Prepared remarks
Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the Stitch Fix first quarter 2026 earnings call. Lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again, press the star one. I would now like to turn the conference over to Cherryl Valenzuela, Head of Investor Relations. You may begin.
Good afternoon, and thank you for joining us today for the Stitch Fix First Quarter Fiscal 2026 Earnings Call. With me on the call are Matt Baer, Chief Executive Officer, and David Aufderhaar, Chief Financial Officer. We have posted complete first quarter 2026 financial results in a press release on the quarterly results section of our website investors.stitchfix.com. 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 our annual report on Form 10-Ks for fiscal 2025 and subsequent periodic reports filed with the SEC. Also note that 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. Please note fiscal 2024 was a fifty-three-week year due to an extra week in the fourth quarter. As such, references to our year-over-year revenue growth rates and consecutive quarters of revenue growth in our women's and men's businesses on this call are based on an adjusted fifty-two-week basis removing the impact of the extra week to provide a comparison that we believe more accurately reflects our performance. 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 Investor Relations 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 Investor Relations website and a replay of this call will be available on the website shortly. And now let me turn the call over to Matt.
Thank you, Cherryl, and good afternoon, everyone. Q1 was a strong start to the year. Revenue exceeded our outlook and accelerated 7.3% year over year to $342.1 million. Adjusted EBITDA also exceeded our outlook and was nearly 4% of revenue at $13.4 million. We are increasingly becoming the retailer of choice for more of our clients' apparel and accessories needs. We are doing this by leveraging the latest in generative AI technology, the expertise of our human stylists, and our assortment of leading brands in service of our aim to deliver the most client-centric and personalized shopping experience. Given our Q1 performance, combined with the robust demand we've seen so far this quarter, we are guiding to a third quarter of accelerating growth in Q2 and raising our full-year guidance. The outperformance is the direct result of the compounding benefits we're seeing from the disciplined execution of our transformation strategy. We've strengthened the foundation of our business by embedding retail best practices and building significantly more leverage into our operating model. We have fundamentally reimagined our client experience. We zeroed in on four areas to deliver a more modern and dynamic Stitch Fix. First, delivering enhanced client engagement features. Second, cultivating deeper client-stylist relationships. Third, offering a best-in-class assortment. And fourth, increasing the flexibility of our business model. For example, our increased flexibility now includes dynamic larger fixes, the ability to turn a freestyle shopping journey into a styled fix, curated theme fixes for specific occasions and use cases, and family accounts, which unlock the Stitch Fix experience for the extended family. This comprehensive and customer-driven approach is clearly resonating with clients. The ninth consecutive quarter of our fixed AOV was up nearly 10% in Q1. AOV has increased year over year as our larger fixed offerings and our improved assortment continue to resonate with our clients and better meet their outfitting needs. We are strengthening our competitive position and gaining market share in our core apparel business. Our strategic expansion into non-apparel categories is further accelerating this growth. By helping clients complete their outfits and dress them from head to toe, we are capturing a greater share of their wallet from other retailers. Our 7.3% year-over-year revenue growth in Q1 meaningfully outpaced the estimated 1% growth for the broader U.S. apparel, accessories, and footwear market. Our growth is broad-based, with both our women's and men's businesses continuing to accelerate. In women's, we saw a strong start to fall sales across key seasonal categories such as sweaters, coats, jackets, and vests, which combined grew 19% year over year. Sneakers, which were up 63% year over year driven by New Balance, Gola, and Adidas, and wide-leg denim was up 217% driven by outsized performance in days denim, pistola, and Madewell. We've also seen great client responses to new brands especially within activewear and footwear, such as Varley, Birkenstock, and Roan. And we're excited to continue to add new brands to our assortment in the coming months. Our men's business delivered a second consecutive quarter of double-digit revenue growth by leaning more into the elevated everyday and athleisure styles our clients are looking for. Seasonal categories such as fleece, sweaters, and outerwear grew 57% combined, while