Get kicked off. Good morning, everyone. My name's Aneesha Sherman. I cover apparel and specialty retail here at Bernstein. Thanks for joining us today at our retail forum. I'm delighted to be here today with Matt Baer, CEO of Stitch Fix. Before we get started, I'm going to read some safe harbor language out. As a reminder, Stitch Fix expects this discussion to include forward-looking statements. These statements are subject to risks and uncertainties, and actual results could differ materially. Descriptions of these risks and other factors that could cause results to differ materially from these statements are discussed in Stitch Fix SEC filings, including its Form 10-K for fiscal 2025 and subsequent periodic reports. Statements made today are based on information available to us today and will not be updated to reflect subsequent events or circumstances that may arise, except as required by law. With that out of the way, let's get started. If those who are listening today or on the webcast want to take a closer look at Stitch Fix after the conversation, please don't hesitate to reach out to me and we can have that conversation. Matt, let's start with just the proposition of what Stitch Fix is all about. Most of us know Stitch Fix as consumers, and we've either used it or we're familiar with it, but can you briefly explain just the business model, how do you procure inventory, what are the different revenue streams, and what's your cost structure? Yeah, happy to, and appreciate being back here again. Thank you for having me. Stitch Fix is the leading online personal styling service. We help people get dressed every day so that they can look and feel their best in clothes that fit and align with their values. More simply, we solve a really human problem, and that is enabling clients to get clothes that match their style preference, that they know will fit them, and that they're able to do that within their budget constraints without having to trudge through a mall for hours on end or scroll endlessly online. The reason we're able to do that is because the uniqueness of our business model. We have the leading or best-in-class AI technology and personalization algorithms. I believe we have best-in-class assortment of both our private brand and our market brands. We also, importantly, pair every single client with a human stylist. As a result of all of this, we create a superior service that no other retailer is able to replicate. In terms of our inventory, we also have proprietary algorithms and data science capabilities that help us take all of the data that we have on our clients and all of their purchasing behaviors and experiences with our service to help inform all of our inventory purchasing, all of our pricing, all of our markdown strategy in order for us to have our sell-through targets hit and optimize our margins overall. Finally, from a cost structure standpoint, at the end of the day, we're a capital-light business. As a result of the transformation that we've been on over the last three years, we've removed about 800 basis points of SG&A. We've now delivered nine consecutive quarters of a contribution profit above 30%. We're free cash flow positive, we have no debt, and at the end of last quarter, we had about $229 million in cash. Okay, I want to get into some of those cash flow and margin metrics in a bit and talk about the transformation. Maybe just to stay with the value proposition. As we've all shopped for clothing online, it is really overwhelming. The value proposition of personalization really resonates with me personally, as I'm sure it does with all of you. Is there a particular demographic or behavioral profile that is attracted to Stitch Fix? What's your typical customer mix? Yeah, one of the things that's awesome about the Stitch Fix service is that we can personalize it to each individual, and I believe really confidently that that addressable market that we are capable of serving is extremely large. When we go to market, though, to acquire clients and to bring new clients into our service, we focus at a high level on a couple of things. One, people that really value convenience, people that are too busy to spend their entire weekend shopping or to spend all of their evenings browsing. Because we know our clients so well upfront, everything about your style, everything about your budget, and everything about your fit, we're able to take all of that work off your plate to ensure you have all of your apparel, accessories, and footwear needs met at any moment. We also are targeting folks that need help with personal styling, that want help putting outfits together, that want help knowing what is in style or on-trend so that they can always look their best and feel their best. Within those two big buckets, though, we've really, over the last three years, got very intentional in terms of which target markets and which segments we're going after. A great example of that is the work we've done over the last year and a half to target GLP-1 clients, people that either are or likely are on a GLP-1 medication. They're in the midst of a body transformation, our proprietary service and the data that we have helps us better serve them at each stage of that body transformation, as well as pairing them with a human stylist that's trained to make sure that we can take care of their needs in every moment. Another great example, and I'm a stylist myself, is what we call fashion deserts. As everyone well knows, the number of department stores is closing by the hundreds. The number of malls is a small fraction of what it used to be just a decade ago. More and more consumers in this country are living somewhere where they don't have any access to apparel, and they have no access to any sort of personal styling service. One of my clients, she lives in Letcher, South Dakota, population 169. She wouldn't have any access to the brands that we carry, the assortment that we offer, or any access to a human stylist to actually help her look and feel her best each and every day. Did you have to go through training for that? I did. It's actually part of our onboarding for all