Stitch Fix Q3 2025 Earnings Call Transcript

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Provided by Quartr
June 10, 2025
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Operator

Good day and thank you for standing by. Welcome to the Q3 FY twenty twenty five Stitch Fix Earnings Conference Call. At this time, all participants are in a listen only mode. Please be advised that today's conference is being recorded. After the speakers' presentation, there will be a question and answer session.

Operator

I would now like to hand the conference over to your speaker today, Cheryl Valenzuela, Head of Investor Relations.

Cherryl Valenzuela
Cherryl Valenzuela
Head of Investor Relations at Stitch Fix

Thank you for joining us today for the Stitch Fix third quarter fiscal twenty twenty five earnings call. With me on the call are Matt Baer, Chief Executive Officer and David Asterhardt, Chief Financial Officer. We have posted third quarter twenty twenty five financial results in a press release on the quarterly results section of our website, investors.stitchfix.com. A link to the webcast of today's conference call can also be found on our site. On today's call, Matt and David will share their prepared remarks.

Cherryl Valenzuela
Cherryl Valenzuela
Head of Investor Relations at Stitch Fix

We will then move to Q and A before concluding with Matt's closing remarks. Before we begin, we would like to remind everyone that we will be making forward looking statements on this call, which involve risks and uncertainties. Actual results could differ materially from those contemplated by our forward looking statements. For a discussion of the factors that could cause our results to differ, please review our press release issued and filed today, as well as the risk factor sections of our most recent quarterly report on Form 10 Q and subsequent periodic reports filed with the SEC. Also note that the forward looking statements on this call are based on information available to us as of today's date.

Cherryl Valenzuela
Cherryl Valenzuela
Head of Investor Relations at Stitch Fix

We disclaim any obligation to update any forward looking statements except as required by law. During this call, we will discuss certain non GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are provided in the press release on our Investor Relations website. These non GAAP measures are not intended to be a substitute for our GAAP results. In the first quarter of fiscal twenty twenty four, we began to report our UK business as a discontinued operation.

Cherryl Valenzuela
Cherryl Valenzuela
Head of Investor Relations at Stitch Fix

Accordingly, all metrics discussed on today's call represent our continuing operations. Finally, this call in its entirety is being webcast on our Investor Relations website, and a replay of this call will be available on the website shortly. And now let me turn the call over to Matt.

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

Thank you, Cheryl, and good afternoon, everyone. I'm proud to share the strong results we've achieved this quarter, highlighted by a return to year over year revenue growth. Q3 revenue was $325,000,000 and adjusted EBITDA was 11,000,000. In the quarter, our women's business and overall fixed channel returned to revenue growth. For the consecutive quarter, our men's business and freestyle channel revenue grew.

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

In addition, AOV grew 10% with items per fix, keep rate, and AUR all up year over year for the Based on this strong performance and our ongoing momentum, we are increasing our annual guidance for the current year, which David will detail shortly. These results reflect the strength of Stitch Fix's value proposition and the disciplined execution of our three phased transformation strategy. Over the last two years, we have worked through the two phases of our strategy, rationalize and build, and fundamentally reshaped how we operate. We've strengthened the foundation of our business, incorporating retail best practices in strategic areas such as pricing, warehouse optimization, and inventory management that enable us to operate more efficiently. We've also brought to life a more modern and dynamic stitch fix through our refreshed brand identity and the progress we have made reimagining our client experience.

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

The improvements to our client experience include four areas of focus, enhancing client engagement features, deepening client stylist relationships, introducing increased flexibility to our service, and offering a stronger assortment with more fresh and new styles. The latter two, in particular, contributed to our strong results in the quarter. our clients are responding positively to the increased flexibility we provide. Larger fixes, which offer up to eight items, have helped our existing clients better refresh their closet seasonally, explore current trends, and update their wardrobes for big and small life moments. Larger fixes have directly contributed to our AOV growth.

