Stitch Fix Announces Second Quarter Fiscal 2018 Financial Results

SAN FRANCISCO, March 12, 2018 (GLOBE NEWSWIRE) — Stitch Fix, Inc. (NASDAQ:SFIX), an online personal styling service, has released its financial results for its second quarter of fiscal year 2018 ended January 27, 2018 and posted a letter to its shareholders on its investor relations website.

“We’re pleased to share strong results for our second quarter. We grew our active clients to 2.5 million, an increase of 588,000 and 31% year-over-year. We grew net revenue to $295.9 million, representing 24% year-over-year growth,” said Stitch Fix founder and CEO, Katrina Lake. “This quarter also marked the fourth consecutive quarter that we grew net revenue in the range of 25% year-over-year. In addition to strong momentum across our men’s and women’s categories, we’re excited about the potential of Extras, a new capability that allows us to serve more of our client’s wardrobe, while increasing incremental revenue.”

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 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, Chief Executive Officer and Founder of Stitch Fix, Paul Yee, Chief Financial Officer of Stitch Fix, and Mike Smith, 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 (877) 857-6176 in the U.S. or (719) 457-2642 internationally, and entering conference code 8518439.

A telephonic replay will be available through Monday, March 19, 2018 at (888) 203-1112 or (719) 457-0820, passcode 8518439. 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 and Founder, Katrina Lake, and employs more than 5,800 employees nationwide. Since our founding in 2011, we’ve helped millions of men and women discover and buy what they love through personalized shipments of apparel, shoes and accessories, hand-selected by Stitch Fix stylists and delivered to our client’s homes.

 
Stitch Fix, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share and per share amounts)
 
    January 27, 2018     July 29, 2017
Assets              
Current assets:              
Cash   $ 266,374     $ 110,608
Restricted cash           250
Inventory, net     80,094       67,592
Prepaid expenses and other current assets     11,653       19,312
Total current assets     358,121       197,762
Property and equipment, net     30,875       26,733
Deferred tax assets     14,493       19,991
Restricted cash, net of current portion     9,100       9,100
Other long-term assets     3,813       3,619
Total assets   $ 416,402     $ 257,205
Liabilities, Convertible Preferred Stock and Stockholders’ Equity              
Current liabilities:              
Accounts payable   $ 55,145     $ 44,238
Accrued liabilities     51,077       46,363
Preferred stock warrant liability           26,679
Gift card liability     8,151       5,190
Deferred revenue     10,433       7,150
Other current liabilities     4,953       4,298
Total current liabilities     129,759       133,918
Deferred rent, net of current portion     10,752       11,781
Other long-term liabilities     4,794       7,423
Total liabilities     145,305       153,122
Commitments and contingencies              
Convertible preferred stock, $0.00002 par value – zero and 60,577,280 shares authorized as of
  January 27, 2018 and July 29, 2017, respectively; zero and 59,511,055 shares issued and
  outstanding as of January 27, 2018 and July 29, 2017, respectively; aggregate liquidation preference of $42,389 as of July 29, 2017
          42,222
Stockholders’ equity:              
Preferred stock, $0.00002 par value – 20,000,000 and zero shares authorized as of
  January 27, 2018 and July 29, 2017, respectively; zero shares issued and outstanding
  as of January 27, 2018 and July 29, 2017
         
Class A common stock, $0.00002 par value – 2,000,000,000 and zero shares authorized as of
  January 27, 2018 and July 29, 2017, respectively; 9,175,557 and zero shares issued
  and outstanding as of January 27, 2018 and July 29, 2017, respectively
         
Class B common stock, $0.00002 par value – 100,000,000 shares authorized as of
  January 27, 2018 and July 29, 2017; 87,885,193 and 26,834,535 shares issued
  and outstanding as of January 27, 2018 and July 29, 2017, respectively (1)
    2       1
Additional paid-in capital     219,108       27,002
Retained earnings     51,987       34,858
Total stockholders’ equity     271,097       61,861
Total liabilities, convertible preferred stock and stockholders’ equity   $ 416,402     $ 257,205
(1) Shares authorized, issued and outstanding as of July 29, 2017 includes common stock prior to our initial public offering.
 

