Good day, everyone, and welcome to the Stitch Fix second quarter 2022 earnings conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Tanny Shelburne. Please go ahead, ma'am. Good afternoon, and thank you for joining us on the call today to discuss the results for our second quarter of fiscal 2022. Joining me on today's call are Elizabeth Spaulding, CEO of Stitch Fix, and Dan Jedda, CFO. We have posted complete second quarter 2022 financial results in a press release on the IR section of our website, investors.stitchfix.com. A link to the webcast of today's conference call can also be found on our site. 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. Reported results should not be considered as an indication of future performance. Please review our filings with the SEC for a discussion of the factors that could cause the results to differ. In particular, our press release issued and filed today, as well as the Risk Factors section of our quarterly report on Form 10-Q for our first quarter, previously filed with the SEC, and the quarterly report on Form 10-Q for our second quarter, which we expect to be filed tomorrow. Also note the forward-looking statements on this call are based on information available to us as of today's date. 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 IR website. These non-GAAP measures are not intended to be a substitute for our GAAP results. Finally, this call in its entirety is being webcast on our IR website, and a replay of this call will be available on the website shortly. I'd now like to turn the call over to Elizabeth. Thanks, Tanny. As we pass the midpoint of our fiscal year, we've delivered second quarter results as expected. Though we acknowledge we are not yet where we want to be with new client acquisitions and conversion, which will weigh on our outlook. As you saw in our press release, we have provided guidance for the third quarter as well as for the full year revenue. However, we have withdrawn our full year EBITDA guidance at this time, which Dan will discuss later. Before I go into the details of our results, I want to level set on where we currently are in Stitch Fix's journey and why we continue to be confident in our long-term success despite recent and near-term challenges. We remain confident we are taking the right steps to become the global leader in personalized styling and shopping. We are continuing to improve onboarding and client conversion, evolve how we market, and enhance our overall client experience. We discussed on our call last quarter that our journey is not a linear one. With that, let me turn to our Q2 results and the factors that influenced our performance. Top-line revenue grew 3% year-over-year to $517 million, along with gross margins of 45.1% and $10 million in Adjusted EBITDA. RPAC reached a new record high of $549 in the second quarter, and Freestyle revenue grew at nearly 30% year-over-year. We ended the quarter serving approximately 4 million active clients, an increase of 4% from a year ago. Active clients declined 4% quarter-over-quarter. There were two factors that largely impacted growth ads. First, conversion of new visitors as for Fix and Freestyle is not where we want it to be. Second, given changes in iOS 14, marketing channels that have historically been effective for us are presenting challenges in effectively targeting clients. I'll elaborate on each of these points further. However, as a result, we experienced lower gross client additions and also opted to pull back on marketing spend in the second quarter. We invested 6.8% of net sales for the second quarter relative to 8.3% in the same period last year. Also, higher dormancies contributed to lower active clients for the quarter. As a reminder, we had higher dormancies in Q2 due to lapping of the high dollar referrals from last year, which we ended in Q3 of 2021. I want to touch on the point I mentioned earlier about conversion and provide some further insight. In our efforts to launch and promote Freestyle, we chose to direct visitors coming to stitchfix.com towards the Freestyle experience. It is important to note that stitchfix.com is the primary landing page for customers interested in ordering a Fix. Therefore, in leading clients to the Freestyle experience first, we inadvertently created friction for those seeking a Fix. In an effort to mitigate this friction, we are beginning to direct stitchfix.com traffic to a clear and easy Fix onboarding path. We expect this to boost new Fix client conversion over time. This change in onboarding flow should not be taken as a change in our long-term vision for Freestyle, which is to unlock a much larger TAM through daily shopping, styling, and inspiration. As we've shared in prior calls, we believe the TAM potential is 2x-3 x larger than the Fix business alone. We're still learning how best to onboard Freestyle first clients and recognize we have work to do on the Freestyle experience. We've learned that Freestyle first clients are coming primarily through product listing ads and other marketing channels that were not available to us prior to launching Freestyle. We will continue to test, learn, and iterate on how best to use these new marketing channels. We also recognize that we have work to do to improve the Freestyle client experience so we can convert more visitors to active clients and make Freestyle the growth engine we expect it to be. We have already made changes to enable a better logged out experience, including the ability to add multiple items to a shopping bag and check out while logged out. We also understand that there are a number of basic but necessary features we need to add to Freestyle, such as search functionality, which we plan to introduce in the coming quarters. Ultimately, we believe the efforts I've discussed, both around Fix and Freestyle, will help drive improved new client conversion, and we will be prepared to ramp marketing spend when we get the client experience right. The lower net client adds we have experienced in the first half of the year have impacted our revenue and are driving our revised outlook for the back half due to the compounding nature of fewer new clients buying. However, to reinforce my comments from the start of the call, we are confident in our long-term strategy, and we're seeing clear signals that we are taking the right steps for the future of the business. We believe the combination of Fix and Freestyle demonstrates the potential of our future ecosystem as we observe behaviors of our existing and new clients. RPAC reached a record $549 in the second quarter, up 18% from a year ago, a result of higher average order values in our Fix business, which are up 5% from the second quarter of fiscal 2021, as well as the incrementality provided by Freestyle to our existing client base. Freestyle revenue grew 29% year-over-year, and penetration from our Fix business is steadily improving, with over 32% of our Women's Fix clients purchasing via Freestyle today. Additionally, our recently acquired customer cohorts are engaging with us more holistically, spending