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

We are now testing larger fixes with time clients to help us more quickly understand their preferences and serve them better from the start. We're also testing theme fixes, which provide clients with selections curated for specific occasions or trends from summer vacations to workwear refreshes. Additionally, we're rolling out a new feature that allows clients to start a fix around an item they discover on Freestyle. This enables clients to take advantage of the discovery on freestyle but still leverage our team of expert stylists to complete a look around their chosen item. in merchandising, we have strengthened our assortment by offering increased variety in on trend styles, which are contributing to higher fixed AOVs as well as driving growth in our freestyle channel.

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

This quarter, athleisure was a notable highlight for our women's and men's clients alike, up over 30% year over year. In addition, our women's business saw strength in wide leg denim and spring transitional sweaters, whereas our men's business saw demand for fleece and knit tops. We have also further expanded our assortment within adjacent categories such as footwear, accessories, and jewelry, and we are offering more complete outfitting solutions that are resonating with our clients. As an example, we continue to see increased demand for footwear across all lines of business with sneakers up 35% year over year. These efforts to improve the client experience, coupled with our retail therapy brand platform, which demonstrates how Stitch Fix is the solution to the frustrations of traditional apparel shopping, are leading to stronger client metrics.

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

In terms of overall active clients, Q3 marked our lowest quarter of sequential declines in three years, And the number of active clients on recurring shipments has grown for three straight quarters. With regards to new clients, we've achieved two straight quarters of year over year new client growth. We continue to see new clients spend more as evidenced by ninety day LTVs, which are among the highest in three years. This demonstrates that we are successfully acquiring higher value clients for whom our service resonates. As we move from the build phase into the growth phase of our transformation, we're focused on cementing ourselves as the retailer of choice for apparel and accessories by delivering the most client centric and personalized shopping experience.

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

We believe we are well positioned to do this because of the unique value our service provides. We pride ourselves on sending every client a fix as unique as they are. We do this by leveraging our team of expert stylists as well as our best in class AI and recommendation algorithms built from the billions of insights we've gathered on style and fit. This differentiation is key to us gaining market share. And based on year to date insights from Surcana, we are growing faster than the overall apparel market.

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

We are successfully transforming our business in fundamental ways. At the same time, we are navigating significant external challenges, a dynamic macroeconomic environment, a shifting tariff landscape, and ongoing pressure on consumers' discretionary spending. Against this backdrop, we remain focused on what we can control, and we have strong conviction in our path forward. Our team is actively working to mitigate tariff related risks and prepare for broader macro shifts. As we look further ahead, we believe the current tariff structure could have a greater impact on FY twenty six, which for us begins in August.

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

However, consistent with our view last quarter, we don't expect any significant cost impact from tariffs for the remainder of our fourth quarter. In closing, we're proud of our accelerated return to revenue growth. We believe our results demonstrate that we have the right strategy, the right team, and the right operational rigor to continue gaining share. By staying relentlessly focused on our clients, investing where it matters, and executing with discipline, we believe we will not only successfully navigate this uncertain environment, we will emerge as an even stronger company. Thank you to the entire Stitch Fix team for your dedication to our clients and our mission, which is driving our business forward. I'd also like to thank our clients, partners, and long term shareholders for their support. And with that, I'll turn it over to David.

David Aufderhaar
David Aufderhaar
Chief Financial Officer at Stitch Fix

Thanks, Matt, and good afternoon, everyone. As Matt mentioned, we are proud of our return to revenue growth in Q3. This success came as a direct result of focused delivery across all of our teams.

David Aufderhaar
David Aufderhaar
Chief Financial Officer at Stitch Fix

We have made deliberate choices about how to operate with more agility, drive greater leverage in our cost base, and invest in targeted areas to drive growth. At the same time, we recognize the macroeconomic backdrop remains uncertain, and we are preparing accordingly. While we haven't seen a pullback in active client spend within our financial results in fiscal twenty five to date, we are closely monitoring broader market trends and the impact tariffs may have in the quarters ahead. We are actively scenario planning and maintaining the same disciplined approach that has guided our recent performance. We are confident in the foundation we have built and remain focused on prudently managing our business through this uncertain environment.