denim grew 30% and sneakers grew 24% year over year. Brands like TravisMathew and Viore delivered outsized growth and remain trusted client favorites for style, versatility, and quality. While new brands such as Ketan, Industry, and n n o seven have introduced more style and trend into our assortment. We believe that our expanded relevance in activewear, athleisure footwear, and accessories in particular could unlock a significant wallet share opportunity, and that our fair share with our existing client base in these categories is approximately $1 billion of incremental revenue. We are confident in our ability to capture increased market share in the future. Just as importantly, we're focused on achieving profitable active client growth. We ended the quarter with 2.3 million active clients at the high end of our expectations. Q1 marked the sixth consecutive quarter of active client year-over-year growth rates and a return to sequential active client growth in our men's business. We continue to expect a sequential increase in net ads in Q3 of our current fiscal year. Our methodical approach to rebuilding our client base around long-term fit with our service and higher lifetime value paired with a continuously improving client experience is working. With respect to new clients, three-month LTVs have grown year over year for nine consecutive quarters and remain at three-year highs. We also have had more new clients on recurring fixed shipments than in any of the prior six quarters. Q1 also benefited from higher reengagement, with a significantly higher percentage of reengaged clients enrolling in recurring shipments compared to last year. We believe these positive trends confirm the improved quality of our new and returning client cohorts and will lead to greater client retention, higher revenue predictability, and improved profitability over the long term. To build on this momentum and ensure we sustain this improved client quality, we are also focused on delivering growth by leveraging our competitive differentiation in data science and AI. AI is not new to Stitch Fix. When we launched nearly fifteen years ago, we disrupted retail with a proprietary data-driven approach. Over time, we've amassed billions of insights on our client's fit, style, and budget preferences that, combined with the human judgment of our stylist, enable us to uniquely deliver ultra-personalization at scale. We're capitalizing on this competitive advantage through a suite of AI-powered innovations that aim to drive greater client engagement and retention. For example, Vision, our generative AI-powered style visualization experience, provides our clients with an entirely new and inspiring approach to style discovery, offering personalized, shoppable images of each client based on their unique style profile and the latest trends. Another great example is our AI style assistant, which leverages generative AI to engage in a dialogue with clients and is helping our clients better articulate their individual requests to their stylist. The style assistant draws on each client's style file and the extensive data we already know about them. And the more it's used, the smarter it gets, helping ensure each fix delivers on the client's individual needs. The scope of our generative AI strategy goes beyond client-facing features. We are taking an enterprise-wide approach, incorporating these capabilities across every area of the business to drive further efficiencies and deepen our competitive advantage as a leading innovator in retail. For example, our merchandising team is using generative AI to fundamentally transform private brand product development and inventory management. Our generative AI-assisted design process leverages our proprietary data to develop complete fashion lines, which will enable us to respond to trends more quickly and bring products to market faster. Beyond design, AI provides predictive intelligence for trend forecasting, optimizing inventory, and setting intelligent pricing, ensuring every piece of merchandise we sell is calibrated for both profitability and client satisfaction. The innovations we've introduced across our business will enable us to better serve clients this holiday season. We entered this critical period with our most seasonally relevant assortment and competitive pricing and promotions, enhanced by new and inspiring shopping experiences including Vision, theme fixes, and fixes built around a freestyle item. We also launched Stylus Connect, a platform for near real-time client-stylist collaboration, and introduced family accounts to better support gifting during the season. Holiday performance has been strong, with record freestyle sales for the Black Friday to Cyber Monday period. In closing, we have strong momentum in our business, remain focused on exceeding our clients' expectations, and we'll continue to play offense in order to deliver increased market share gains. Now I'll turn the call over to David to share more details of our financial results and future outlook.