employees, that they go through stylist training. Then it is optional, though, if they want to serve as a stylist in addition to whatever their core responsibility set is. For me, it's just so important to get both close to our clients as well as to understand the tools and systems that our employees are using every day. I actually styled a couple Fixes this morning. Does your client know that the CEO's their stylist? As far as we're aware to date, no one has figured that out. It'll be interesting if and when someone does. Let me talk about the transformation. Because you mentioned some of the metrics. They're very impressive. You joined as CEO in 2023. Transformation is now more than three years in the making. You're now closing out FY 2026 with positive revenue growth for the first time in five years, positive active client growth expected in fiscal 2027 for the first time in six years, continued positive EBITDA margin, continued positive free cash flow. Really strong metrics. Can you read that again? I'm joking. Yeah, no, we're really proud of those results. What is different about how you're running the company now that's generating all this positive traction versus when you joined three years ago? When I joined the company, the mandate was clear. We had to return Stitch Fix to sustainable, profitable growth. We all had a tremendous amount of conviction in the underlying business model. Our opportunity was to strengthen the foundation of the business, reimagine the client experience, return us to growth, then further capitalize on what are our core differentiators while expanding the total addressable market that we serve. First, in terms of strengthening the foundation, we made sure that we were instituting retail best practices at every available opportunity, that we were operating as efficiently, as profitably as we could within every single function. As a result of those efforts, as I mentioned earlier, we pulled a significant amount of money out of our SG&A. We are now delivering what I believe is industry-leading contribution profits for a digital retailer. We have a really healthy balance sheet and a strong financial foundation for us to build on. In terms of reimagining the client experience, we focused on four things. The first was to create more engaging ways for our clients to experience Stitch Fix. The second was to deepen the client-stylist relationship. The third was to create more flexibility within our business model. The fourth was to radically improve the physical assortment that we sold. I think the work that we've done over the last two years is definitively what has led us to now those five consecutive quarters of revenue growth. In addition to that, we were also focusing on making sure that we had a really healthy base of active clients. It was important to us to bring in clients that have a high resonance for our service, that were going to stay with us for a long time and spend a lot of money. We have now really successfully transitioned to a place where we have improved our year-over-year active client count eight consecutive quarters. In the last quarter, our new clients were up 10% year-over-year. Really importantly, what we call the new client lifetime value, which is effectively how much profit we make from our clients in the first 90 days, has doubled as a result of our transformation. That gives us the opportunity now going forward to lean into even further acquisition for new clients and to really ensure that that active client growth has an opportunity to really take off, which will compound all of the benefits that we've made to the experience. In terms of the transformation, are you where you envisioned you would be? Are you at steady state now, or what inning are you in in the transformation? I'm really proud of the progress that we've made from our transformation. I think that the proof points are absolutely there, that the transformation has worked. As I noted, we have a strong financial foundation, a completely reimagined client experience, and, as you read off, no shortage of statistics and metrics to show that this has, in many ways, been very successful. Personally, I'm of the opinion, though, that as a retailer, you're perpetually transforming yourself, or you're going to be moving backwards. I've seen that happen both at retailers that I've worked for or just as a student of the retail industry over the course of my entire life. If you are not challenging yourself to transform and not just meet the client where they are today, but where the client is going in the future, then you are going to fall short of what your expectations and goals are. For us, that is how do we now take all of the improvements that we've made to the experience, drive them even further? How do we make sure that we're improving our assortment and the categories that we sell into even further? We identified that if we had the same market share in activewear, athleisure, footwear, and accessories as we do in tops and bottoms, that's a billion-dollar revenue opportunity with our existing client base. We're also leaning in now, too, to make sure that we're personalizing the entire client journey, so that clients can see themselves through that entire expression, from onboarding all the way through post-purchase. Very cool. Tell us about what are some of the near-term opportunities you're most excited about. She just shared a couple of them, but I think capitalizing on the category breadth and depth expansion is a huge one for us. By moving into these categories, we're able to serve our clients head-to-toe outfitting solutions. We're able to ensure that they don't ever have to go to another retailer to have all of their apparel, accessories, and footwear needs met. We're also unlocking this opportunity not just for that individual client, but now for their entire household. A head of household can create accounts on behalf of their spouse or partner that they're potentially or likely shopping for, as well as all of their children, so that we can capture that entire wallet share of that household. As a result of these efforts, we've got our revenue per active client now