David Aufderhaar
David Aufderhaar
Chief Financial Officer at Stitch Fix

Now let's turn to the numbers. Q3 net revenue reached $325,000,000 up 0.7% year over year and 4.1% quarter over quarter. Growth was largely driven by strength in AOV due to the increased penetration of our larger fixed offerings and our focus on trend and style right assortment. Net active clients ended the quarter at 2,400,000 clients, down 10.6% year over year and down 0.8% quarter over quarter as we continue to narrow losses in active clients. Revenue per active client for the quarter was $542 up 3.2% year over year and up 1% quarter over quarter.

David Aufderhaar
David Aufderhaar
Chief Financial Officer at Stitch Fix

Gross margin for the quarter came in at 44.2%, down 130 basis points year over year and down 30 basis points quarter over quarter. The year over year change was driven primarily by lower product margins as we invest in our client experience through our assortment strategy. Advertising came in at 10.2% of revenue in Q3, up 130 basis points year over year and up two forty basis points quarter over quarter as part of our broader reinvestment in growth. We ended Q3 with net inventory of $114,400,000 flat year over year and up 4.4% quarter over quarter. Our inventory turns were up both year over year and sequentially, reflecting both higher demand and better inventory management.

David Aufderhaar
David Aufderhaar
Chief Financial Officer at Stitch Fix

Q3 adjusted EBITDA was $11,000,000 or approximately 3.4% margin, up 130 basis points year over year and down 170 basis points quarter over quarter. We generated $16,000,000 of free cash flow in Q3 and ended the quarter with $242,000,000 in cash, cash equivalents and investments and no debt. Turning to our outlook for Q4 and FY 'twenty five, I'd like to offer a few thoughts to frame our updated guidance. with respect to revenue, and we are projecting a stronger Q4 than previously anticipated. Both of these are reflected in our increased full year revenue outlook.

David Aufderhaar
David Aufderhaar
Chief Financial Officer at Stitch Fix

This means that excluding last year's 50 week, we expect to see a consecutive quarter of top line growth. Consistent with what we shared on our last earnings call, we still expect active clients to decline sequentially in Q4. As for adjusted EBITDA, we are tightening our FY 2025 guidance, which largely reflects strategic investments we're making in client acquisition and reengagement, as well as strengthening our assortment. We believe these are thoughtful long term investments to support sustainable growth. As a result, for full year FY '25, we now expect total revenue to be between $1,254,000,000 and $1,259,000,000 We expect total adjusted EBITDA for the year to be between 43,000,000 and $47,000,000 This guidance still assumes we'll be free cash flow positive for the full year.

David Aufderhaar
David Aufderhaar
Chief Financial Officer at Stitch Fix

And for Q4, we expect total revenue to be between $298,000,000 and $3.00 $3,000,000 We expect Q4 adjusted EBITDA to be between $3,000,000 and $7,000,000 As a result of the factors I mentioned earlier, we expect Q4 gross margin to be at the lower end of our 44% to 45% range and full year FY 'twenty five gross margin to be in the middle of that same range. We expect full year advertising to be at the high end of the 8% to 9% range we provided last quarter. Looking further ahead, we are in the early stages of the planning process for FY 'twenty six. And as such, we'll provide actual guidance during our next earnings call. As we move through the planning process, we're mindful that three overarching impacts may put pressure on our financial results.

David Aufderhaar
David Aufderhaar
Chief Financial Officer at Stitch Fix

based on current tariff rates, we expect our cost to increase in FY '26. We are closely monitoring the situation and proactively working with our suppliers. broader macro uncertainty and market conditions may put increased pressure on discretionary spending in FY '26. And as we called out last quarter, continued active client declines creates tougher year over year revenue growth comparisons. We will continue to monitor each of these as we progress through the planning process.

