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Stitch Fix Announces First Quarter Fiscal Year 2019 Financial Results

SAN FRANCISCO, Dec. 10, 2018 (GLOBE NEWSWIRE) -- Stitch Fix, Inc. (NASDAQ:SFIX), the leading online personal styling service, has released its financial results for the first quarter of fiscal year 2019 ended October 27, 2018, and posted a letter to its shareholders on its investor relations website.

First quarter highlights

  • Active clients of 2.9 million, an increase of 22% year over year
  • Net revenue of $366.2 million, an increase of 24% year over year
  • Net income of $10.7 million and adjusted EBITDA of $14.3 million
  • Diluted earnings per share of $0.10

We are proud of our results; Q1 was another strong quarter for us,” said Mike Smith, President and COO of Stitch Fix. “We grew our active client count to 2.9 million, an increase of 22% year over year and delivered net revenue of $366.2 million for the quarter, representing 24% year-over-year growth, with adjusted EBITDA of $14.3 million. We continue to demonstrate our ability to deliver growth and exceptional client experiences across all of our categories.”

Smith added, “We continue to delight clients with our strong assortment by delivering access to the brands they love and new styles they’re excited to discover. This quarter, we added new brands to the platform across Women’s, Men’s and Kids, including Michael Kors, Madewell, The North Face, Bonobos and Converse. In Men’s, we launched expanded sizing, offering up to 3XL and a 48-inch waist as well as short and tall fit options. In Plus, we continue to get great client feedback on the fit of our denim, and have expanded our offerings there too. All of our assortment investments are deeply rooted in direct feedback from clients, so we’re confident they’re going to love our new additions.”

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

Mike Smith, President and Chief Operating Officer of Stitch Fix, and Paul Yee, Chief Financial 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 (888) 256-1007 in the U.S. or (323) 994-2093 internationally, and entering conference code 2226708.

/EIN News/ -- A telephonic replay will be available through Monday, December 17, 2018, at (888) 203-1112 or (719) 457-0820, passcode 2226708. 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 Founder and 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 second 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 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, or 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 Annual Report on Form 10-K for the fiscal year ended July 28, 2018. 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)

    October 27, 2018   July 28, 2018
Assets        
Current assets:        
Cash & cash equivalents   $ 173,341     $ 297,516  
Restricted cash   250     250  
Short-term investments   84,985      
Inventory, net   106,701     85,092  
Prepaid expenses and other current assets   33,036     34,148  
Total current assets   398,313     417,006  
Long-term investments   83,870      
Property and equipment, net   37,629     34,169  
Deferred tax assets   15,234     14,107  
Restricted cash, net of current portion   12,600     12,600  
Other long-term assets   3,146     3,703  
Total assets   $ 550,792     $ 481,585  
Liabilities, Convertible Preferred Stock and Stockholders’ Equity        
Current liabilities:        
Accounts payable   $ 105,662     $ 79,782  
Accrued liabilities   67,098     43,037  
Gift card liability   6,268     6,814  
Deferred revenue   11,206     8,870  
Other current liabilities   1,761     3,729  
Total current liabilities   191,995     142,232  
Deferred rent, net of current portion   15,635     15,288  
Other long-term liabilities   9,659     8,993  
Total liabilities   217,289     166,513  
Stockholders’ equity:        
Preferred stock, $0.00002 par value        
Class A common stock, $0.00002 par value   1     1  
Class B common stock, $0.00002 par value   1     1  
Additional paid-in capital   243,086     235,312  
Accumulated other comprehensive loss   (56 )    
Retained earnings   90,471     79,758  
Total stockholders’ equity   333,503     315,072  
Total liabilities, convertible preferred stock and stockholders’ equity   $ 550,792     $ 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
    October 27, 2018   October 28, 2017
Revenue, net   $ 366,236     $ 295,563  
Cost of goods sold   201,068     166,548  
Gross profit   165,168     129,015  
Selling, general and administrative expenses   154,271     119,471  
Operating income   10,897     9,544  
Remeasurement of preferred stock warrant liability       (9,071 )
Interest income   (1,399 )   (17 )
Other income, net   (120 )    
Income before income taxes   12,416     18,632  
Provision for income taxes   1,738     5,144  
Net income   $ 10,678     $ 13,488  
Other comprehensive income (loss):        
Change in unrealized loss on available-for-sale securities, net of tax   (82 )    
Foreign currency translation   26      
Total other comprehensive loss, net of tax   (56 )    
Comprehensive income   $ 10,622     $ 13,488  
Net income attributable to common stockholders:        
Basic   $ 10,664     $ 3,915  
Diluted   $ 10,665     $ 1,347  
Earnings per share attributable to common stockholders:        
Basic   $ 0.11     $ 0.15  
Diluted   $ 0.10     $ 0.04  
Weighted-average shares used to compute earnings per share attributable to common stockholders:        
Basic   98,965,274     26,329,495  
Diluted   104,539,452     33,262,082  
 