the highest that it's ever been as a public company, and we've increased our average order value for 11 consecutive quarters. We do believe that we have further growth opportunity from a wallet share and a revenue per active client standpoint, and we're going to continue to track that down. The second thing is continuing to personalize the journey. As you know, we've got a couple of generative AI experiences today that are client-facing. We have Stitch Fix Vision, a generative AI experience whereby our clients can see themselves dressed head to toe in Stitch Fix apparel and accessories. Everything that they see themselves in matches their style preference. It is within their budget, and if they buy it and when they get it home, it will fit them as well, which is a big differentiator for our experiences versus others. We also have an AI Style Assistant whereby a client can interact with the AI Style Assistant to help articulate what their needs are, and then we translate that back, both in terms of text and visual cues, to ensure that we really understand what they're looking for. Once the client confirms that it's correct, we send all that information to the stylist to help them as well. We're seeing really significant client satisfaction from these experiences. For Stitch Fix Vision, we're seeing 100% lift in Freestyle sales over the next 90 days after a client interacts with it. It's driving engagement, and it's driving sales for us. The third thing we're focused on is continuing to expand the clients that we're serving and continuing to move into new segments, both in terms of behavioral attitudinal standpoint as well as the different price points that we serve with our assortment. Okay. There's a lot of great color there. I want to talk about the TAM and the expansion. You mentioned AI. AI is obviously we can't go without mentioning AI in this conversation. It's a newer topic for many brands and retailers, many that I cover. It's not new to Stitch Fix. You've been using AI in your operating model for many years. You mentioned some of the newer initiatives that you're using around Stitch Fix Vision and AI Assistant, but can you talk about how the model has evolved using AI and where the human touch is still important in this value proposition? Yeah. One of our core differentiators at Stitch Fix is that technology and innovation is in our DNA. We were early or first to market using data science and algorithms in order to create new and superior client experiences. As you noted, and I believe that we were an early leader in AI applications, both in terms of how we operate from a back-end perspective as well as the client-facing experiences. One of the things that I think is really important and is often missed is the quality of an AI experience is only as good as the data that you have that's flowing into that experience. Our leadership in terms of the quantity and quality of data, both in aggregate and at an individual level, is what sets us apart from any other retailer, and we're going to continue to lean into that space. Similarly, we are also early in terms of AI applications in how we work. A great example of that is in our private brand physical product development process. That's a process, for those that don't know, at a traditional retailer, could take several months or even a year. Sometimes more than a year too. Yeah, to design a brand-new private brand and entire cohesive assortment from start to finish. The tool that we have now enables us to do that in a matter of days, and that helps us get to market even faster from a style and trend perspective. Obviously, it helps us do it at a lower cost to serve, and it helps also ensure that we have the most cohesive and highest quality and value within our private brand portfolio. Can you say a word about the traction of your private brands? National brands expansion has been part of the strategy, but talk about the private brands for a second. Yeah. I mentioned one of the pillars of the reimagined client experience is to radically improve our assortment. That was true of our private brands as well. Quite candidly, at the onset of our transformation, our private brands weren't delivering enough value for our clients. We took a hard look at those. We sunset a few brands. We rationalized out much of the assortment itself. We challenged ourselves to develop brands that we're known for and led from a quality and a value perspective. I'm really proud of the work the team has done. We've launched a few new private brands, and we're now finding tremendous success. As an example, we launched a new brand in men's, The Commons. It's now a top 5 revenue brand for us. The top 3 brands in women's, I believe now, are all private brands. Our private brands are delivering about 500 basis points higher margin than our market or national brands. There's obviously a benefit to our bottom line as well. You talked about the category expansion, right? Expansion from a focus on women to now focus on the whole family, category expansion into accessories, footwear, et cetera, head to toe. There's a huge TAM here. You've talked about a number of $240 billion U.S. apparel market. If you add in accessories and footwear, it's even bigger. It's also a sector that's not growing very fast. It's growing kind of low single digits. It's very competitive. It's very fragmented, especially in the online apparel world. We've seen even big brands and retailers losing share to new incumbents in the last few years. What do you see as Stitch Fix's right to win that will allow you to gain market share in this very competitive and fragmented market? Yeah, I love that question. Yeah, retail is very hard. We're up for the challenge, and we are going to continue to win. In the last quarter, our revenue grew over four times faster than the total U.S. market for apparel, accessories, and footwear. We are gaining share in this really challenging market, and our aspiration and expectation is to continue to do so going forward. We're going to be able to do that because we provide a superior service, because of how well we know every one of our clients, because we have the