David Aufderhaar
David Aufderhaar
Chief Financial Officer at Stitch Fix

I want to reiterate that we'll manage the business with a goal of driving long term profitable and sustainable growth that includes growth in both active clients and revenue per active client. While the macroeconomic environment is out of our control, how we plan and execute is in our hands, and that is where our focus continues to be. We're operating at scale with a strong financial foundation and a uniquely agile business model, anchored by a debt free balance sheet, proprietary data science and AI, and the ability to quickly adapt our marketing, merchandising, and pricing levers. We believe these attributes put us in a position to navigate challenges and continue to deliver strong results. With that, operator, we can open the line for Q and A.

Operator

Thank you. Our question comes from Dana Telsey with Telsey Advisory Group. You may proceed.

Dana Telsey
CEO and Chief Research Officer at Telsey Advisory Group

Hi. Nice to see the progress. As you think about the current quarter that just ended with the women's and fixed channel returning to growth along with men's and freestyle continuing to grow. What did you see in the core consumer? What did you see in terms of keep rates?

Dana Telsey
CEO and Chief Research Officer at Telsey Advisory Group

And as you think about the go forward into the fourth quarter guidance that you just gave, have you seen any shifts in terms of consumer behavior and in product category acceptance? And then just lastly on the gross margin, where you described the fourth quarter gross margin at the lower end of the range, can you just go through the puts and takes? And also, what could tariff implications mean for you? Thank you.

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

Hey, Dana, it's Matt. I'll speak a little bit about the performance from Q3, as well as the factors, the Q4 guide. I'll let David give some additional context and also speak to the gross margin question. And then I'll come back to lead an answer on your question about tariffs. But we're really proud of the accelerated return to year over year growth that we just delivered this quarter.

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

Also confident in the Q4 guide that we gave that shows that we'll have a consecutive quarter of growth, and it reflects the resonance of our core value proposition. It also represents the disciplined execution of our transformation strategy. As we've shared previously, in August, we introduced a set of changes to our client experience and also a new brand identity for the business. And as we shared previously as well, since then nearly every initiative that we've introduced as part of that reimagination of the client experience has performed well and exceeded expectations. So the performance for q three and the guide for q four are largely driven by similar factors.

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

Specifically, a primary driver of growth in q three with the continued strength in average order value. Average order value is up 10% year over year. That was the consecutive quarter of average order value growth for us. And we also shared that we saw strength across both more items for fixed, keep rate, and AUR. The drivers of those metrics is the introduction of the greater flexibility in our fixed option.

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

As shared in the prepared remarks, particularly the larger fixes that now have up to eight items in them. It's clearly resonating with our clients and it's helping to drive engagement with them and stronger business results. Another factor is how we've continued to infuse newness into our assortment. We've also expanded more into non apparel categories. These are paying off and leading to better keep rates and higher AUR as you asked.

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

We've also seen strength as you noted across all almost all of our lines of business, the positive year over year revenue comps for women's and men's. And in addition to our fixed channel returning to growth, the freestyle channel grew again for a consecutive quarter. And finally, I think it's really important to also take note that we've achieved a consecutive quarter of year over year growth in new clients. And those new clients are spending more and opting into recurring shipments at a higher rate. And that speaks to the increasing client satisfaction and engagement.

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

This is driven in large part by the retail therapy brand platform that we launched, and we've spoken about previously. We're doing a really good job at targeting clients, which our service will resonate best with. And by doing so, we're focusing on the quality of that client acquisition, not just the quantity of the new clients that we bring into the service. And these aren't one off wins. These improvements are deeply rooted in the fundamental reshaping of our operations, the strategic investments that we've made during the rationalize and build phases of our transformation.

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

And we're carrying over that momentum, which we believe will endure as we transition into that growth phase of our transformation. David, if you want to add additional color and anything on gross margin.

David Aufderhaar
David Aufderhaar
Chief Financial Officer at Stitch Fix

Yes. Just one more point on the quarters. Like when we think about Q4, one of the other call outs, I think we called out last time, there's just normal seasonality in active clients. And so what Matt was calling out is really important that there's both sort of the active client side and the client engagement side. And so we expect, just from a seasonality standpoint, to have a slightly higher sequential loss in the quarter.