over 25% more on average in Fix and Freestyle combined than clients acquired in the comparable month in 2021 and over 15% more on average than in 2020. The 90-day RPAC, a measure of quarterly net revenue divided by clients that made one or more purchases within the same quarter, is up 8% year-over-year. With the combination of Fix and Freestyle, we believe we are better able to meet the consumer needs of fit and discovery than search-based shopping. The return rates we see in Freestyle, which continue to perform at less than half of e-commerce peers, underscore why we are confident in our direction. I will share some final thoughts with you after Dan goes through our results and our guidance in more detail. Thank you, Elizabeth, and hello to everyone on the call. Today, I'll walk you through our quarterly results as well as share the inputs that build our outlook for Q3 and full year. In the second quarter, total net revenue of $517 million landed within the guidance range we laid out last quarter and represents 3% year-over-year growth. As Elizabeth noted earlier, revenue for the quarter was largely impacted by client conversion as we iterate on new acquisition and onboarding methods. We also continue to learn and iterate on Freestyle, which grew 29% year-over-year. Our women's business, inclusive of both Fix and Freestyle, grew slightly, and our men's business was down as we continue to expand assortment with a focus on adding more nationally recognized brands. At the same time, we were pleased with the sustained momentum in our Kids and U.K. businesses, where we saw 19% and 73% growth respectively on a year-over-year basis. Net revenue per active client for the second quarter was $549, representing our third consecutive quarter of record RPAC. As a reminder, RPAC is based on net revenue over the last four fiscal quarters divided by ending number of active clients in the most recent quarter. When we take our newest subset of clients and assess the related 90-day RPAC, that number continues to rise at a healthy pace, up 8% year-over-year. Additionally, subsequent checkouts per new client have increased nearly 20% since FY 2020, giving us confidence that we are on the right path once clients enter our ecosystem. We ended Q2 with approximately four million active clients. This was down 161,000 from the prior quarter as we continue to face challenges on optimizing the client experience and onboarding for new clients. Net actives were also impacted by iOS 14 privacy changes that limited our ability to target and measure advertising, as well as higher dormancies due to lapping the high dollar referral program for new customers in the first half of 2021. Q2 gross margin was 45.1%, representing growth of 214 basis points from a year ago, primarily driven by leverage in shipping costs due to higher average order values and improved product margins. Gross margin declined 190 basis points quarter-over-quarter, driven primarily by higher inventory reserves. Q2 advertising was 6.8% of net revenue, a 149 basis points decrease from the same quarter last year, and a sequential decrease of 188 basis points from Q1. As mentioned previously, we continue to face challenges in new client conversion and therefore pulled back on advertising in the second quarter to remain efficient with our spend. As I've stated several times before, we adjust this spend to ensure we are managing to our targeted return on ad spend. As we work to improve onboarding and conversion, we will ramp our marketing as appropriate to optimize for long-term free cash flow. We'll also continue to test into new marketing channels and may increase spend in these channels based on our testing results. Other SG&A, excluding advertising, was 44.2% of net revenue in Q2, a 156 basis point increase from the same period last year, and a sequential increase of 560 basis points from Q1. The increase year-over-year and quarter-over-quarter was primarily due to increased headcount, including headcount in our product and tech organizations. The increase versus Q1 was also impacted by lower net revenue quarter-over-quarter. Adjusted EBITDA in the second quarter was $10 million, largely reflecting the lower marketing spend during the quarter. Net inventory ended the quarter at $183 million, essentially flat quarter-over-quarter. While we continued to add selection throughout the quarter, we did experience delays in receipts, primarily due to shipping delays in the global supply chain. We are seeing four to five-week delays for a large portion of our product, though we do not believe this has had a material impact on our business given our current inventory levels and our mitigation efforts, such as earlier bookings. Free cash flow year to date was $94 million, primarily due to favorable working capital. In early January, our board of directors authorized a $150 million share repurchase program. During the quarter, we repurchased $11 million worth of company stock against the $150 million authorization. We ended the quarter with no debt and $349 million in cash equivalents, and highly rated securities. For Q3, we expect net revenue in the range of $485 million-$500 million, representing a decline of 10%-7% year-over-year. We expect Adjusted EBITDA in the range of -$30 million-$25 million, or EBITDA margins of -6% to -5% of net revenue. This takes into account the lower new client adds for the first half of the year, resulting in continued weaker revenue due to a lower number of subsequent fixes in the second half of the year. This guidance assumes that net active clients remain flat to slightly down quarter-over-quarter. Given softness of active clients in the first half and the uncertainty in the timing of improvements in conversion, we are lowering the prior full year revenue guidance we shared on our December 7th, 2021 call. For the full fiscal year, we now expect revenue to be flat to slightly down year-over-year. This full year guidance assumes active clients are flat through the end of the year as we continue to learn and optimize for new client conversion. We are actively evaluating our marketing spend as we manage these improvements to onboarding and conversion, and therefore are withdrawing full year EBITDA guidance at this time. We are very disappointed that we are not showing growth for the third quarter and full year. However, the positive unit economics on the Freestyle business gives us confidence that the combined experience is the right path forward. When excluding marketing, the contribution profit of Freestyle is 10 percentage points higher on a per order basis versus our very profitable Fix orders. Once we scale this business, we believe it will provide leverage in our overall margins. As we previously mentioned, we expect to increase marketing as our conversion improves and as we test into newer marketing channels. We'll also take a renewed focus on our cost structure with an emphasis on fixed and variable cost productivity. Our efforts will take time, and it's critical that we demonstrate execution over these next few quarters, which