All right. Thanks everyone for joining us. I'm excited to be joined today by Elizabeth Spaulding, Stitch Fix's CEO, and Dan Jedda, CFO. Before we get started, one disclosure, please note that all important disclosures, including personal holdings disclosures and Morgan Stanley disclosures, appear on the Morgan Stanley public website at morganstanley.com/researchdisclosures or at the registration desk. With that out of the way, Elizabeth, maybe talk about the evolution of the Stitch Fix business over the past couple of years, the strategy behind the launch of Freestyle, why, you know, last year or now is the right time, and sort of the expansion beyond the subscription model. Yeah. Hi, everybody. This is a very intimate group, so thanks for being here. I think we're at the tail end of what has been a great week, hopefully for you guys. I think the original problems that Stitch Fix set out to solve are still very much the same challenges. The challenges of fit, discovering great things that you'll love, and the nature of, like, great human relationships and feedback. The original model, and for those who aren't familiar with it, is the Fix, where you sign up as a consumer, you give us some information, and then we send you five items at a time of things that we think you'll love, and that's powered by data science and algorithms together with the human touch of a stylist. Over the last 10+ years, we've gotten better and better and better at doing that using what is an extraordinary amount of data where clients tell us a lot about what we send them. You know, over 85% of the items we ship, we get a lot of feedback, and so it's created this virtuous cycle of helping clients find what they love. One of the big insights that the company had really right before I joined was clients had always been asking for something called the Style Card to be available. Basically, when we send you a Fix, we send you these five items, but we would also send a note from the stylist and then ways to wear the items we had sent, and we would show kind of laydowns of images of things, not just what we sent you, but other ideas that you didn't own. People would be like, "Can I buy that? I want the whole thing." And so we launched a feature actually in beta mode right before COVID that basically was a very simple. We really were not a consumer app company. It was basically a sign-up flow, and all the hard work we did was behind the scenes. We created just this thing called Shop Your Looks, where we allowed you to shop, you know, a full outfit based on things you had bought, and we used our algorithm to anchor the original algorithm for our Freestyle offering, which now exists, was all based on identifying items that would go with things you had bought. What was kind of amazing that we saw was just the traction with that offering and how highly converting an outfit-based shopping experience was. Fast-forward to COVID, I had just joined the company, and my belief was that Stitch Fix could be just so much bigger if you could take the magic of that Fix and make it available all the time. The notion of styling on demand, the notion of any products. You know, the business was very heavily focused in kind of the mid-tier price point of tops and bottoms. We've really used the time period of COVID to really catalyze the future of the business of taking what we do best on this notion of fit, discovery, together with human relationship and turn it into our online version and the on-demand version. We are now in the very, very early innings of that journey. It's actually a pretty big business, Freestyle, for existing active clients with Fixes, and now we're making it a new entry point for new customers in addition to Fixes. Okay. Great. I think this is one of your first in-person events, and yours too, as CEO and CFO. You've been at the company for a little over two years, but CEO since August. Maybe talk to us. You touched on a little bit what your sort of biggest surprises or learnings have been since taking on the role, and what opportunities are you most excited about over the medium term? I mean, there've been definitely a number of surprises. My first surprise was before I came CEO, which was six weeks in, COVID hit. The job was definitely not what I was expecting it to be, and kind of I knew that it was gonna be a transformation, right? We wanted to take the first 10 years of Stitch Fix and envision the next 10 years. In many ways, it accelerated the possibilities because so many consumers were moving online. You know, apparel went from 25%-40% online. One surprise was like, "Wow, we gotta move fast. Like, this is kind of our moment." I would say kind of one surprise, though, in the last six-ish months since taking over the role officially, has been just how hard it is to transform while not being in person. Now that we've had more moments of being in person, just how important trust is and authenticity and being together. You know, we're adding a ton of new team members. We have a lot of people who were at the company a long time that have left. I think I've realized, you know, trust is 10x harder over Zoom, and just the importance and I guess the excitement, like, we've been in the office a lot the last few weeks, that it's just really nice to be in person. I have more optimism and excitement for the work we're gonna do now that we've had more time being together. I realize just, like, how. We've had sort of an additional sort of handicap almost being so remote for so long, and just a lot more excitement to be in person. Okay. Great. Maybe let's dig into Freestyle a little bit more. You reported earnings earlier this week. You lowered the full-year revenue guide to be flat to down slightly, I think, you know, primarily given lower than expected customer acquisition. Maybe talk about the issues that