David Aufderhaar
David Aufderhaar
Chief Financial Officer at Stitch Fix

This quarter, we were down quarter over quarter about 1%. Roughly, we expect next quarter to be around down 2%, but still really confident in the continued growth from a revenue standpoint. And that's because of what Matt was alluding to. The AOV strength that we've seen this quarter is something that we're very confident in. And we actually see that strength continuing in May.

David Aufderhaar
David Aufderhaar
Chief Financial Officer at Stitch Fix

And so that's definitely something that's encouraging that we're seeing. From a gross margin perspective, definitely gross margin, was at 44.2% this quarter. It's a little bit down quarter over quarter. Really, margins are going to fluctuate quarter over quarter as we mix shift between market brands and private brands. Matt touched on leaning into newness in some of those non apparel categories.

David Aufderhaar
David Aufderhaar
Chief Financial Officer at Stitch Fix

Some of that mix shift might have an impact on gross margin. But I think it's also really important to call contribution margin. That's one of the reasons we've been talking about that a lot the last couple of quarters is really driving leverage in our operations. Contribution margin was above 33 again this quarter. And that really gives us the flexibility to be able to do what's client right from an assortment standpoint, even if that has a little bit of a headwind on gross margin.

David Aufderhaar
David Aufderhaar
Chief Financial Officer at Stitch Fix

And that's what's included in our guide for the quarter.

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

Yeah. And Dana, on the question, we're taking a proactive approach and we're facing external headwinds head on. Our view is that you don't win market share by playing it safe. And we'll continue to closely track any changes in trade policy. We're going to adjust as needed in order to mitigate any risk to our business.

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

And if current rates persist, it will create headwinds. But as noted, I'm confident that we're well prepared to navigate this and to even strengthen our market position through that process. Believe this for a few reasons. The is that our value proposition, it resonates even in a challenging macro environment. Clients come to stitch fix for the personalized styling, the convenience, the discovery of the items that they love, and it inherently offers additional value and protects our business from any pure price comparison shopping.

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

Further, the strong and enduring relationships that a client and stylist have really allows us to tailor the experience to each individual client and adjust to their budgets at any moment in time. The and as we discussed in the last call, as a multi brand retailer, we have a significant advantage in navigating any market and policy shifts. We can strategically adjust our brand matrix mix to minimize any impacts. And what's more, our strong private brand portfolio is robust and most of our vendors have production facilities across multiple countries, which allows them to pivot quickly helping to limit any long term effects. our rich data and advanced AI capabilities also help inform our merchandising strategy.

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

It helps us predict demand. It helps drive our buying decision, buying decisions, and it also helps improve our private brand design process. Finally, we believe that the work we've done in the two phases of our transformation are really important assets for us. We've already driven significant internal operational efficiencies. And as David noted, with our contribution margin north of 30% for a consecutive quarter, it gives us a lot of flexibility in terms of how we would deal with any macro pressures or external pressures.

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

So, all of these factors, our core value proposition, our distinct business model, and the work we've done in the two phases of our transformation that gives us confidence that we can emerge stronger and continue to gain market share.

Dana Telsey
CEO and Chief Research Officer at Telsey Advisory Group

Thank you.

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

Thank you.

Operator

Thank you. Our next question comes from Anisha Sherman with Bernstein. You may proceed.

Aneesha Sherman
Analyst at Bernstein

Thank you and congrats Matt and David. So Matt, I just my question is a follow-up on your comments that you just made. You talked about the value proposition resonating in a tougher macro environment. Could the current macro be a potential share gain opportunity for you? And if so, what are you doing differently to communicate that value proposition to consumers and kind of take advantage of that opportunity in this current macro?

Aneesha Sherman
Analyst at Bernstein

And then a follow-up on the tariff side. So you talked about a couple of different levers to mitigate the tariff impacts. You talked about working with suppliers, some mix shift and category national brands. Are you also considering pricing as a potential lever? And can you talk a little bit more about that if you are?