includes building an exceptional client experience that leads to increased new active clients and growing penetration in Freestyle. We look forward to updating you on our progress as we go through this transition. Thank you, Dan. Looking forward, while we know we have challenges ahead, we remain focused on continuing to expand and transform our offering and to drive awareness of Stitch Fix as the destination for personalized shopping, styling, and inspiration, leveraging our unique combination of data science and creative human judgment. As I noted earlier, the Fix model gave us a 10+ year advantage of bringing data science and creative human judgment together, allowing us to solve and address the most critical pain points for consumers in online shopping, the challenges of fit, discovery, and building relationships. On fit, we better meet the consumer needs for fit than search-based shopping, highlighted by our return rates in Freestyle, which continue to outperform at less than half of traditional apparel e-commerce. On discovery, outfit inspiration is a meaningful differentiator for Stitch Fix. Therefore, we recently scaled our stylist-generated outfits to be a higher percentage of what clients can browse in Freestyle. Since launch, stylists have created nearly 2.5 million outfits, which has resulted in a lift to overall sales. On building feedback-based relationships, a core part of what powers our ability to personalize selection are the moments of interaction and engagement that clients have with our stylists and broader Stitch Fix community. Clients provide rich, actionable feedback as they see the value in getting better fixes and Freestyle experiences, showcased by the 9.5 billion Style Shuffle ratings to date, item-level feedback in Fix Preview, and community inspiration boards. By extending our model with Freestyle, we aim to meet the on-demand expectations of today's consumer in a unique way, powered by personalization and styling capabilities, which is Stitch Fix's core. We continue to deeply believe in Freestyle and appreciate everyone's patience as we evolve it to be the growth engine we expect. I believe we are well positioned to execute against our vision, and we continue to take steps to further strengthen our team. In addition to the recent appointment of our new CTO, Sachin Dhawan, we have made a number of other seasoned hires across our product, engineering, and algos teams. We will plan to share more detail on our progress and roadmap to improve the client experience in the coming quarters. With that, we are ready for your questions. Operator, I will turn it over to you. Thank you. If you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. Once again, that is star one if you would like to ask a question. We'll take our first question from Youssef Squali with Truist. Great. Thank you very much, Youssef Squali at Truist. Two questions from me, please. One, just double clicking on the issue at hand, the onboarding and client conversion, client retention. Have you been able to kind of figure out exactly what the root cause is? Because we've talked about it on the last earnings call. Seems like the reasons have changed a little bit. I just wanna make sure that, you know, we're still talking about the same issues. Then, how are you guys trying? I think, Elizabeth, you talked about some early tests to try to revert that trend that give you confidence that, you know, onboarding and client conversion will improve over time, although it will take time. That's the first question. Second, maybe Dan, on your withdrawing the EBITDA guidance. I'm just trying to understand the logic for that since you are guiding to flat to slightly down revenue. What are the puts and takes that we have to take into account as we look at the bottom line for 2022? Thank you. Thanks, Youssef. I can start on the first question on onboarding conversion, then I'll hand it to Dan for your second question. As we mentioned, to some extent in the prior call, and now I think we've continued to learn more, is that we have really focused for stitchfix.com on redirecting that traffic to a Fix-first onboarding flow. We believe that we created friction when we introduced Freestyle to the landing page, given the intent of the majority of those clients coming to our site was for a Fix. You know, we're learning a lot right now about what those expectations are. We have now, you know, honestly, we probably have realized in retrospect, we could have moved faster, but we're where we wanna be now and are now continuing to make progressive improvements and incremental testing. We've reverted in many ways to make it easy to get directly to that fix. We're doing a bunch of other things right now in parallel to make it an even lower friction experience for our clients. Things like testing newer and improved landing pages. You know, a frustration that we had with clients even before we introduced Freestyle was having confidence that they were gonna see merchandise and price points that they liked. Introducing testing on the landing page that gives a better sense of what Stitch Fix has to offer, as well as just making it, frankly, very, very simple and clear of what to expect once inside the experience. Another area that we see opportunity is testing incentives. That's a pretty common thing with new customers coming into a new experience. What we mentioned on the prior call and we continue to be working on is just more of a progressive onboarding experience that makes it really easy to get into fixes plus Freestyle from the very beginning. We require quite a bit of information to personalize, and we think there are ways to progressively get that information over time. I think the other area in parallel that I mentioned on the call is that we are opening up these new marketing channels with that we have yet to scale. Clients that are landing in this logged out experience of a product listing ad, you know, we believe these clients are very high intent Freestyle, they're ready to buy something, and there are a lot of basic but necessary improvements that we're making to that experience as well. We've begun to already make some, like ungating the shopping bag, but over time, ungating the exploration of product categories, you know, giving access easily to engage with a stylist. It's really a combination of those things that we're working on now and believe we have a good sense of what needs to improve for consumers. I'll let Dan answer the EBITDA question. Yeah. Hi, Youssef. To your second question, one of the reasons why we're not giving that EBITDA guidance for Q4 now is we have a reasonably healthy budget plan for marketing in Q3, as we mentioned. As conversion improves, we'll spend more on marketing because it will be within the allowables that we have, and we're also testing new marketing channels. The way to think of Q3 is it's gonna be similar to Q3 of last year and approaching that, you know, that 10% marker that we have of advertising. Then we'll see how that performs in Q3 as we continue to look at the conversion and the