you have identified, how you're gonna fix them, and how long it could take. Yeah. I mean, I think we shared a couple themes earlier this week. The first theme was clients, once in our ecosystem, are performing better than ever. I think what gives us a lot of excitement about the future and the things I'm describing with Fix and Freestyle is by enhancing Fix with something we launched during COVID called Fix Preview, where you can see things before you opt into them, by adding Freestyle, we're seeing just overall client retention and spending going up and up. We know we're on the right path. The part of the path that's not going as smoothly is new client acquisition. You know, Dan can add on to this question. I felt like the guidance question you should have gotten, but I'm happy to start. I'm okay. It's just, you know, we introduced a lot of friction by trying to start the foray into opening up Freestyle as a new shopping experience. In retrospect, I think what we've learned is the core of Stitch Fix, most people want to Fix. They wanna start with this styling experience, and we wanted to experiment with like, well, maybe some people wanna just try shopping right away. Let's start doing more brand marketing around it. I think we were probably a little bit too early in how we pulled that all together. We made it harder, frankly, for really high intent Fix customers to just get to a Fix. That's one thing we've begun to address. We're not quite all the way there, but we think we're on the right path. The other is we're learning, and we're still early stage on a bunch of new marketing channels of letting people land in our product catalog, which we had never exposed a product catalog before, which is a lot of how traditional shopping begins that we're seeing as a huge opportunity, and we still have more to learn there. I think the guidance, you know, we feel great about the existing customer behavior. O ur engine of growth is really about adding new customers, and we're slowing down a little bit to get the customer experience right, as well as some of the headwinds that we've seen through IDFA that we're confident, given how small we are in so many other marketing channels, we'll be able to address. Great. Yeah. I'll just quickly add on to that. The impact of our softer net adds in our first half of our fiscal year does impact our second half just because of the subsequent fixes that come on. We did have a softer than expected on net actives, and we guided to what those net actives would be in the third quarter, and we also guided for the full year relative to how we ended the second quarter. What we're just seeing there is some impact of subsequent fixes. If you do the math on how we guided, we said flat to down in the third quarter of net actives and then flat versus our fiscal Q2 to end our fiscal year. We do expect to dip slightly down and then see improvement in the back half of the year as we roll out the new features, as we start to expand our marketing initiatives, et cetera. That just has a short-term impact in subsequent fixes for our H2. You know, we hope to come out of that in early fiscal 2023 for us. Okay, great. Maybe sticking with you and double-clicking on the marketing a little bit, how are you thinking about marketing spend this year, but also return on ad spend? I think, you know, IDFA has been a headwind. Talk about maybe some of the new channels or marketing strategies that you're testing. Stitch Fix, when it was a Fix-only business, was primarily a performance-based marketing channel, where we acquired customers via performance-based with sites like Instagram, Facebook being the primary driver of paid traffic. There was free traffic that came with that. The privacy changes did impact us in those performance channels for a variety of different reasons. You simply can't target as effectively, and therefore your cost of acquisition goes up. We're very disciplined in how we look at our cost of acquisition relative to our LTV. We do not overspend for our customers. We know exactly what to spend, and we spend to those thresholds. What we have with the launch of Freestyle, and even with the Fix business, we're finding new channels. We're diversifying away from the performance channels. We're finding new channels. For example, SEM-based channels were not a good channel in a Fix-only model because the intent-based SEM targeting would land you on a sign-up page where you had to go through a style profile, where maybe you simply wanted to buy something. With Freestyle, we now have that capability to direct SEM-based and eventually SEO-based marketing directly to the intent into our product detail pages, in which they can start to experience the entire ecosystem of Stitch Fix, which is incredible. That's just one example of where we're able to expand our marketing channels with the launch of Freestyle. Other channels that we are just nascent in now, but are exploring are influencer-based channels, where influencers can target into either Stitch Fix or into Freestyle, into the onboarding of a Fix or indirectly into Freestyle. Affiliate network is going to eventually be a big one for us. We're building those product capabilities now. Affiliate network makes a lot of sense for Freestyle, as an example. I'll just end with a channel that we think shows a lot of promise are things like micro-influencers. We have over 3,500 stylists. Those stylists can become micro-influencers and drive a lot of traffic. They can become quasi affiliates, if you will, since they know this area very well. They know our business very well. These are just examples of real diversification on how we're gonna look at marketing. As we guided to in our Q3, we do expect increased marketing spend relative to Q2, more in line with what we've seen historically. We said 10% of revenue, which is a pretty