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

Hey, Anisha. Happy to answer those questions and appreciate the recognition for the return to growth. In terms of our approach during a tough environment, we absolutely believe that this is an opportunity for us to gain share. The service that we offer is one that we can tailor to the exact needs of an individual at any time. The information that we have in terms of the budget implications for our clients allows us to shift in terms of how we're interacting with them, which items of clothing we're sending, how we're approaching different pricing messages as well with our clients.

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

And we also feel really strongly that the relationship that clients and stylists have gives us a leg up over any potential competition in terms of where clients are are going to go when they need their apparel and accessories. As someone who styles clients like I do, I know just how strong those bonds can become, and I know that when times of need that I feel confident that clients are going to come to us for those needs based on our ability to be adaptive and responsive to them at any given moment. What I also know that is really working well for us is how we've continued to adapt the messaging when we go out to market, both to speak for both for new client acquisition, as well as to speak to our current clients. And we've really made it clear to them the value that we offer in these environments. And during this time, we save our clients time, we add convenience back into their daily lives, and we can create value for them both in our assortment and our service.

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

So we are very confident that we can gain share in more challenging macro environment. The quick add on from the question that you had in terms of tariffs. We don't anticipate taking any price increases during the balance of our fiscal year and feel really confident in the work that our team has done in order to mitigate any potential cost increases into the future. Feel really strong about the resonance of our service, such that, you know, that's not an expectation for us going forward. And we'll continue to see, you know, where the environment where the macro environment plays out, And we'll continue to make sure that what we do is create value for our clients that also enables us to drive positive and strong business results.

David Aufderhaar
David Aufderhaar
Chief Financial Officer at Stitch Fix

Yeah. And just to add one point to that, Anisha, mean, I think to Matt's point, under the current tariff conditions, yes, we would expect to see an increase in merchandising costs in FY 2026. But as a multi brand retailer, I think we're really well positioned, to really work with our partners both from a country of origin diversification as well as just ongoing negotiations to mitigate that as much as possible. And so that's the way that we're looking at it, and we'll provide more information next quarter as well.

Aneesha Sherman
Analyst at Bernstein

Thank you. That's helpful.

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

Yes. Thank you.

Operator

Thank you. Our next question comes from Dylan Carden with William Blair. You may proceed.

Dylan Carden
Research Analyst at William Blair

Thanks. I'm just curious, you've spoken historically about kind of a lag effect in your business as you acquire customers and they repeat over a period of time. I mean, the line of sight, can you share anything as to the line of sight that you have at this point as you start to grow new customers as to when you might start growing total active customers? Thanks.

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

Dylan, appreciate the question. I'll answer and David, if you want to add any additional context to that. For us, as we've approached how we go out to market to acquire new clients, we're very much focused on quality over quantity. We're really focused on clients that are going to deliver a high lifetime value for us that help us ensure that the investments that we're making into acquisition have the highest possible return on investment. That's why we're really proud about the lifetime value that we're seeing in the ninety days from new clients that we acquire and the strength that we continue to see in that being some of the highest metrics, the highest performance over the last three years.

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

And even though we have a focus on quality, we've still delivered new client growth over the last two quarters. We've also continued to see strength in re engagement and had a lot of success re engaging clients that were previously customers of Stitch Fix, which continues to pay dividends for us. And we're also seeing strength in terms of our dormancy rate as well. So, feel really confident that in the future we will return to active client growth. Our focus right now is making sure that we have the best quality clients that we have, that we're maximizing wallet share with our current clients, and that we're delivering the highest lifetime value with those clients.

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

And you see that with the engagement metrics and the really strong performance, And I think it ultimately manifests in both the return to growth in our third quarter, as well as our guide to continued growth in the fourth quarter.