efficiency of the marketing channels, and then we'll make decisions on Q4. While that, you know, has a direct correlation to actives, just the revenue is much more predictable because a lot of the revenue that we get when we get an active is in subsequent quarters and subsequent fixes. That's the reason why we are waiting for Q4. It's really a function of the marketing that we have planned and how it performs in Q3. Okay. Thank you. Thank you. We'll take our next question from Mark Mahaney with ISI. Okay, thanks. Let me try to start off with two questions. What's happening with retention rates? I think one of the thoughts we had was that Freestyle would help maybe boost retention of existing customers, more value prop, more use cases. What's happening with retention? And then secondly, on the iOS 14 challenges, how confident are you that there's a workaround? And this is kind of an industry-wide issue and, you know, do you think that you'll, what's your thought about how to get back to where you were before? There were some very effective marketing campaigns run prior to that was based on personally identifiable information that's just not available now. How does that get solved, or does it only get partially solved, and where do you think those solutions will come from? Thanks a lot. Yeah. Thanks, Mark. I can start on the retention, and then I'll hand it to Dan for the second one. Yeah, we really like what we're seeing on retention rates. You know, I think both. We mentioned in the call the higher average spending per client being up 25% year-on-year with our newer cohorts participating in both Fixes and Freestyle. The other thing, though, that we're absolutely benefiting from the combination of, we believe, Fix Preview together with Freestyle are higher retention rates. We look at our seven-day autoship churn, you know, our clients sticking with us on maintaining their programs with an autoship, and then we also look at retention after the first Fix. We've actually seen very meaningful improvements on both of those, you know, north of 20% year-on-year. We feel very good that the improvements that we've made in our experience are driving higher client retention. We also feel very confident that we're acquiring very high quality clients, removing things like those high-dollar credit referrals that we talked about in the past. The combination of those, we think we have a very, very healthy client mix within our ecosystem and more to do with us. You know, their product categories are also driving that up where we know clients are spending on different product categories in Freestyle. On iOS 14, I think the one comment I'll make, and then I'll hand it to Dan, is, you know, there's just frankly a ton of marketing channels that we have never participated in that are just very, very early that are now opening up for us that are less impacted by the iOS privacy changes. Let me hand it to Dan to share more there. Yeah, Mark, on that, you know, we do suspect that the privacy impact will continue to be impactful in the short term until, you know, other channels help us to find a way around that. That said, we are optimizing for different creatives and testing ways to continue in that channel. I think Elizabeth touched on the more important point is the additional channels that we have available to us. Some of that, mainly SEM-based channels, we find traffic to be very positive to the site. Now, again, conversion isn't where we wanna be on the Freestyle experience, but we have a lot of added features, a lot more selection coming, and a lot of optimizations that we're working on. Elizabeth shared some of those early on in the call that we feel will improve conversion in the near and medium term. As we improve conversion, we will continue to spend more on those channels. That is not a traffic issue. It's really, you know, a client-facing issue that we're very focused on to improve conversion. You know, with the different marketing and that's just one channel. There are several others that we're experimenting on, and there's several others that we're to continue to improve, including our organic social and other channels that we think can be significant traffic drivers for our potential active clients. Okay. Thanks, Dan. Thanks, Elizabeth. Thank you. We'll take our next question from Ross Sandler with Barclays. Hey, can I follow up on Mark's question on retention? I think you said U.K. and kids are growing nicely and Freestyle is growing nicely. Just looking at the core women's Fix business, could you talk about retention, what you're seeing there? You know, in the context of that, as you're building out Freestyle and trying to revitalize the men's selection, how do you feel about your selection and your inventory position in that core women's Fix business? Just remind us, Dan, the high dollar referral program. I know that's creating a tough comp. When do we fully kind of lap through that? You know, when was that, like, kind of peaking last year? Any context on that would be helpful. Thanks a lot. Thanks, Ross. I can take the first one, which I think you're trying to get some insight to women's and men's and how that's performing. You know, we feel good about what we're seeing on retention. You know, obviously, women's being the largest part of our business, that drives a lot of those RPAC numbers, and we continue to see really good things in terms of overall spend in new categories that are being driven by Freestyle, like footwear, second layers. We started to introduce more sleepwear in the Q2 period and all of that we feel really great about. You know, what we're seeing in terms of growth rate there is really a function of the new growth adds that are just lower than where we'd like them to be given all the other part of the conversation here on both improving the client experience, making it easier to enter both through stitchfix.com and then our new landing experience as well as the efficacy of marketing channels. You know, we feel good about the retention rates. Those are improving. We feel good about average spend. It's really about driving net new clients into the ecosystem, which is something is a first and foremost priority for the team. On the lapping of the high dollar incentive referrals, Dan, do you wanna take that one on when we finish that lapping? Yeah, I will. We ended that program in late February, so we do have a month that we just finished of lapping. It wasn't as impactful as Q1 and Q2, but we did have some of the high dollar referrals. We are through it now as we enter March and go forward. I also did wanna just follow up on your question on the men's brands. You know, I think that is an area and women's, where we added you know, some nationally recognized brands, and specifically on the men's, 'cause I mentioned it earlier on, we have added some very prominent brands that we're happy with. Nike, Vuori, Levi's, Champion, and UGG were added, and we have more planned for the back half of the year. We are moving forward with bringing more nationally recognized brands for the men's business. Thank