Stitch Fix, Inc.
Condensed Consolidated Statements of Cash Flow
(Unaudited)
(In thousands)

    For the Three Months Ended
    October 27, 2018   October 28, 2017
Cash Flows from Operating Activities        
Net income   $ 10,678     $ 13,488  
Adjustments to reconcile net income to net cash provided by operating activities:        
Deferred income taxes   (1,061 )   (1,366 )
Remeasurement of preferred stock warrant liability       (9,071 )
Inventory reserves   1,563     4,224  
Stock-based compensation expense   6,637     2,038  
Depreciation and amortization   3,175     2,270  
Loss on disposal of property and equipment       131  
Change in operating assets and liabilities:        
    Inventory   (23,172 )   (24,208 )
    Prepaid expenses and other assets   1,252     4,084  
    Accounts payable   26,008     13,967  
    Accrued liabilities   24,360     16,942  
    Deferred revenue   2,532     1,663  
    Gift card liability   (141 )   (119 )
    Other liabilities   (865 )   748  
Net cash provided by operating activities   50,966     24,791  
Cash Flows from Investing Activities        
Purchases of property and equipment   (6,985 )   (4,180 )
Purchases of securities available-for-sale   (169,095 )    
Sales of securities available-for-sale   302      
Net cash used in investing activities   (175,778 )   (4,180 )
Cash Flows from Financing Activities        
Proceeds from the exercise of stock options   637     444  
Repurchase of Class B common stock related to early exercised options       (39 )
Payment of deferred offering costs       (528 )
Net cash provided by (used in) financing activities   637     (123 )
Net increase (decrease) in cash, cash equivalents and restricted cash   (124,175 )   20,488  
Cash, cash equivalents and restricted cash at beginning of period   310,366     119,958  
Cash, cash equivalents and restricted cash at end of period   $ 186,191     $ 140,446  
Components of cash, cash equivalents and restricted cash        
Cash and cash equivalents   $ 173,341     $ 131,096  
Restricted cash – current portion   250     250  
Restricted cash – long-term portion   12,600     9,100  
Total cash, cash equivalents and restricted cash   $ 186,191     $ 140,446  
Supplemental Disclosure        
Cash paid for income taxes   $ 42     $  
Supplemental Disclosure of Non-Cash Investing and Financing Activities:        
Purchases of property and equipment included in accounts payable and accrued liabilities   $ 224     $ 1,022  
Capitalized stock-based compensation   $ 410     $ 121  
Vesting of early exercised options   $ 90     $ 315  
Deferred offering costs included in accrued liabilities   $     $ 920  
 

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, adjusted EBITDA and non-GAAP EPS – 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
(in thousands)   October 27, 2018   October 28, 2017
Adjusted EBITDA reconciliation:        
Net income   $ 10,678     $ 13,488  
Add (deduct):        
Interest income   (1,399 )   (17 )
Other income, net   (120 )    
Provision for income taxes   1,738     5,144  
Depreciation and amortization   3,394     2,270  
Remeasurement of preferred stock warrant liability       (9,071 )
Adjusted EBITDA   $ 14,291     $ 11,814  

Non-GAAP Net Income

We define non-GAAP net income as net income excluding, 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 non-GAAP net income for each of the periods presented:

    For the Three Months Ended
(in thousands)   October 27, 2018   October 28, 2017
Non-GAAP net income reconciliation:        
Net income   $ 10,678     $ 13,488  
Add (deduct):        
Remeasurement of preferred stock warrant liability       (9,071 )
Non-GAAP net income   $ 10,678     $ 4,417  

Non-GAAP Earnings Per Share – Diluted

We define non-GAAP EPS as diluted EPS excluding, when present, the per share impact of the remeasurement of preferred stock warrant liability. 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
(in dollars)   October 27, 2018   October 28, 2017
Non-GAAP earnings per share diluted reconciliation:        
Earnings per share attributable to common stockholders – diluted   $ 0.10     $ 0.04  
Per share impact of the remeasurement of preferred stock warrant liability(1)        
Non-GAAP earnings per share attributable to common stockholders diluted   $ 0.10     $ 0.04  

___________________________________
(1) For the three months ended October 28, 2017, the preferred stock warrant liability was dilutive and included in earnings per share attributable to common stockholders – diluted. Therefore, it is not an adjustment to arrive at non-GAAP EPS – diluted.

Free Cash Flow

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

    For the Three Months Ended
(in thousands)   October 27, 2018   October 28, 2017
Free cash flow reconciliation:        
Cash flows from operating activities   $ 50,966     $ 24,791  
Deduct:        
Purchases of property and equipment   (6,985 )   (4,180 )
Free cash flow   $ 43,981     $ 20,611  
Cash flows used in investing activities   $ (175,778 )   $ (4,180 )
Cash flows from (used in) financing activities   $ 637     $ (123 )

 

IR Contact:

David Pearce
ir@stitchfix.com


PR Contact:

Suzy Sammons
media@stitchfix.com

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