David Aufderhaar
David Aufderhaar
Chief Financial Officer at Stitch Fix

And then Dylan, just to add a couple points. For FY 2026, outside of macro impacts, we would still expect a quarter over quarter increase in active clients at some point in FY 2026. And to Matt's point, that continues to be our focus. With that said, macro uncertainty and market conditions may create some headwinds and we'll provide more of an update. On the other part of your question around sort of the lagging part, we used to talk about this where revenue can sometimes lag client growth.

David Aufderhaar
David Aufderhaar
Chief Financial Officer at Stitch Fix

And certainly, as we get to that inflection point, that's certainly going to be a tailwind where revenue in a client within maybe the first quarter that we have them isn't as high as that sort of recurring shipment and shipment. And so you tend to see more of that value over time. What's been interesting over the last year though that I think we've been talking about more and more is both sides of the equation from a revenue standpoint is, yes, long term sustainable growth is both about active client growth and revenue per active client. But what we've been seeing in last few quarters has been really a lot of strength in that client engagement with AOV up significantly for the past seven quarters. And really getting to both of those things continues to be our focus.

Dylan Carden
Research Analyst at William Blair

Awesome. Thank you very much.

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

Thank you.

Operator

Our next question comes from David Bellinger with Mizuho. You may proceed.

David Bellinger
David Bellinger
Director & Senior Analyst at Mizuho Financial Group

Hey, Matt, David, thanks for the question. I wanted to follow-up on AOV. I think you mentioned up 10 in the quarter, something like seven consecutive quarters of AOB growth. Could you just unpack that a little bit for us? Are we seeing broader increases across the business?

David Bellinger
David Bellinger
Director & Senior Analyst at Mizuho Financial Group

Or is this a structural shift where you're seeing more units per fix? Just trying to unpack this and can you talk through the sustainability of these AOV increases over the next several quarters or even into next year?

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

Hey, David. I appreciate the question. David, do you want to go ahead and I'll add any additional context?

David Aufderhaar
David Aufderhaar
Chief Financial Officer at Stitch Fix

Yes, thanks. David, a couple of call outs. Certainly in this quarter, a big part of the AOV increase is those larger fixes that we've talked about. Those are really resonating with our clients where we're adding the flexibility to offer them not just five items in a fix, but six, seven or eight items. And that's really, really resonating with our clients.

David Aufderhaar
David Aufderhaar
Chief Financial Officer at Stitch Fix

From Q1 to Q3, the penetration of our fixes that have larger fixes has more than doubled. And so that's been a big part of the AOV increases. And we do see that momentum continuing into May. And so we do believe that there is continued upside in gaining wallet share from our existing clients. It continues to be a focus both for our marketing teams, for our product teams, for our stylists to make sure that we're providing different touch points with every client to drive value.

David Aufderhaar
David Aufderhaar
Chief Financial Officer at Stitch Fix

And that's really why we see that sort of increase from an AOB perspective. The one call out I would say on AOV is as we go into FY 2026, certainly this strength will create tougher comps in FY 2026 and probably create tougher comps as we move through FY 2026 just because of the strength that we've seen this year. Like if you think about this quarter, it's not just about the 10% increase this quarter. If you get like if you look at a two year stack of Q3, it's a 17% increase in AOV. And so definitely more upside that we're driving towards, but some tougher comps next year.

David Bellinger
David Bellinger
Director & Senior Analyst at Mizuho Financial Group

Yes. Got it. That's very helpful. And then I wanted to follow-up too on the ad spend. So, increase as a percent of sales this quarter, I think on a year over year growth rate, the dollar basis was up double digits.

David Bellinger
David Bellinger
Director & Senior Analyst at Mizuho Financial Group

You still got active customers down. So can you tell us, is it getting more expensive to keep your customer base? And what do you need? Should we see another step up in ad spend or different channel mixers? What do you need exactly to drive that new customer growth again?

David Aufderhaar
David Aufderhaar
Chief Financial Officer at Stitch Fix

Yes, David. I'll start and then Matt, if you want to provide any color. I don't think we need to increase ad spend to get to an active client growth. I think we've touched on this maybe two quarters ago, where we definitely see some good signs from a new client acquisition. It's the quarter in a row that new client acquisition is up.