you. We'll move on to our next question from Simeon Siegel with BMO Capital Markets. Thanks. Hey, good afternoon, everyone. It might be a mouthful, but the 90-day ARPAC is a helpful metric. Thanks for giving that. Do you wanna give the actual dollar number that's out there in addition to the growth rate? Do you plan on giving that metric going forward? Do you have a similar 90-day type of active client growth metric? Dan, just any color, I get the marketing conversation as you think about 3Q and the full year, any color on gross margin or non-marketing SG&A you can speak to? Thanks. Yeah. You know, we are looking at different metrics on active on the 90-day side. What we're waiting on is just to understand the Freestyle actives and what that looks like. There might be mix impact there, and we're hesitant to give that number out until we actually see the trend on it so we can explain it better. It's a great question, and it's something we want to actually look at doing. We just need a little bit more time as we look at the clients who come in directly to Freestyle versus those who come in with Fix and then engage in Freestyle. There's some mix going on in there, and we wanna make sure that we can explain that adequately. Stay tuned for that. To your question on more insight into marketing, I just wanted to clarify. I said earlier that on the marketing for Q3, you know, it's going to be, you know, around that 10% mark of revenue, which is something that we generally have hit in the past, and that's where it is for Q3. To the point on margins, we do expect margins to be in line with where we have them right now, with some potential pressure in Q4 as, again, just given the cost structure. We don't think it's going to be meaningful yet, although we are starting to see that. We said last quarter that for the full year, we expect gross margins to that 45%, and we're still on that trend. Great. Thank you. Just maybe holistically, you mentioned the higher margins of Freestyle, so as you scale, that helps. Do you wanna just talk through maybe why? What makes Freestyle margins higher? It's a great question. There are different puts and takes on Freestyle in the gross margin line. But the biggest impact is the relatively small styling component. When we do styling for Freestyle, it scales across the whole Freestyle experience. We do have stylists working actively on outfits and other features within Freestyle, but it scales across the whole experience, and so we see a significant improvement in contribution profit. I think the other side of that is just the AOVs, the average order values that we see in Freestyle, are very strong and very healthy, and they're not, as Elizabeth mentioned, our return rates are relatively low versus normal in the industry, and that helps AOV net of returns. We have lower return shipping costs because of that. Those are the two primary factors that drive that improvement in contribution profit, which is excluding marketing that I referenced earlier in the call. Great. Thanks a lot. Best of luck for the rest of the year, guys. Thanks, Simeon. Thank you. We'll take our next question from Mark Altschwager with Baird. Hi, good afternoon. This is Sarah Goldberg on for Mark. Thanks for taking our questions. We're hearing more brands and retailers call out strengths in work and occasion-driven categories. Are you seeing the same, and is your inventory mix positioned to take advantage of a recovery in these categories? Yeah. Thanks, Sarah, for the question. I can answer that. I think we actually see a lot of fluctuation depending on the month, and a lot of the benefit of the signal we get from clients, whether it's in our request notes, whether it's what they're engaging with in Freestyle, gives us quite a lot of ability to adapt. In Q2 versus Q1, we saw an uptick in casual for women's, both in Fix and Freestyle. We did see an uptick in social and occasion wear during Q2, in part because we increased our investments with the merchandise team to add more for the holiday season for our clients. Then on the workwear front, you know, we did begin to see some increases there pre-January, but in the month of January, we actually saw a reduction relative to the growth we'd seen at the beginning of the quarter. We often see that trend as we have seen spikes in COVID, and so with the Omicron variant, we think that was a big driver of it. That might have been questioning a bit some of the return to work, and so we saw bigger gains in athleisure during that month. It's been a little bit up and down. I mean, I think if we look over the arc of the last six plus months, we have seen growth in those work and use occasions and more going out than we did a year ago. We continue to see a lot of strength in athleisure and the comfortable categories that we believe will continue to be a big driver, especially with hybrid work. We feel really good about overall our merchandising mix and our ability to adapt, and also just the higher quality of trend spotting that we have between client notes and a lot of the signal that we capture in the experience. Great. Thank you. Thank you. We'll take our next question from Tom Nikic with Wedbush Securities. Hey, everybody. Thanks for taking my question. I want to follow up on the bit about the onboarding conflict and the kind of directing people to Freestyle first and causing some friction for the Fix, I guess the Fix first customers. This may sound a little silly, but I mean, given that, you know, Freestyle just has a much bigger, you know, TAM opportunity than, you know, Fix has as you kinda mentioned, and favorable order economics, you know, you could maybe make the case that it's not necessarily a bad thing, you know, kind of, you know, having the onboarding, you know, be more, you know, Freestyle oriented and, you know, maybe you would have some, you know, friction in the near term, but as Freestyle grew, that would become kind of less and less of a hindrance. I guess I'm, you know, kinda trying to think like, you know, why not sort of go, you know, maybe more aggressive towards Freestyle or kind of all in on Freestyle and, you know, kind of let, you know, Fix, you know, maybe, you know, sort of dwindle down over time since it seems like the prospect for Freestyle and the economics of Freestyle are much more favorable. Thanks, Tom, for the question. I think we absolutely believe in the growth potential for Freestyle. Really what we think of as the ecosystem of Freestyle, plus Fix is, you know, Freestyle in many ways equals styling on demand. It takes the best parts of what Stitch Fix does that's so unique, which is removing all the noise for consumers and helping them just see things that fit them, just see things that demonstrate their preference in style and with, you know, the value-added touch of outfits and styling advice on how to wear things. You know, we all get dressed today, even though we might buy one item at a time, we wanna know how we're gonna actually wear it. All of those things are demonstrating the results we really love to see in Freestyle. That