 
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 Six Months Ended  
    January 27,
2018
    January 28,
2017
    January 27,
2018
    January 28,
2017
 
Revenue, net   $ 295,906     $ 237,775     $ 591,469     $ 473,779  
Cost of goods sold     168,523       131,053       335,071       256,979  
Gross profit     127,383       106,722       256,398       216,800  
Selling, general and administrative expenses     111,771       105,835       231,242       189,385  
Operating income     15,612       887       25,156       27,415  
Remeasurement of preferred stock warrant liability     (1,614 )     1,146       (10,685 )     2,649  
Other income, net     (18 )     (6 )     (35 )     (13 )
Income (loss) before income taxes     17,244       (253 )     35,876       24,779  
Provision for (benefit from) income taxes     13,603       (486 )     18,747       11,303  
Net income and comprehensive income   $ 3,641     $ 233     $ 17,129     $ 13,476  
Earnings per share attributable to common stockholders:                                
Basic   $ 0.04     $     $ 0.18     $ 0.14  
Diluted   $ 0.02     $     $ 0.06     $ 0.14  
Weighted-average shares used to compute earnings per share attributable to common stockholders:                                
Basic     82,439,351             54,377,466       24,546,556  
Diluted     87,954,656             60,599,568       29,134,729  
                                 

 
Stitch Fix, Inc.
Condensed Consolidated Statements of Cash Flow
(Unaudited)
(In thousands)
    For the Six Months Ended  
    January 27, 2018     January 28, 2017  
Cash Flows from Operating Activities                
Net income   $ 17,129     $ 13,476  
Adjustments to reconcile net income to net cash provided by operating activities:                
Deferred income taxes     5,498       (847 )
Remeasurement of preferred stock warrant liability     (10,685 )     2,649  
Inventory reserves     7,027       3,177  
Compensation expense related to certain stock sales by current and former employees           9,699  
Stock-based compensation expense     5,135       1,362  
Depreciation and amortization     4,888       3,385  
Loss on disposal of property and equipment     131       (7 )
Change in operating assets and liabilities:                
Inventory     (19,529 )     (10,470 )
Prepaid expenses and other assets     5,078       (9,417 )
Accounts payable     10,843       13,629  
Accrued liabilities     4,484       14,914  
Deferred revenue     3,283       1,321  
Gift card liability     2,961       3,588  
Other liabilities     (2,508 )     3,073  
Net cash provided by operating activities     33,735       49,532  
Cash Flows from Investing Activities                
Purchase of property and equipment     (8,232 )     (11,367 )
Net cash used in investing activities     (8,232 )     (11,367 )
Cash Flows from Financing Activities                
Proceeds from initial public offering, net of underwriting discounts paid     129,046        
Proceeds from the exercise of stock options     1,006       922  
Repurchase of Class B common stock related to early exercised options     (39 )     (3,557 )
Net cash provided by (used in) financing activities     130,013       (2,635 )
Net increase in cash and restricted cash     155,516       35,530  
Cash and restricted cash at beginning of period     119,958       101,492  
Cash and restricted cash at end of period   $ 275,474     $ 137,022  
Components of cash and restricted cash                
Cash   $ 266,374     $ 127,672  
Restricted cash – current portion            
Restricted cash – long-term portion     9,100       9,350  
Total cash and restricted cash   $ 275,474     $ 137,022  
Supplemental Disclosure                
Cash paid for income taxes   $ 3,091     $ 18,517  
Supplemental Disclosure of Non-Cash Investing and Financing Activities:                
Purchases of property and equipment included in
  accounts payable and accrued liabilities
  $ 780     $ 208  
Capitalized stock-based compensation   $ 261     $ 45  
Vesting of early exercised options   $ 456     $ 488  
Deferred offering costs included in accounts payable and accrued liabilities   $ 134     $  
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, or 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 such 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 compensation expense that we recognized related to certain stock sales by current and former employees;
  • our non-GAAP net income and non-GAAP EPS – 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 – 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 also 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; 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 other (income), net, provision for income taxes, depreciation and amortization, the remeasurement of preferred stock warrant liability and, when present, compensation expense related to certain stock sales by current and former employees. The following table presents a reconciliation of net income, the most comparable GAAP financial measure, to adjusted EBITDA for each of the periods presented (in thousands):

             
    For the Three Months Ended     For the Six Months Ended  
    January 27,
2018
    January 28,
2017
    January 27,
2018
    January 28,
2017
 