sizable increase on a quarter-over-quarter basis. That is reflective of these new channels, as well as optimizing our existing performance channel. A lot of this will be the channel itself, and then all the client experience issues, the customer experience issues that Elizabeth noted, too. As they get better, as our conversion gets better, we'll spend more on this marketing because they'll be within our CAC relative to our LTV. Okay. From a top-of-funnel perspective, do you think there needs to be perhaps a little bit more marketing around sort of educating the consumer on what the Freestyle offering is relative to the Fix offering? Yeah, I mean, I think in general, the company has really not invested heavily in brand marketing and just telling the story. I mean, we're such an experiential brand. That in part is why like a Facebook and Instagram historically were good for us because it's such good targeting of who wants to be in this experience, and we got better and better and better at that. A lot of really well done, earned, and upper funnel results in great lower funnel, and we just really haven't done that in the past. In many ways, like, the company just didn't really need to. We think we're a brand that is so beloved. You know, people post on YouTube family unboxings of their clothes. Like, we have been stitching together lots of fun videos of, like, our kids clients that just love the experience. Our kids business is doing great. You know, and to your point on kind of telling the story, one of the things that we've been really excited about that we've done in the U.K. that we wanna bring to the U.S. is, you know, finding great personalities that tell the story for us, that just love Stitch Fix. In the U.K., there's a kind of comedian couple, Chris and Rosie Ramsey. They have this hilarious podcast called Shagged Married Annoyed. We did a little bit of advertising on their podcast, and we could not believe the uptick, and they love our products. We started having them post organically, like, using Stitch Fix, how much they love it, and they're just very authentic voices. We've now turned that into a lot of our paid marketing, and it's been incredibly effective in CPAs in the U.K. If you think about it, like, so much is about the experience. We make people a little more self-confident. It's kind of self-gifting. You try stuff you never would've tried if it hadn't come in this Fix, and you're trying it on in the comfort of your own home. I think part of the upper funnel in telling the story is, like, bringing to life really more client testimonials that, you know, it is experiential. It's not transaction-based shopping. Like, we're changing the way that really people think about getting what they love. Now with the evolution of Freestyle, how do we make that clearer? We think a lot of that, you know, third-party voices is probably a very compelling way to do it. It is a lot about, I mean, it's almost going back to our roots. Like, that's a lot of how the initial growth trajectory of Stitch Fix started. Okay. Great. How does the Freestyle customer differ, if any, from the Fix customer, you know, from demographics perspective, spend per customer, categories, frequency? Yeah. I can start, and Dan should chime in, too. O ur core customer historically, we have a segment we internally call super mom. It's kind of been our juggernaut, where it's somebody who wants to look good, but they're incredibly time-starved, and that client has loved Fixes. We also, you know, kind of look at the fashion-forward consumer, and I would say with Fixes, we get some of those consumers, but they really love on-trend product, and I would say that's not been our biggest superpower. W e have had a lot of great exclusive brands, but we don't always have every national brand, and that's a lot of the evolution that we're making. One thing we've seen with Freestyle is, and we track the segmentation, these more fashion-forward consumers are spending even more in Freestyle in addition to Fixes. It's allowing us to enter new product categories. I think what's exciting is we're seeing the halo with both of those kind of core female target segments. What we're excited about with Freestyle is it's a more lean forward versus lean back shopping experience, and therefore we think is gonna cater really well to some of the most attractive consumer segments in shopping, which are more fashion forward. You know, there are product categories like dresses and footwear and outerwear that we're selling a lot of in Freestyle that were harder to get right in Fixes 'cause you don't need those things all the time. They tend to be more intent based. I'd say the overall demographics are pretty similar at this point, which, you know, with 4 million clients, it's a pretty U.S. representative sample. Great. Dan, you've said that Freestyle should be gross margin neutral but a higher contribution margin. Is that still sort of the plan? Yeah. There are some trade-offs in gross margin between Fix and Freestyle. I think that's what you're referring to. We guided on the call that we said that the Freestyle business is 10 percentage points higher on a contribution margin basis ex marketing relative to very profitable Fix economics. The real reason for that is there's a shipping component within gross margin, so when we ship out five items in a box, it's a relatively expensive ship, first of all, because the box is big. It's packed with five amazing items. While a significant number do buy all five and take advantage of the 20% discount, not everyone does. There is a relatively expensive return on that Fix. In Freestyle, our return rates are relatively low versus the industry standard. We've said in the past that our return rates are about half of industry standards, which are usually 50% or slightly north of 50%, because many