said, the ecosystem together is where we see tremendous value. You know, our best clients are participating in both in a very value-added way. They love the advice and the guidance that they get through the Fix experience. We would imagine over time that duality plus more around inspiration and community being really a rich part of the overall experience. In terms of, you know, going after just Freestyle, it's really the ecosystem that we see as valuable in meeting all of these purchase and needs for consumers. We know that there are some consumers that really would love for us to do all the work for them. They will probably be very Fix-focused customers. Then there's a lot of consumers who love to shop. In fact, what we think is the highest value women segment, a more fashion-forward segment, who spends the most, really does enjoy shopping and sort of leaning forward, and that's where Freestyle and that on-demand experience, we think, is giving us the ability to better capture that consumer segment, their share of wallet. It's more of an and than an or in our minds, and getting better and better and better at an exceptional customer experience and allowing, you know, landing through high search-based intent channels that Dan mentioned. You know, those are still really nascent for us. For many, e-commerce players, 80%-90% of their traffic is coming from channels that we historically have not participated in at all, whether it's SEM, SEO, item-based advertising. We just haven't participated in those channels. While we're starting to see really healthy traffic from those, we still haven't scaled the marketing to do that. You know, I think what we believe in terms of the core dot-com is let's make sure we're getting it right for Fixes today. That's still where a lot of our core dot-com traffic is coming from. But over time, what we would imagine is converting those clients into a combination of Fix plus Freestyle, right out of the gate, and making it very easy for them to access personalized shopping immediately. We're not even really in the testing mode of that yet, but that's where we see the future. To your point, fully unlocking this TAM, which we think is 2x-3x the Fix business alone. That's helpful. Thanks very much. Thank you. We'll take our next question from Kunal Madhukar with UBS. Hi. Thanks for letting me ask questions. A couple if I could. One on the core Fix side and the other one on Freestyle. As you look at the core Fix side, the way I kind of understood was this, you know, high dollar referral customers were like 75,000-100,000 in aggregate. What you lost this quarter was like 161,000, which means that the gross adds would have come in much lower. Does that potentially point to like maybe a saturation out there, you know, in terms of, hey, you've already hit anyone that was ever interested in subscription and so now you're like, you know, you are kind of looking at much lower gross add number in the future? That's on the core Fix side. On the Freestyle, as you look at like, you know, with the market kind of open, mobility opened up, Omicron gone, you are facing a lot more competition from, you know, offline, online, omni-channel retailers, you know, at the whole world. So as we think of like Freestyle economics going into the future, should we think of like a higher marketing intensity associated with Freestyle just because the competition is so much higher? And then a quick follow-up to that would be, if you are going to institute a search-based, you know, experience for customers. Then, you know, where is the styling algo and all the data that you are using to kind of, you know, present just the right thing for the right customer? How does that work with search if I'm like, you know, if I'm telling you exactly what I want? Thank you. Thanks, Kunal. Lots of good questions there. Why don't I start, and then Dan, feel free to chime in. I think your first question was around the health and acquisition of core Fix given the lapping of referrals, and I think a lot of that's been answered in our prior questions around conversion and marketing spend. Given the conversion funnel improvements that we need to continue to make together with reductions in marketing spend, that really is the driver versus, I think, us hitting a saturation point of fixes. We feel confident there's still headroom there to be able to bring clients into that business. Your second question around Freestyle and how that will be impacted by stores opening back up, omni-channel, you know, I think we believe that we are highly differentiated in our ability to address the biggest challenges that e-commerce faces and even frankly in store try on of apparel, which is fit, discovery, as well as human relationships. If you think of it as a consumer even walking into a physical store, you know, 98% of what you're seeing in that store is not relevant, and a lot of the frustrations that consumers have around finding items that fit them and finding things that they're gonna love and that match their style and push their boundaries, and that's what we do best. You know, we believe firmly that consumers will continue to migrate and look for more convenience-based experiential ways of shopping, and that's what we believe we are uniquely suited in a category of one to deliver. On higher marketing, you know, I think we're learning all these new channels, and that's still early days and remain to be seen kind of how that evolves. On your last point on search-based shopping, we wanna do that, you know. Most consumers, that's our highest asked for feature within Freestyle, even for existing clients that love what Freestyle is. They might be trying to find a particular brand. They might be in the mood for a, you know, very particular item. What we intend to do is, you know, launch an alpha version of that feature very soon, but over time, make it really unique to what Stitch Fix does best. You know, we'll only be surfacing, items that are in your size, but we'll also add features over time, like, you know, showing it in an outfit-based, lay down, showing how you could wear it maybe with items that are already in your closet. We see a table stakes version of the importance of search to just make the overall Freestyle experience better. Over time, we intend to further enhance the way we do search to be a uniquely Stitch Fix based experience. Yeah. I'll just add one comment in the middle question on the Freestyle experience. Again, just to give a data point, you know, in our outfits based widget, which is highly personalized, you know, we have nearly 40% of our purchases coming from that, which just shows you how different our Freestyle experience is relative to others. We're going to do more on that. Elizabeth talked about the search, a search bar or a search widget being differentiated. So I just wanted to throw that data point out there. It's very meaningful. It's something we're very happy to see that. There's so much more we can do with that just given our technology and our stylists. Thank you. If you don't mind, if I'm still