Thanks, Matt. Good afternoon, everyone. We delivered a strong first quarter that underscores the success of our strategy and the momentum Matt outlined. We're accelerating growth and gaining market share while maintaining financial discipline to ensure that growth is profitable and sustainable. FY '26 is about leaning into innovation and the client experience to strengthen our competitive advantage while continuing to identify savings that fuel reinvestment. Now let's turn to the numbers. Revenue was $342.1 million, up 7.3% year over year, exceeding our outlook. Average order value rose 9.6%, driven by more items per fix and higher AUR, reflecting strong demand for larger fixes and our improved assortment. We ended Q1 with 2.3 million active clients at the high end of our expectations. Revenue per active client reached $559, up 5.3% year over year, marking the seventh consecutive quarter of year-over-year growth. The growth in RPAC confirms that our strategy is effectively leading to increased client engagement and spend, ultimately driving a higher share of wallet from our clients. Gross margin was 43.6%, in line with our FY 2026 range of 43% to 44%, with contribution margins remaining strong above 30% for the seventh straight quarter. Advertising was 9.9% of revenue in Q1, up 50 basis points year over year. Q1 adjusted EBITDA came in at $13.4 million or 3.9% margin, outperforming expectations on strong revenue. We ended Q1 with $2.442 billion in cash and short-term investments and no debt, giving us flexibility to invest in growth. Inventory was $141.5 million, up 18.8% year over year reflecting investments in our larger fixed offerings. Turning to our outlook for Q2 and FY 2026, we are increasing our full-year guidance to take into account the positive trends we are seeing in the business. For full-year FY '26, we expect total revenue to be between $1.32 billion and $1.35 billion. We expect total adjusted EBITDA for the year to be between $38 and $48 million, and we expect to be free cash flow positive for the full year. And for Q2, we expect total revenue to be between $335 million and $340 million. We expect Q2 adjusted EBITDA to be between $10 million and $13 million. With respect to revenue, we are really encouraged with the trends we have seen in our business so far this year. The resilience in client demand that we saw in Q1 and through the first part of Q2 gives us confidence to guide to another quarter of growth acceleration in Q2 and to raise our guidance for the full year in FY 2026. Given the current trends in consumer confidence and the impact of inflation on discretionary spending, we think it's prudent to assume some headwinds in the back half of this year. As a reminder, we will also face tougher AOV comps as we begin to lap the double-digit growth we saw in 2025. Both of these considerations have been included within our outlook. For active clients, we believe our methodical approach to rebuilding our active client base is working. We expect active client year-over-year growth rates to continue to improve in Q2. Additionally, we remain on track to deliver a sequential increase in net adds in Q3 FY 2026. We continue to expect full-year gross margin to be approximately 43% to 44% and full-year advertising costs to be between 9-10% of revenue. We're investing thoughtfully in AI and innovation, which we expect to drive stronger client engagement and retention over time. These investments are already included in our outlook, and we'll scale them judiciously. Our strong first quarter demonstrates the health of our commitment to client engagement and operational discipline drove revenue and market share gains. Looking ahead, we remain confident in our strategy, which prioritizes sustainable, profitable growth. With that, operator, we can open the line for Q and A.
Questions and answers
Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press 1 on your telephone keypad to raise your hand and join the queue. If you are called upon to ask your question and are listening via speakerphone in your device, please pick up your handset to ensure that your phone is not on mute when asking your question. We do request for today's session that you please limit to one question and you may requeue for any additional questions. Thank you.
Our first question comes from the line of Dylan Carden with William Blair.
Your line is open.
Hi. You guys got me?
Yeah. We do.
Awesome. This is Mark Spalanger on for Dylan Carden. Thank you for taking my question. I was just curious, could you provide a little bit more color on new customer behavior and just your general view on their, you know, stickiness? What metrics are you tracking that inform this view outside of the, you know, the thirty-day LTV that you mentioned?
Yeah. Hey, Marcus. Appreciate the question. I'll share some insights. And David, feel free to add anything additional. When we look at the client behavior that we're seeing across the board, we're extremely enthusiastic about what we've been seeing. We shared in the prepared remarks that we've seen nine consecutive quarters of improving LTV for new client acquisition. New clients have also been up last quarter, for both year over year and quarter over quarter, which gives us a lot of confidence that we're going to continue to see a healthier overall client base moving forward. We're also seeing strength within our reengagement of formerly dormant clients. They continue as they rejoin the service to stay longer and spend more, which again is really encouraging for the overall health of our client base. And finally, when we're looking at our clients that might otherwise go dormant, we just completed a quarter in which we had the lowest number of dormant clients in five years. Some additional signals that show the strength overall in our client base is that our men's business has returned to sequential increases in our overall active clients. And that is one of many things that give us further confidence that we will return to overall sequential active client growth in Q3. So those clients that we have, they're staying longer. They're spending more. The new features that we've launched are driving incremental engagement, and we're also seeing that those new clients that have joined are also staying longer and spending more. So we're really proud of the overall widespread and holistic impact of everything that we've done.
