by the forward-looking statements we make. You should not rely upon forward-looking statements as predictions of future events. Forward-looking statements represent our management’s beliefs and assumptions only as of the date such statements are made.


 
Stitch Fix, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share and per share amounts)
 
  April 27, 2019   July 28, 2018
Assets      
Current assets:      
Cash and cash equivalents $ 143,829     $ 297,516  
Restricted cash 250     250  
Short-term investments 147,779      
Inventory, net 110,100     85,092  
Prepaid expenses and other current assets 40,639     34,148  
Total current assets 442,597     417,006  
Long-term investments 62,919      
Property and equipment, net 52,715     34,169  
Deferred tax assets 17,436     14,107  
Restricted cash, net of current portion 12,600     12,600  
Other long-term assets 3,215     3,703  
Total assets $ 591,482     $ 481,585  
Liabilities and Stockholders’ Equity      
Current liabilities:      
Accounts payable $ 99,727     $ 79,782  
Accrued liabilities 66,039     43,037  
Gift card liability 7,660     6,814  
Deferred revenue 12,962     8,870  
Other current liabilities 2,664     3,729  
Total current liabilities 189,052     142,232  
Deferred rent, net of current portion 16,811     15,288  
Other long-term liabilities 10,484     8,993  
Total liabilities 216,347     166,513  
Stockholders’ equity:      
Class A common stock, $0.00002 par value 1     1  
Class B common stock, $0.00002 par value 1     1  
 Additional paid-in capital 265,547     235,312  
Accumulated other comprehensive income 91      
Retained earnings 109,495     79,758  
Total stockholders’ equity 375,135     315,072  
Total liabilities and stockholders’ equity $ 591,482     $ 481,585  


 
Stitch Fix, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
(In thousands, except share and per share amounts)
 
  For the Three Months Ended   For the Nine Months Ended
  April 27, 2019   April 28, 2018   April 27, 2019   April 28, 2018
Revenue, net $ 408,893     $ 316,741     $ 1,145,409     $ 908,210  
Cost of goods sold 224,445     178,535     632,644     513,606  
Gross profit 184,448     138,206     512,765     394,604  
Selling, general, and administrative expenses 189,015     128,454     491,024     359,696  
Operating income (loss) (4,567 )   9,752     21,741     34,908  
Remeasurement of preferred stock warrant liability             (10,685 )
Interest income (1,463 )   (111 )   (4,032 )   (147 )
Other income, net (391 )   (98 )   (964 )   (97 )
Income (loss) before income taxes (2,713 )   9,961     26,737     45,837  
Provision (benefit) for income taxes (9,761 )   474     (2,965 )   19,221  
Net income $ 7,048     $ 9,487     $ 29,702     $ 26,616  
Other comprehensive income:              
Change in unrealized gain on available-for-sale securities, net of tax 140         162      
Foreign currency translation (190 )         (71 )      
Total other comprehensive income (loss), net of tax (50 )         91        
Comprehensive income $ 6,998     $ 9,487     $ 29,793     $ 26,616  
Net income attributable to common stockholders:              
Basic $ 7,048     $ 9,458     $ 29,681     $ 19,065  
Diluted $ 7,048     $ 9,459     $ 29,682     $ 11,413  
Earnings per share attributable to common stockholders:              
Basic $ 0.07     $ 0.10     $ 0.30     $ 0.28  
Diluted $ 0.07     $ 0.09     $ 0.29     $ 0.15  
Weighted-average shares used to compute earnings per share attributable to common stockholders:              
Basic 100,301,078     97,055,573     99,619,426     68,596,978  
Diluted 103,615,159     101,847,521     103,575,702     74,281,211  


 
Stitch Fix, Inc.
Condensed Consolidated Statements of Cash Flow
(Unaudited)
(In thousands)
 