live, you know, one quick follow-up question on, you know, one of the things that we had kind of heard all through is that you have a list of like a humongous number of people that have been Stitch Fix customers in the past that you could target with Freestyle. How has the response been on that front? Thank you so much for answering all my questions. Thanks, Kunal. Yeah, that's a great question. We actually really like what we're seeing there. We think it's still nascent. To your point, you know, we have several million clients who have entered that dormancy stage that we think would love to come back to Stitch Fix. We, you know, always have kind of some always on channels within our CRMs to activate historic clients. Our historical activation was obviously a Fix. We introduced Freestyle as an activation channel a year ago, a little over a year ago, plus once we had that available to all clients. What we've seen year-on-year for Q2 is that our reactivations are actually up over 10%, and the entirety of that increase is through Freestyle. Fixes were about flat in terms of reactivations, but Freestyle was a whole new channel of being able to reactivate clients, which gives us a lot of optimism that that is an exciting way to bring clients back in. I think part of that is finding out the right way to reach and meet the attention of those clients. You know, we largely do that via email today. As we continue to explore and get better at a lot of these new marketing channels we've been talking about, what are the ways to reignite excitement with those historic clients that, you know, maybe loved us before and might love us again, especially as we're expanding our ecosystem. Thank you. Really appreciate you answering all the questions. Thanks, Kunal. Thank you. We'll take our next question from Cory Carpenter with J.P. Morgan. Hi, this is Katie on for Cory Carpenter. Thanks for taking the question. We noticed Stitch Fix ran its first ever sale in January. Can you just discuss how it went and any lessons learned? Would you consider doing it again, and can you talk about your promotional strategy more broadly? Thanks. Yeah. Thanks, Katie. I'll let Dan take that one. Yeah. We did run a promotional event. We've also run a clearance event, as you probably saw. I think we've said, or I'll say that the clearance event is really just us looking at some inventory and clearing it out in a way that can benefit our clients, as well as just better for us financially. It was very small. It was under 3% of our inventory that participated in it, and we viewed that as a test, and we thought it went very well. We'll potentially do more of that in the future, albeit at probably a programmatic way. We have run some different promotional events as well, some get X dollars off X orders, and that also was very successful. Our clients do like that, and it's a way for us to engage in them, and we'll continue to run those programs as well, but again, on a programmatic basis in a thoughtful way. Yeah. Katie, maybe the one thing I would add is with opening up Freestyle, I think there are more opportunities for us to play into consumer sentiment at different time periods. You know, one thing that has always been a great value to our clients is our buy five discount with Fixes. Now with Freestyle, you know, there are moments like end of season or even special offers for clients within their own personalized store. So we see a lot of opportunity to be both, you know, differentiating on these areas of fit, discovery and relationship, as well as providing great value to our clients in ways that are, you know, opening up to us through Freestyle that were harder to do via Fixes. Great. Thanks. Thank you. We'll take our next question from Ike Boruchow with Wells Fargo. Hey, guys. two questions. Quick one for Dan. Dan, I think you gave a lot of color, but can I just ask you explicitly, are you guys expecting the Adjusted EBITDA margin in Q4 to be negative? Any just further color would be helpful. Elizabeth, more higher level for you. I guess my question is, you know, there are some issues in growth you can see, and it sounds like you guys are ready to kind of re-ramp up growth, OpEx and marketing, when you kind of figure some things out. I guess my question is: What would it take for you to kind of take a bigger step back and maybe look to cut subs and focus more on a smaller sub base? I mean, you guys had your biggest, your largest operating margin when I think you operated a little over 1 million active customers. I'm not saying that's where you need to go, but what would it take for you to kind of reassess the customer base and try to run maybe a smaller but a more profitable business? I'm just kind of curious your thoughts at a higher level there. Yeah. Why don't, Dan, start with the EBITDA, and maybe he can give his initial thoughts on the second one, and I can add on. Yeah. On the EBITDA, again, because as we acquire active, it does take time for them to spend in our ecosystem. You know, one of the reasons why we didn't give guidance is because we wanna understand what our marketing spend is in Q3 and how efficient it is, as well as we continue to see progress in conversion. I would expect EBITDA to be negative in Q4, but again, we're not giving specific guidance at this time. On your second question, I just wanna make sure to clarify, Ike, what you're asking on the growth question. Is what you're asking, would we rather have fewer higher quality customers? I wasn't quite sure what you were asking in that second question. Yeah, it's a high-level question. It's just basically looking at as your active customers have gone up, the margins have come down, and I'm looking over a multiyear period. When we're talking about reaccelerating growth OpEx and trying to acquire new customers again, it's more, you know, it's very high-level just to think about. Do you ever think about maybe this business would be more profitable, more successful, whatever the word is, if you focused on a smaller subgroup of the active subs that are loyal and spend more and have a better margin and a lower CAC? Just trying to understand how you think about that and maybe what would cause you to think about that in lieu of growth? Got it. You know, I think we feel really good about the kind of customers we've been acquiring, and actually on a profitability basis, our customers are staying longer, spending more with us this year than last year or the year before. We're actually improving customer value by enhancing the experience with things like Fix Preview, other things we intend to do through the Fix Model and styling services we think can add value there over time, together with Freestyle. We think we're finding more ways to drive value with each client. We also really like what we see on, to Dan's point, the unit economics, both with Fixes and even better with Freestyle. Part of the profitability question, I think, is a marketing question, and part of it is a Fix cost structure. You know, Dan alluded to some improvements that we anticipate making on that side. As