best-in-class technology and innovation that's enabling groundbreaking AI experiences, because we now have the best-in-class assortment across our private brands and market brands. Also critically, it is because of that human connection, that human empathy that we get from every single client having a human stylist at their disposal. I grew up in physical retail. I've been in retail my whole life. I believe passionately that humans want that interaction, that they value that interaction. What's happened in retail over the last generation is service has been costed out. You cannot get service today in physical retail or online retail. The only place that happens, in my opinion, is at Stitch Fix. I was recently walking a department store at the Lenox Square Mall. I walked for an hour. No one even said hello. No one said, "How can I help you today?" At Stitch Fix, you have a stylist at your disposal that knows everything about you, that can meet your needs and help serve you at any given moment. As AI starts to take over more and more of our daily interactions, that real commodity is that human interaction. That real commodity that people are going to put extra value on is that ability to talk to another person, to have their ear, to have that empathy, to have their expert advice. For us, we figured out how to do that profitably. We're able to do that at Stitch Fix in a way that we can scale meaningfully, that's what sets us apart from all other retailers and will enable us to continue to win and continue to take share from those who are not meeting customers' expectations. It's a very compelling answer. If I think about the levers of growth as you're coming back into growth, the way I think about it is average unit retail, units per customer, and then new customer growth. It seems like you have opportunities on all three. Can you talk through where do you see the biggest opportunity across the three, or where do you see each of the three contributing? We think about that every day. We're proud of the progress that we've made, we're going to continue to drive further progress across each of them. Maybe just upfront, quickly, average order value for us has increased 11 consecutive quarters. Average unit retail has increased seven consecutive quarters. Importantly, in the industry today across the U.S., unit volume is actually declining. We're actually growing unit volume in addition to having a higher average unit retail. We feel really good about those results. What I mentioned is one of the pillars of our reimagined client experience is flexibility within our business model. Those are new ways for our clients to experience our fixes, larger fixes based on a theme, fixes based on a Freestyle item. The average order value for those, what we call non-traditional fixes, is double that of a traditional fix. We're going to continue to lean into those. Those will continue to be a disproportionate amount of our total Fix volume, which will help us grow average order value. We're also going to continue to lean into improving the quality of our inventory, both in terms of the market brands we carry as well as the quality of our private brands, which will allow us to see higher AURs because we're selling better merchandise. Finally, from a client perspective, we take a very methodical approach there, as you know. We're really careful to make sure, as I noted, everyone that we're bringing into the service will have a high resonance for that service, and we're going to give them a superior experience. As a result of that, our lifetime value, as I mentioned, for those new clients over the course of the transformation, has doubled. What that does is that enables us to invest further into new client acquisition. I do believe, as we get all three of those working together and accelerating even faster into the future, that growth compounds. We're in a very uncertain macro environment. We were just chatting right before this around every time there's news flow, the market moves, the consumer sentiment moves. Concerns around particularly U.S. consumer discretionary spend as the wallet has had some considerable pressure. Can you talk about how this business model works in a tough macro situation? If we see further trade-down, further cautiousness on spending, will the value proposition of Stitch Fix still resonate with consumers? Absolutely. The Stitch Fix value proposition, I believe, is even stronger in a tough macro environment. We're seeing that resilience from our clients today. As I noted, the revenue per active client is the highest it's been as a public company. Average order values continue to increase. We're seeing that strength within our existing client base, and that's based on a number of factors. One is because we offer that unparalleled convenience, that if a client is potentially going to take a shopping journey out of their rotation because of budgetary constraints, they still maintain that relationship with Stitch Fix, even if they don't go shop in person. We're actually able to take a larger share of their wallet, even if that total share is declining. The second is that we have that human stylist that works one-to-one with that client. If their budget changes or their needs evolve, they can express that to their stylist, and they can help serve them. One of my clients wrote to me, I think it was last week, and mentioned exactly that. The budget isn't up for this Fix where it had been in prior Fixes, and what can I do? I was able to find lower AUR items that still matched their style preference that I knew would still fit them and was able to create a really great client experience that was responsive to their needs in that moment. Finally, it's because the flexibility that we've created in our business model so that clients can change the number of items in a Fix, they can change the cadence of their Fix. The business model itself is able to evolve with them. We believe our current clients are really resilient, and where we're seeing the need to be a little bit more cautious is from a new client acquisition standpoint. We want to make sure that we're bringing in the right clients