customers buy multiple sizes and return the ones that don't fit or they simply don't like what they get. We are really good at fit. It's one of our differentiators that Elizabeth noted earlier, and that has resulted in incredibly low return rates in Freestyle. We do not see the return rates relative to others in both versus others and versus the Fix business. That's a component we like. The actual average order values between Freestyle and Fix are closer than I would've thought. I thought Fix would be much higher. It turns out Freestyle has higher ASPs in it. That's because of things like footwear being more prevalent in Freestyle, so we like the economics of the higher ASPs. Finally, a very large component is, of course, the styling component, which a stylist touches every Fix, while stylists are very prevalent in the Freestyle experience through widgets that we roll out, like outfits, and very differentiated experiences that can scale across the entire Freestyle experience and doesn't need to. You know, a stylist doesn't touch every Freestyle order. What they do can scale across the entire experience, and therefore we have a very low cost in terms of stylists touching the Freestyle order relative to the Fix order. For those reasons, we love the economics of the Freestyle. On an order, on a per unit, pretty much on every financial metric that we look at, we do like the Freestyle economics. Okay. Excellent. Just taking a step back, how do you think about the competitive landscape, other e-commerce retailers, brick-and-mortar retailers? As part of that, what percentage of your assortment or your SKUs are sort of unique to you? Yeah, I mean, we like to focus most on how do we get better and better and better at serving our customer, and I think that's been a big focus. Dan and I have been focused on rolling out a set of new cultural tenets, and I think one of the biggest ones that we both have, I mean, possibly Dan even more than me, passion for, is just this obsession around our clients and innovating on behalf of our customers. I think it comes from some of his heritage and DNA for many, many, many years at Amazon. We definitely think about our competitors, but we're most focused on, like, we do some things that are so different, fit, discovery, relationships. How do we get better and better and better at our secret sauce? I do think, you know, the landscape that we're excited about is just consumers are way more comfortable than ever shopping online. I mean, if you think about it, apparel has been very sticky in stores because consumers didn't really believe it could be good. I think it's just shaken loose a lot of those perceptions, which I think are gonna play to our strength and allow more customers to be comfortable. COVID just created so much behavior change that that's a huge thing in our favor. You know, like, we like to keep an eye on, what's out there, what are new services that are innovating, and are those relevant for what we can deliver to our clients? On the exclusive brands point, those are a really big part of our business, and we really like that. We think we need more national brands, especially to bring people in as an acquisition vehicle with Freestyle. We use our data so significantly in building those exclusive brands. Our Like Love scores, our Fit scores, they're exceptional. Like, in our kids business, we have Runway, Rumi, and Ryder. They outperform Under Armour, Nike, all these national brands that we carry as well. We think the duality of that is one that we want to continue with. Great. Yes, how are you thinking about the macroeconomic backdrop for the full year? Not necessarily COVID, hopefully, but more sort of the apparel backdrop, whether it be inflation, supply chain headwinds, record inventory imports. How does that sort of play into your guidance? Yeah. I can take that one. There's a lot to think about there. Let me just start with, like, the one that has been on the minds of many in terms of supply chain first, and then maybe go into inflation. On the supply chain side, you know, we did say that we are seeing 4- to 5-week delays in our receipts of our product from the vast majority of our vendors. Over 50% of our vendors are seeing this. The good news on that is this industry, you have to order fairly far ahead of time. You order 3- 6 months in advance. We were able to get ahead of that because instead of ordering six months in advance, we were ordering 7-8 months in advance, and we were able to work with our vendors to do that. While we do see the delays, we can plan for them. We expect those delays to continue, and we are planning for them. You know, we haven't seen, with everything going on geopolitically, we haven't seen anything change in the shipping lanes, obviously, for things that are going overseas relative to, like, airspace, which we don't import by air. That's been fairly benign for us, and we're watching it very closely. I do think. It hasn't impacted our revenue, say, you know, for an industry that is reliant upon, you know, chips, for example, which are just impossible to come by these days. I will say on the macroeconomic environment, you know, one of the things we've debated recently was things like what did the impact that stimulus checks had, you know, back, in our Q4, for example, during the summertime period. It’s very hard for us to look at that. We are thinking about that now because we're seeing the flip of that with a lot of inflation, energy prices going up, and it's something we are paying attention to. Anyone who's in a discretionary industry would do that. I can't say it's impacted us greatly yet, but it is something we're watching very closely. Of course, just given our forecast and giving all these trends, we also think it's the right time, and we talked about this on the call, to look at our cost