we continue to scale the business, you know, we believe that this can be a very profitable business over time. We are just still in the business model evolution as well as the scaling phase. Then on the marketing front, you know, our belief set in expanding into things like Freestyle, participating in things like SEO, participating in a lot of other marketing channels like affiliate marketing, influencer marketing, you know, I would argue that some of the channels that we have been reasonably reliant on in the past got more and more expensive over time, and we are going to be participating in a much wider portfolio in the future, and even things like top of funnel that drive efficiency and lower funnel that really has been somewhat untapped for Stitch Fix. I think we believe actually a bigger business presents more opportunity rather than narrowing the customer base. I don't know, Dan, if you wanted to add any. No. I think, again, I just wanna reiterate, I think the comment was made, in terms of total margin. On again, on the contribution margin side, which excludes marketing, I do think that we have maintained and gotten slightly better, and as we mix out, we hope to get, we expect to get even better soon. The question, to Elizabeth's point, is really about marketing and you know, while the performance-based channels have seen some we've seen some challenges in those, we do feel like there are many other channels that we know will generate new actives, whether it's in the Fix, into Fix Plus Freestyle or into Freestyle, and hopefully into Fix and Freestyle. I mean, that's really our goal here. I think the margins that we have will provide leverage over time. I said that earlier on, and we still believe that. On the fixed cost side, you know, we'll see improvements as we go forward and leverage as we turn the corner and start growing actives again. Got it. Thank you. Thank you. We'll take our next question from Roxanne Meyer with MKM Partners. Great, good afternoon. Thanks for taking my question. I actually have a few. My first question is on pricing. You know, the industry obviously is in a more inflationary environment with many across the industry raising prices. So I guess I was curious, with your AOV up for Fixes in the quarter, up 5%, how much was due to pricing that you took versus units, and what's your thoughts on pricing going forward? Yeah, I'll take that one. Hi, Roxanne. None of it was due to pricing. We have not significantly raised prices. It was primarily due to keep rate within Fixes. You know, we're lapping the full cycle of our algorithmically generated previews, which just had a positive impact, plus the experience once you're in our ecosystem is very positive. You know, and then on the RPAC side, you have the mix of Fix plus Freestyle contributing favorably. It wasn't any of it on pricing. Going forward, we're continuing to look at the cost of our product and suspect you know like we may tweak pricing. I don't think it's gonna be significant in terms of increases. We think, you know, we're pretty analytical and methodical about looking at our pricing, especially with our EB. Then on our national brands, you know, we're taking a hard look at pricing, and I do not expect that to go up, and in fact, could possibly come down just as we see what's going on in the market. Okay, great. Then just trying to reconcile your revised guidance for the full year. When you take into account your expectations for flat active customer growth, it assumes that your revenue per client falls sequentially in the next two quarters. You know, that comes on the back of an 18% healthy increase this past quarter. Just trying to understand the dynamics and what's going on with your expectations for revenue per client. Yeah, yeah, I'll take that one. That's a good question. You know, part of that is just the function of the lower net add in H1, that you know, the newer clients just spend more relative to tenured-based clients, so it really is a mix impact. When we look at it at a cohort impact, of course, as we mentioned, we see positive year-over-year growth when we look at it, and we do it on a 30-day and 90-day cohort like-for-like basis. So that is positive, but we might see a drop, you're right, on the revenue and actives guidance that we gave simply because we're mixing out to fewer new actives. Now as we improve conversion and add actives, that will reverse itself as we go forward. Okay. Thanks for that color. And then just last, you know, trying to think about the average spend in Freestyle for, you know, a Fix customer versus a pure Freestyle customer. And then, you know, just wondering about how do you think about your ability so far to match client preferences as dictated by the questions that you have out there and your algorithm with the offerings she's actually presented. I guess that would manifest itself by that average spend. Thanks a lot. Yeah, I can start on that, Roxanne, and Dan can weigh in. I mean, the majority of the clients in Freestyle are still our Fix first clients, just given by nature of the fact that we very recently opened that up. You know, we like what we're seeing with these early new cohorts, but it's admittedly small still. I think to Dan's point, there was an earlier question on this, related to RPAC. As we have more data and more longitudinal data, we'll feel more comfortable sharing what we're seeing. You know, we have seen those Freestyle customers coming back. We have seen them opting into Fixes to some extent. But I think we have more data to gather to understand that. I think on your question of relevance, we actually feel really good on a cold start basis to be able to show relevant style-based inventory. It is a very new kind of shopping experience. You know, we think of it as styling on demand. To Dan's point, 40% of the sales are through outfits. Some of these baseline features that make it easier for customers to have a reference point to other ways they shop are some of what we need to add, and that's a lot of the work we have in front of us, in addition to making it highly differentiated. I don't know, Dan, if you would add anything on average spend in Freestyle. Anything else we can share? No, I do. I completely agree, of course, with everything Elizabeth said. I will just add that, you know, when Fix customers do engage in Freestyle, we do see both their Fix and their Freestyle go up. That just really backs the point of how the two really work in tandem together from an overall client experience standpoint. Elizabeth is right, like, we are gathering the data on Freestyle for those who come in and whose first intent and first purchase is a Freestyle only. You know, eventually we'll share data on that, but we just need to collectively have more time to gather what that looks like over time. Okay, thanks. That's helpful. Thank you so much. Thank you all for joining us today. We look forward to updating you on our progress next quarter. Thank you, and that does conclude today's conference. We thank you all for your participation, and you may now disconnect.