at the right time that are going to spend with us at the right levels. We're being, I think, appropriately cautious there to make sure that the clients we're bringing in, they are going to understand the service and experience it appropriately given the macro environment. You talked about the cost-cutting and rationalization. You have been adjusted EBITDA positive, free cash flow positive for a while now. As you're getting into positive top-line growth, this seems like a very scalable model, can you talk about what that means for margins and cash flow going forward? Yeah. Absolutely. As a result of the transformation, as I noted, our contribution profit, it's actually up about 700 basis points from when I joined the company, nine consecutive quarters above 30%. I do believe that for a digital retailer or the digital channel for any omni-channel retailer, that is a leading metric. That's because of the work that we did to move as much of our expense base as possible to variable and remove any expenses that weren't adding additional value for our clients, either in the short term or the long term. Because of that, as we continue to grow the top line, we're able to leverage that growth and drop that to the bottom line, while also giving us the flexibility to invest where we see opportunities. We have no debt. We have $229 million in cash at the end of last quarter. That gives us the ability to invest in our inventory, to invest in our experience, to invest in our clients, to invest in growth overall where appropriate. We also have given back for our shareholders as well. As you saw last quarter, we bought back four and a half million shares in a stock repurchase as well. We're really making sure that we're using our cash as efficiently and effectively as possible to achieve our long-term goals. Tell us about the capital allocation priorities for the next couple of years as you're envisioning growth inflecting to positive. We're a capital-light business. We've got all of the infrastructure that we need to scale. Our fulfillment network is one that we can leverage for a significantly larger business. The resources that are required as our business expands are variable and built into our cost structure. Our fixed cost basis, we don't see any needs to really invest there. Again, all of the investments that we would be making are directly into growth or returning capital back to our shareholders. In a scenario where the consumer environment gets tougher, you talked about what it means to attract new customers and how it's responsive to a tough macro scenario from a demand perspective. What about from a margins and cash flow perspective? What levers do you have in the P&L to preserve margins and cash flow in a declining growth scenario? Yeah. I think one of the things that we've proven over our transformation is that we're both resilient and agile in terms of being able to deliver pretty exceptional outcomes given the circumstances. I would continue to bet on us and our team, if times do get tough, that again, we're going to not only find ways to deliver, but we're going to do it better than others. When you look at how we approach tariffs, for example, I think we shared previously there was about a 10 basis point headwind, and that's because of the work that we did managing both our vendor network, our overall brand matrix, and our country of origin with the assortment that we're procuring. Also the work that we've done to turn as many of our expenses as possible into variables such that if there is a really significant headwind for the industry that impacts us, we're able to mitigate that with that variable labor and the variable expense component. We've significantly improved our margins over the course of the transformation. We're confident that we'd be able to maintain those, and really confident that even in a down market, we'll be playing offense and continuing to gain share. In terms of reinvesting in the business, you did have an international business, U.K. business, that's now been shut down. Is that something you're considering, or maybe not just yet? Right now, we believe the opportunity in the U.S. and with our core business is so large that that deserves to be our exclusive focus. We see that growth opportunity in the U.S. apparel, footwear, and accessories, that headroom, the $240 billion you quote, that's a huge opportunity for us to lean into and go after. That's where our focus is in the near term. Longer term, there will be a lot of opportunities for us for consideration, whether that's international expansion into categories outside of apparel, accessories, or footwear, and a few other ideas that we might have as well. Okay. Looking forward to seeing what's next. As we wrap up in the last few minutes, what are sort of the key messages that you want to leave investors with, especially investors that maybe haven't looked at Stitch Fix in a couple of years and are coming back to the story? Yeah. I noted earlier that when I joined the company three years ago, that mandate was clear. We needed to return to growth, and we needed to do it in a way that demonstrated that growth was both durable and was profitable. The transformation has worked. We've done exactly that. We have five consecutive quarters of revenue growth. We've considerably improved the profitability of our business. One thing we didn't talk about is how we've also improved our net income over the course of the transformation and adjusted our stock-based compensation philosophy, such that last quarter we were just down $1.5 million from a net income standpoint, and that continues to improve quarter-over-quarter. We're really confident about the viability of our business model, the superiority of our service, our ability to drive durable growth, and our ability to leverage our operating process to put even more to the bottom line over time. As you noted, I do believe that we're going to continue to be a winner and gain market share. Okay. It's an exciting time in the journey. Thank you for joining us today, Matt, thank you everyone for listening, hope you enjoy the rest of the conference today. Thank you.