Awesome. Thank you. Our next question comes from the line of Aneesha Sherman with Bernstein. Your line is open.
Thank you so much, and congratulations on the quarter. Matt, you talked about gaining share and you said it's some pretty strong numbers about share gains versus the total apparel accessories and footwear sector. Can you talk about where you think that market share is coming from? I mean, is it from other multi-brand retailers? Is it from trade down? I mean, what are you hearing from the brands that you talked to about where those share gains are coming from? And then on gifting, I was surprised to hear you say that gifting was so strong. It's typically not a very strong use case for you. Do you think that's changing? Especially as you move more into freestyle, is gifting becoming gifting or maybe even holiday use becoming more of an occasion for you? And if I could throw in one more quick follow-up for David, around advertising. Nine to 10%, you know, it sounds like the sales numbers are working. The client numbers are working. How do you think about maybe leaning in on that more to drive more of the top line if needed? Thank you.
Yeah. Hey, Aneesha. It's Matt. I'll answer the first two on market share and holiday performance. As you noted, David can chime in on the advertising and any additional commentary. First, I appreciate the recognition. The team deserves it. They're doing a phenomenal job in order to deliver these incredibly impressive results and market share gains. Speaking of those market share gains, it's a great question. And the work that the team has done to improve the client experience is clearly resonating. The work that we've done to continue to improve the trends overall in our active client growth rates continues to demonstrate that as well. And with regards to who we're taking market share from, what we are doing is we're focused on delivering the most client-centric and personalized shopping experience. In doing so, we're picking up share from retailers who are not delivering. We're taking that share from a wide range of retailers that cannot offer the personalization consumers want and expect, which is so core to our business. We're hearing loud and clear from the brands that we work with that we are delivering outsized growth relative to others that they might be working with. In terms of our holiday performance, as I noted in the prepared remarks, we really entered this holiday season with the most seasonally relevant assortment, competitive pricing, really compelling promotions, and a lot of new ways for our consumers to engage with us and to shop. For example, themed fixes or fixes built around a freestyle item. Also, a significant improvement in terms of some of the engagement experiences, like Citrix Vision and Stylus Connect. Specifically in terms of gifting, the more recent launch of family accounts has delivered results that have exceeded our expectations. With family accounts, we heard loud and clear from our clients that they were looking to bring the Stitch Fix experience to their entire family. They loved the service that we provided, and they wanted to ensure that they could use it for spouses, partners, children, and other loved ones as well. In fact, 92% of our women's clients shop on behalf of a spouse or partner. When we created the ability to launch family accounts, we saw phenomenal engagement right out of the gate. That was really the entryway for us in order to start to deliver a gifting business over the holiday season. In addition to gifting, a lot of the purchases that happen over this time period aren't gifts for others; they're gifts for self. That's where we have really led the way, and that's what helped us deliver record-breaking sales over the Black Friday to Cyber Monday time period.
And then, Aneesha, on the advertising, you know, this quarter, we did lean in a little bit on advertising. We ended up at the high end of that nine to 10% range, at 9.9%. I think it goes back to what we've talked about in the past about that methodical approach to advertising and really holding ourselves accountable to those CAC to LTV ratios. Because of that, we tend to see some seasonality in our marketing spend. So we leaned in in Q1. Q1 and Q3 tend to be our stronger quarters. You'll probably see us spending more at the lower end of that range in Q2. And all of that is just to ensure that we are really focused on not just adding clients to add clients, but really making sure to, as Matt highlighted earlier, that the new client LTV is something that we really have an eye on. This last quarter, it was up almost 17% year over year. That's a very clear indication that our marketing efforts are working and we're bringing in clients that truly engage with and see value in the service. We'll continue with that methodical approach, and where we do find opportunity, like we're very comfortable leaning in.