structure and make sure that we're cost appropriately and get ahead of this, instead of being behind it and following up. Part of the benefit of doing exercises like this of very focusing on this is you can go through these exercises of saying are we? You know, is our cost structure right, and what are we gonna do about it if it's not? Great. Maybe we'll wrap up with a two-parter for each of you. First, what are you most excited about for the business for the next 12 months? Second, what do you think is most underappreciated about the story by investors? I mean, I'm most excited that, you know, we've Dan and I have invested a ton in building out the future team. We're not entirely there yet, but we've added a lot of great new people, and I'm most excited to just see us start to execute better on the strategy. You know, more product leadership. We announced our new CTO who's now been in seat for a couple months. W e have a new head of data science. Like, I think we just feel like we've built the team, we've built the tenets, we've built the strategy, and now we gotta just start delivering on it. I think I'm most excited about just start to see some of this come to life, and even the imagination of some of these great new leaders come to life beyond the higher order vision that we've set out, is what I'm most excited about, and demonstrating that we're gonna do this versus what I perceive to be some skepticism right now. Then the most underappreciated, I don't think people appreciate the tenure advantage we have plus, and the amount of understanding, in my old days at Bain, I remember one of the modules I took as a young associate was all about the experience curve and going down this experience curve, kind of like your chip example in Moore's Law. W e have gone down the experience curve of apparel. W e understand it. We understand fit. We understand product preference. We have this Style Graph. The power of Style Shuffle, I don't think people really appreciate it, and the fact that we're generating outfits algorithmically that actually make sense, I don't think people really appreciate that, and that's 40% of the sales in Freestyle. I don't think people really appreciate the moat that we've built and that we're gonna keep deepening around it, and that's fine. We'll start to demonstrate it more and more, I think that's the most underappreciated asset. Yeah. That's a very good answer. I would say that what I am most excited about is still the reason why I joined Stitch Fix 15 months ago. That is the truly unique and differentiated experience that Freestyle offers as a complement to the Fix business. I'm actually gonna answer both parts with the same point 'cause I also think it's something that is underappreciated by many who are not on the inside, and there's very good reason for that. We do have a lot of execution work to do on Freestyle, and we talked a lot about that on our call. I truly believe that Stitch Fix innovated once with this Fix business. It is amazing. N o one else did it. It was an amazing experience. Still is an amazing experience. I truly believe we are doing it again in the Freestyle experience. I do not believe that Freestyle is another transaction-based e-commerce site. I see that 'cause I'm on the inside. I see the data that we have. I see the relationships that we have with our 4 million customers. I see how we are really going to be different and continue to be different when it comes to things like personalization, things like fit. We talked a little bit about that. Elizabeth mentioned that 40% of our Freestyle sales are coming from this widget called Outfits, which is basically curated in a combination. Some are curated by stylists, some are by algorithms. No one can really generate an outfit that's very personalized and curated for an individual like we can. I'll go so far as to say, you know, one thing that we need to do, and we're working on right now, is like a search bar, okay? That is like a very standard feature in any buying experience. I mean, the Internet has created, you know, has basically taught the entire world to search. We don't have that functionality yet, and we're building it. It's gonna come out soon. We're gonna do it in a very different way. W e're gonna have personalized search, or that's what we're intending to build. The landing page, the search landing page and the search experience will be very different than any other search experience because we can personalize search to an individual if we build it correctly because we have that personalized data. I think that's very exciting. That's just the beginning of what we can offer in a personalized way. What we like to say, and Elizabeth is really good about saying this, is our experience is not really e-commerce experience in Freestyle. It's styling on demand, whether it's literally through a human stylist styling you, a stylist styling you, or our technology styling you, in a truly personalized way. That gets me very excited about the future of what Stitch Fix and how it really is unmatched, will be unmatched in this apparel and fashion industry. I'll just end by saying this model will port well into any country that has a fashion business, we believe. It's ported extraordinarily well to the U.K. We don't have Freestyle yet there. We have Fixes. It's doing very well. It will port well to other categories. And that's very exciting. Now, we have some work to do on the tech infrastructure to get our ability to scale in that capacity, but we are eagerly awaiting the time when we can go into other countries and do this experience in both Fix and Freestyle and grow internationally as well as on categories. Excellent. That's a great place to close. Thank you so much for your time. Thanks, Lauren. I really appreciate it. Thank you, everyone. Thanks, everyone. I appreciate you coming.