Adjusted EBITDA reconciliation:                                
Net income   $ 3,641     $ 233     $ 17,129     $ 13,476  
Add (deduct):                                
Other income, net     (18 )     (6 )     (35 )     (13 )
Provision for income taxes     13,603       (486 )     18,747       11,303  
Depreciation and amortization     2,618       1,924       4,888       3,385  
Remeasurement of preferred stock warrant liability     (1,614 )     1,146       (10,685 )     2,649  
Compensation expense related to certain stock sales by current and former employees           21,283             21,283  
Adjusted EBITDA   $ 18,230     $ 24,094     $ 30,044     $ 52,083  
                                 

Non-GAAP Net Income

We define non-GAAP net income as net income excluding the remeasurement of preferred stock warrant liability and, when present, compensation expense related to certain stock sales by current and former employees, and their related tax impacts, if any, as well as 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 (in thousands):

             
    For the Three Months Ended     For the Six Months Ended  
    January 27,
2018
    January 28,
2017
    January 27,
2018
    January 28,
2017
 
Non-GAAP net income (loss) reconciliation:                                
Net income   $ 3,641     $ 233     $ 17,129     $ 13,476  
Add (deduct):                                
Remeasurement of preferred stock warrant liability     (1,614 )     1,146       (10,685 )     2,649  
Compensation expense related to certain stock sales by current and former employees           21,283             21,283  
Tax impact of non-GAAP adjustments           (8,890 )           (8,890 )
Impact of Tax Act (1)     4,730             4,730        
Non-GAAP net income   $ 6,757     $ 13,772     $ 11,174     $ 28,518  
                                 
1) As discussed in Note 8 to the condensed consolidated financial statements included in our Quarterly Report on Form 10-Q for the fiscal quarter ended January 27, 2018, to be filed with the Securities and Exchange Commission on March 13, 2018 (“Form 10-Q”), the U.S. government enacted comprehensive tax legislation in December 2017.  This resulted in a provisional net charge of $4.7 million for the three and six months ended January 27, 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 related to the Tax Act 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 – Diluted

We define non-GAAP EPS as diluted EPS excluding the per share impact of the remeasurement of preferred stock warrant liability and, when present, compensation expense related to certain stock sales by current and former employees, and their related tax impacts, if any, as well as the per share impact of 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 (in thousands):

             
    For the Three Months Ended     For the Six Months Ended  
    January 27,
2018
    January 28,
2017
    January 27,
2018
    January 28,
2017
 
Non-GAAP earnings per share – diluted reconciliation:                                
Earnings per share attributable to common stockholders – diluted   $ 0.02     $     $ 0.06     $ 0.14  
Per share impact of the remeasurement of preferred stock warrant
  liability(1)
  $     $ 0.04     $     $ 0.08  
Per share impact of compensation expense related to certain stock
  sales by current and former employees
  $     $ 0.66     $     $ 0.61  
Per share impact from tax effect of non-GAAP adjustments   $     $ (0.28 )   $     $ (0.26 )
Per share impact from Tax Act(2)   $ 0.05     $     $ 0.08     $  
Non-GAAP earnings per share attributable to common stockholders – diluted   $ 0.07     $ 0.42     $ 0.14     $ 0.57  
   
1) For the three and six months ended January 27, 2018, 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.  
2) As discussed in Note 8 to the condensed consolidated financial statements included in our Form 10-Q, the U.S. government enacted comprehensive tax legislation in December 2017.  This resulted in a provisional net charge of $4.7 million for the three and six months ended January 27, 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 earnings per share attributable to common stockholders – diluted related to the Tax Act 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 flow from operations reduced by purchases of property and equipment which is 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 (in thousands):

       
    For the Six Months Ended  
    January 27, 2018     January 28, 2017  
Free cash flow reconciliation:                
Cash flows from operating activities   $ 33,735     $ 49,532  
Deduct:                
Purchase of property and equipment     (8,232 )     (11,367 )
Free cash flow   $ 25,503     $ 38,165  
Cash flows from investing activities   $ (8,232 )   $ (11,367 )
Cash flows from financing activities   $ 130,013     $ (2,635 )

IR Contact:

David Pearce
ir@stitchfix.com

PR Contact:

Suzy Sammons
media@stitchfix.com

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