Thank you. Really helpful. Next question comes from the line of David Bellinger with Mizuho. Your line is open.
Hey, everyone. Thanks for the question. I want to ask about the consumer-facing AI and visualization tools. Any read on early adoption there? Any numbers you could share with us or when you, in what ways are consumers using and engaging in these tools early on?
Yeah. Great question. We're really excited about this innovative feature that we've created, Stitch Fix Vision. Clients can upload a couple of pictures of themselves and see a generative AI visualization of themselves, dressed head to toe in Stitch Fix apparel. That experience is completely shoppable and fully shareable across all social media platforms. We're seeing engagement from our clients that far exceeds our expectations since we rolled out the beta just a couple of months ago. Clients are using it in many different ways. We see clients using their Vision images and sharing them back with their stylist to help inform what they're looking for in their next fix. Clients purchase directly from the Stitch Fix Vision image as well, and we're also seeing a lot of what's called Stitch Fix vision in the wild, where clients are sharing it across their social platforms and creating a bit of virality and organic growth for us from a client acquisition standpoint. We're really encouraged by the early adoption we’re seeing across the board, and we're even more excited about how we're leaning into it into the future with additional applications.
K. Thanks for that. If I can just get one other one in. Sure. Question on the gross margin performance for David. I know it's down 180 basis points versus last year, still within your full-year range or so. But could you just help us bridge that decline and anything we should expect for the Q2 period?
Yeah, David. I can give you more color on that. I think we might have highlighted a little bit on the last earnings call. The decline from a year-over-year perspective is due to three factors. First is transportation expenses. Our transportation teams have done a great job over the last three or four years of really driving leverage in our transportation costs through carrier diversification and negotiations, even with last-mile carriers. In FY 2025, it was probably the lowest percent of revenue we've seen in a very long time. This year, it's more around those general rate increases that you're seeing. You know, USPS is a big part of that, and we're seeing those general rate increases, which is part of the gross margin decline. The second part is really investing in different categories from a merchandising perspective, which we consider a great investment with a great ROI, leaning into some of those categories we feel we have market share opportunity, like footwear, which has lower margins. But we can outfit a client entirely, which we believe will drive a higher LTV from a full client perspective. We're really happy with that investment as well. The third, honestly, the smallest of the three, is tariffs. There was a small impact from tariffs, but again, our teams have done a very good job negotiating and really minimizing that impact. That was likely the smallest of the three. It's another reason why we've been calling out contribution margins. Over the past few quarters, we've done a lot of work in ensuring that we're driving efficiency within our warehouse and stylist teams. Because of that, having contribution margins still over 30%, at 32.5% this last quarter. We feel really confident that we can continue to drive leverage in the business. And for Q2, I would expect margins to be in a similar place as they were this quarter, right in the middle of where our full-year guidance range is.
Very good. Thank you both.
Thanks, Dave. Next question comes from the line of Jay Sole with UBS. Your line is open.
Great. Thank you so much. I have a couple of questions. Matt, can you just first break down just for us the opportunity with different brands? Because you mentioned you're bringing in some great brands. You're having success. Is it what is it that's attracting brands, or is it really you just going out reaching for more brands now that, you know, you can sell them? Just explain to us how the quality of the third-party brand profile is improving. You know, could you talk about how the private label's improving? And then just on net revenue per active client, I think it was up 5% year over year. I think that's the seventh quarter in a row you had growth. Can you just kind of break down the drivers of it? And then just on active clients, you did touch on this. I think it was down 5%, but it continues to improve. I guess, what are the drivers there? And just give us any color on the demographics and some of the newer customers that you are bringing in, you know, what the demographics of those newer customers are? Thank you.