  For the Nine Months Ended
  April 27, 2019   April 28, 2018
Cash Flows from Operating Activities      
Net income $ 29,702     $ 26,616  
Adjustments to reconcile net income to net cash provided by operating activities:      
Deferred income taxes (3,832 )   5,775  
Remeasurement of preferred stock warrant liability     (10,685 )
Inventory reserves 2,805     3,928  
Stock-based compensation expense 23,815     10,277  
Depreciation and amortization 10,191     7,538  
Loss on disposal of property and equipment 24     146  
Change in operating assets and liabilities:      
Inventory (27,818 )   (18,558 )
Prepaid expenses and other assets (5,969 )   (407 )
Accounts payable 20,083     29,594  
Accrued liabilities 18,504     1,857  
Deferred revenue 4,288     3,118  
Gift card liability 1,251     1,495  
Other liabilities 2,164     802  
Net cash provided by operating activities 75,208     61,496  
Cash Flows from Investing Activities      
Purchases of property and equipment (24,517 )   (12,026 )
Purchases of securities available-for-sale (233,151 )    
Sales of securities available-for-sale 2,414      
Maturities of securities available-for-sale 21,500      
Net cash used in investing activities (233,754 )   (12,026 )
Cash Flows from Financing Activities      
Proceeds from initial public offering, net of underwriting discounts paid     129,046  
Proceeds from the exercise of stock options, net 9,284     2,074  
Payments for tax withholding related to vesting of restricted stock units (4,350 )   (402 )
Repurchase of Class B common stock related to early exercised options     (39 )
Net cash provided by financing activities 4,934     130,679  
Net increase (decrease) in cash, cash equivalents, and restricted cash (153,612 )   180,149  
Effect of exchange rate changes on cash (75 )    
Cash, cash equivalents, and restricted cash at beginning of period 310,366     119,958  
Cash, cash equivalents, and restricted cash at end of period $ 156,679     $ 300,107  
Components of Cash, Cash Equivalents, and Restricted Cash      
Cash and cash equivalents $ 143,829     $ 287,257  
Restricted cash – current portion 250      
Restricted cash – long-term portion 12,600     12,850  
Total cash, cash equivalents, and restricted cash $ 156,679     $ 300,107  
Supplemental Disclosure      
Cash paid for income taxes $ 191     $ 9,583  
Supplemental Disclosure of Non-Cash Investing and Financing Activities:      
Purchases of property and equipment included in accounts payable and accrued liabilities $ 4,166     $ 891  
Capitalized stock-based compensation $ 1,277     $ 520  
Vesting of early exercised options $ 209     $ 546  
Conversion of preferred stock upon initial public offering $     $ 42,222  
Reclassification of preferred stock warrant liability upon initial public offering $     $ 15,994  
Deferred offering costs paid in prior year $     $ 1,879  
               

Non-GAAP Financial Measures

We report our financial results in accordance with generally accepted accounting principles in the United States (“GAAP”). However, management believes that certain non-GAAP financial measures provide users of our financial information with additional useful information in evaluating our performance. Management believes that excluding certain items that may vary substantially in frequency and magnitude period-to-period from net income and earnings per share (“EPS”) provides useful supplemental measures that assist in evaluating our ability to generate earnings and to more readily compare these metrics between past and future periods. Management also believes 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. 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. For instance, we do not exclude stock-based compensation expense from adjusted EBITDA or non-GAAP net income. Stock-based compensation is an important part of how we attract and retain our employees, and we consider it to be a real cost of running the business.

Our non-GAAP financial measures should not be considered in isolation from, or as substitutes for, financial information prepared in accordance with GAAP. There are several limitations related to the use of our non-GAAP financial measures as compared to the closest comparable GAAP measures. Some of these limitations include:

  • our non-GAAP net income and non-GAAP EPS attributable to common stockholders – diluted measures exclude the impact of the remeasurement of our net deferred tax assets following the adoption of the Tax Cuts and Jobs Act (“Tax Act”);

  • our non-GAAP net income, adjusted EBITDA and non-GAAP EPS attributable to common stockholders – diluted measures exclude the remeasurement of the preferred stock warrant liability, which is a non-cash expense incurred in the periods prior to the completion of our initial public offering;

  • 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 does not reflect our tax provision, which reduces cash available to us;

  • adjusted EBITDA excludes interest income and other income, net, as these items are not components of our core business; and

  • free cash flow does not represent the total residual cash flow available for discretionary purposes and does not reflect our future contractual commitments.