David Aufderhaar
David Aufderhaar
Chief Financial Officer at Stitch Fix

We see client reengagement is up again and is in a very healthy place. And even on the dormancy side, those are the three components to active clients. And dormancy trends are getting better as well. And with our existing product roadmap and existing marketing levels of investment, we feel comfortable outside of obviously the macro uncertainty that we see an inflection point in FY 2026. And I don't think we need to increase ad spend.

David Aufderhaar
David Aufderhaar
Chief Financial Officer at Stitch Fix

The caveat to that is one that I used to say, I think almost every quarter, which is we have a methodology around our ad spend. And where we see opportunity to lean in, we do. We have a CAC to LTV. Certainly, the health of our clients recently, LTV is up. And that makes us feel more comfortable about leaning in.

David Aufderhaar
David Aufderhaar
Chief Financial Officer at Stitch Fix

I think the other call out for ad spend is there is seasonality there. And that's where it gets a little bit lumpy, where Q1 and Q3 tend to be stronger quarters from a client acquisition standpoint for us. And so we tend to lean in a little bit more from a percent of revenue in those quarters, than we do in Q2 and Q4.

David Bellinger
David Bellinger
Director & Senior Analyst at Mizuho Financial Group

Great. Thank you both.

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

Thank you.

Operator

Thank you. I would now like to turn the call back over to Matt bear for any closing remarks.

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

Okay. Thank you. So to close, I want to reiterate just how proud I am of the results that the team delivered this quarter, including our return to year over year revenue growth. That's a significant milestone in Stitch Fix's transformation. We know many people are dissatisfied with retail today.

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

Traditional apparel shopping, it's broken. And Stitch Fix has always been focused on fixing it. And our transformation has always been grounded on fully realizing that vision. And as the return to growth this quarter demonstrates, it's working. And we've improved our business in fundamental ways through the rationalize and build phase of our transformation.

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

As part of this, we've created a much more modern and dynamic client experience, and we're seeing the results of our collective efforts in our numbers and how we are gaining share in the market. We believe these improvements we've made will also enable us to successfully navigate an increasingly challenging macro environment. As we enter the growth phase, we will continue to operate with rigor and an unrelenting focus on delivering the best possible experience for our clients. In doing so, we aim to cement ourselves as the retailer of choice for both our current clients, as well as a far larger base than we currently reach today. The momentum of the Stitch Fix business is undeniable.

Matt Baer
Matt Baer
Chief Executive Officer at Stitch Fix

I'm more confident than ever in our future. I appreciate your interest in our business, and I look forward to sharing our continued progress in the future. Thank you.

Operator

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

Executives
    • Cherryl Valenzuela
      Cherryl Valenzuela
      Head of Investor Relations
    • Matt Baer
      Matt Baer
      Chief Executive Officer
    • David Aufderhaar
      David Aufderhaar
      Chief Financial Officer
Analysts
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Key Takeaways

  • Stitch Fix achieved a return to year-over-year revenue growth in Q3 with net revenue of $325 M (+0.7% y/y) and AOV up 10%, driven by larger fixes and a stronger on-trend assortment.
  • The company raised FY ’25 guidance, now expecting revenue of $1.254–1.259 B and adjusted EBITDA of $43–47 M, reflecting confidence in ongoing momentum and targeted investments.
  • Active clients remain below last year’s levels, down 10.6% y/y and 0.8% q/q, although Q3 saw the smallest sequential decline in three years and two consecutive quarters of new client growth.
  • Enhanced client experience initiatives—such as larger and themed fixes, new freestyle styling features, and expanded non-apparel categories—drove higher keep rates, recurring shipments, and 90-day LTVs at their highest in three years.
  • Looking ahead to FY ’26, the company warns of potential cost headwinds from current tariff structures and broader macro uncertainty, though no significant tariff impact is expected in Q4.
AI Generated. May Contain Errors.
Earnings Conference Call
Stitch Fix Q3 2025
00:00 / 00:00

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