Yeah. Absolutely. Happy to answer that. I'll start with the brands question. David, if you want to start with RPAC and then active clients and I'll add some additional insight probably after that as well. The Stitch Fix service is an incredibly attractive value proposition for third-party brands to work with. We create a phenomenal experience for our clients, and that creates a really positive experience for the brands themselves. As a closed ecosystem, brands that work with us, they don't have to worry about seeing their product on deep discounts or being fully visible to the entire market and all consumers. They don't have to worry about the adjacency of seeing their product hanging on racks or on digital shelves next to products of inferior quality. Everything that we do is personalized to the individual. When their product shows up either on our site or delivered to their home in a fix, it's with other brands that they'd be proud to see from an adjacency standpoint. We also treat the brands with respect throughout the process, and we do an exceptional job based on everything that we know about our clients to ensure that we're getting price, style, and budget right. When we deliver product to a client, it's product that they're going to have a high level of resonance with, and that they're going to keep at a really high rate. That experience we provide for brands becomes really attractive and is part of the reason why they're so eager to work with us and have such an exceptional experience as our partners. It's also why many coveted brands consider us one of their largest retail partners, as well as watch some of the brands with which we are their exclusive retail partner aside from their direct-to-consumer platform. As we continue to expand that brand portfolio, our clients are recognizing it, contributing to their increased engagement. All of this drives our average order values as well as our overall client LTVs. It's just a really great experience we provide and a really good partnership that we offer each of them.
And then, Jay, on the RPAC side, you know, we’re definitely encouraged by what we're seeing there. It was up 5% year over year this last quarter, and I think we highlighted that it was the seventh consecutive quarter with improvements on a year-over-year basis. A big part of that is what we're calling out those new client LTVs. When you see that it's a big part of what you're seeing because as those new clients become a larger share of the base, that's really starting to impact our RPAC. The other thing that highlights that really well is average order value. Average order value was up almost 10% year over year, and it marked the ninth consecutive quarter where it has increased. I think a lot of this is driven by a higher average number of items sent in 3% year over year, which ties to our mix shift into some of these newer categories we've been leaning into. We’re seeing encouraging signs across all those metrics that are coming through in that revenue per active clients. On the active client side, we were really encouraged with what we saw this last quarter. We ended at the high end of our expectations, really just slightly down for the quarter. We’re seeing strength in all three views of active clients: where new client acquisition was up year over year, we've seen great strength in our reengaged clients, up 8% year over year this last quarter. We continue to bring clients back into a new experience with a very different level of assortment, and we see strength in that area. Lastly, our client retention continues to improve. Playing forward those three lines is how we've gained confidence in being able to say that we expect to see a quarter-over-quarter inflection in Q3. There is definitely seasonality to our active clients and our marketing spend. In Q2, we expect to see slightly fewer active clients on a quarter-over-quarter basis. However, we remain very confident we will see an increase in Q3.
A couple of other points relevant for both RPAC and active clients overall. First, we're incredibly encouraged by the strength we're seeing across all income segments from our client base. That gives us a lot of additional confidence in terms of that increased guidance within both Q2 and our full year. The service we offer is one that works well for clients no matter what the macroeconomic environment is because of the deep and enduring relationship that clients have with their stylists. We can tailor each of those experiences to their budget at any given time. The second point is that the growth we have is driven by increased client engagement and increased unit sales, not inflation. The growth we're delivering is healthy and sustainable, leading to profitable overall enterprise growth.
Got it. Okay. Thank you. Very helpful.
And again, if you would like to ask a question, press star then the number one on your telephone keypad. There are no further questions at this time. I would like to turn the call back over to our CEO, Matt Baer.
Thanks. To close, I'd like to recognize the entire Stitch Fix team for their exceptional execution this quarter. I'm proud of how we're increasingly establishing Stitch Fix as our clients' retailer of choice for more of their apparel and accessories needs, and that's evidenced by the revenue growth in the quarter and the considerable market share gains we captured, which we discussed. Our results this quarter are a testament to the superior retail experience we provide. We believe we offer a higher level of convenience, personalization, service, inspiration, and innovation than anyone else in the market. I appreciate your interest in our business, and we believe the continued execution of our strategy will further fuel the momentum we have in our business, driving long-term sustainable profitable growth. I look forward to sharing our continued progress.
Ladies and gentlemen, that concludes today's call. Thank you all for joining in. You may now disconnect.