Adjusted EBITDA

We define adjusted EBITDA as net income excluding interest income, other income, net, provision for income taxes, depreciation and amortization, and, when present, the remeasurement of preferred stock warrant liability. The following table presents a reconciliation of net income, the most comparable GAAP financial measure, to adjusted EBITDA for each of the periods presented:

    For the Three Months Ended   For the Nine Months Ended
(in thousands)   April 27, 2019   April 28, 2018   April 27, 2019   April 28, 2018
Adjusted EBITDA reconciliation:                
Net income   $ 7,048     $ 9,487     $ 29,702     $ 26,616  
Add (deduct):                
  Interest income   (1,463 )   (111 )   (4,032 )   (147 )
Other income, net   (391 )   (98 )   (964 )   (97 )
Provision (benefit) for income taxes   (9,761 )   474     (2,965 )   19,221  
Depreciation and amortization   4,257     2,650     11,441     7,538  
Remeasurement of preferred stock warrant liability               (10,685 )
Adjusted EBITDA   $ (310 )   $ 12,402     $ 33,182     $ 42,446  
                                 

Non-GAAP Net Income

We define non-GAAP net income as net income excluding, when present, the remeasurement of preferred stock warrant liability and the remeasurement of our net deferred tax assets in relation to the adoption of the Tax Act. The following table presents a reconciliation of net income, the most comparable GAAP financial measure, to non-GAAP net income for each of the periods presented:

    For the Three Months Ended   For the Nine Months Ended
(in thousands)   April 27, 2019   April 28, 2018   April 27, 2019   April 28, 2018
Non-GAAP net income reconciliation:                
Net income   $ 7,048     $ 9,487     $ 29,702     $ 26,616  
Add (deduct):                
Remeasurement of preferred stock warrant liability               (10,685 )
Impact of Tax Act (1)               4,730  
Non-GAAP net income   $ 7,048     $ 9,487     $ 29,702     $ 20,661  

_____________________________
(1) The U.S. government enacted comprehensive tax legislation in December 2017.  This resulted in a net charge of $4.7 million for the nine months ended April 28, 2018, due to the remeasurement of our net deferred tax assets for the reduction in tax rate from 35% to 21%. The adjustment to non-GAAP net income only includes this transitional impact. It does not include the ongoing impacts of the lower U.S. statutory rate on current year earnings.

Non-GAAP Earnings Per Share Attributable to Common Stockholders – Diluted

We define non-GAAP EPS attributable to common stockholders - diluted as EPS attributable to common stockholders - diluted excluding, when present, the per share impact of the remeasurement of preferred stock warrant liability and the remeasurement of our net deferred tax assets in relation to the adoption of the Tax Act. The following table presents a reconciliation of EPS attributable to common stockholders – diluted, the most comparable GAAP financial measure, to non-GAAP EPS attributable to common stockholders – diluted for each of the periods presented:

    For the Three Months Ended   For the Nine Months Ended
(in dollars)   April 27, 2019   April 28, 2018   April 27, 2019   April 28, 2018
Non-GAAP earnings per share attributable to common stockholders diluted reconciliation:                
Earnings per share attributable to common stockholders – diluted   $ 0.07     $ 0.09     $ 0.29     $ 0.15  
Per share impact of the remeasurement of preferred stock warrant liability(1)                
Per share impact of Tax Act(2)               0.07  
Non-GAAP earnings per share attributable to common stockholders diluted   $ 0.07     $ 0.09     $ 0.29     $ 0.22  

_____________________________
(1) For the three and nine months ended April 28, 2018, the preferred stock warrant liability was dilutive and included in EPS attributable to common stockholders – diluted. Therefore, it is not an adjustment to arrive at non-GAAP EPS attributable to common stockholders – diluted.

(2) The U.S. government enacted comprehensive tax legislation in December 2017.  This resulted in a net charge of $4.7 million for the nine months ended April 28, 2018, due to the remeasurement of our net deferred tax assets for the reduction in tax rate from 35% to 21%. The adjustment to non-GAAP EPS attributable to common stockholders diluted only includes this transitional impact. It does not include the ongoing impacts of the lower U.S. statutory rate on current year earnings.

Free Cash Flow

We define free cash flow as cash flows provided by operating activities reduced by purchases of property and equipment that are included in cash flows used in investing activities. The following table presents a reconciliation of cash flows provided by operating activities, the most comparable GAAP financial measure, to free cash flow for each of the periods presented:

    For the Nine Months Ended
(in thousands)   April 27, 2019   April 28, 2018
Free cash flow reconciliation:        
Cash flows provided by operating activities   $ 75,208     $ 61,496  
Deduct:        
Purchases of property and equipment   (24,517 )   (12,026 )
Free cash flow   $ 50,691     $ 49,470  
Cash flows used in investing activities   $ (233,754 )   $ (12,026 )
Cash flows provided by financing activities   $ 4,934     $ 130,679  
                 

IR Contact:

David Pearce
ir@stitchfix.com

PR Contact:

Suzy Sammons
media@stitchfix.com