Stitch Fix, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended July 31, 2021 (52 weeks). This annual filing reports full-year results, not standalone Q4 results; it does not provide a clear Q4-only financial summary. Stitch Fix operates in the U.S. and U.K., selling apparel, shoes, and accessories through personalized Fix shipments and direct-purchase Freestyle. It had approximately 4.165 million active clients at year-end.
Financial and operating results
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net revenue | $2,101.3 million | $1,711.7 million |
| Gross profit / gross margin | $947.6 million / 45.1% | $754.2 million / 44.1% |
| SG&A | $1,011.0 million (48.1% of revenue) | $805.9 million (47.1%) |
| Operating loss | $63.4 million (3.0% of revenue) | $51.7 million (3.0%) |
| Net loss | $8.9 million | $67.1 million |
| Adjusted EBITDA | $64.9 million | $38.4 million |
| Cash from (used in) operations | $(15.7) million | $42.9 million |
| Free cash flow | $(50.9) million | $12.7 million |
Revenue grew 22.8% year over year, driven primarily by an 18.3% increase in active clients. Net revenue per active client rose 3.9% to $505. Gross margin improved by 1.0 percentage point, attributed to stronger product margins, lower packaging costs, and improved inventory reserves, partly offset by higher carrier costs. SG&A rose faster than revenue, largely due to compensation and benefits, including higher warehouse wages.
The net loss narrowed substantially, but the company still reported an operating loss. FY2021’s income tax benefit was $52.2 million, largely associated with CARES Act net operating loss carrybacks and excess tax benefits from stock-based compensation; this materially affected the comparison of net loss with operating performance.
Liquidity, debt, and commitments
At July 31, 2021, cash and cash equivalents were $129.8 million and investments were $160.6 million. Current assets were $521.8 million and current liabilities $228.3 million. The company had no borrowings outstanding on its $100 million revolving credit facility and reported compliance with its financial covenants. The facility is secured by substantially all company assets and contains financial and operating covenants.
Operating lease liabilities totaled $147.3 million, including $25.7 million current and $121.6 million long term. Inventory purchase commitments were $397.5 million, predominantly due within one year. Management stated existing cash, investments, and available credit should be sufficient for working capital and capital expenditures for at least the next 12 months.
Material changes, outlook, and risks
- Operating cash flow moved from $42.9 million provided to $15.7 million used; the company cited a $96.1 million increase in inventory and higher income-tax receivables. Capital expenditures were $35.3 million.
- Inventory, net, increased to $212.3 million from $124.8 million. The auditor identified the excess and slow-moving inventory reserve as a critical audit matter; that reserve was $27.1 million. Total inventory reserves were $43.4 million.
- Management expects to increase marketing spending after expanding Freestyle to new-to-Stitch Fix customers in August 2021, and expects expenses to rise as it invests in growth, infrastructure, technology, and personnel. No specific revenue, earnings, or margin guidance is provided in the filing.
- The company entered a lease for a planned 700,000-square-foot Salt Lake City fulfillment center, expected to begin operations in early FY2022. Management also cited fulfillment-center hiring difficulties, wage increases, COVID-19 capacity disruptions, shipping delays, freight and merchandise cost pressures, and supply-chain uncertainty.
- CEO Elizabeth Spaulding succeeded founder Katrina Lake on August 1, 2021; Lake became Executive Chairperson. Changes to stylist schedules and voluntary departures could create capacity or morale challenges.
- Four consolidated securities class actions and two related derivative actions remained pending. The company said it did not believe currently known litigation or tax matters would have a material impact, if resolved unfavorably. The independent auditor gave an unqualified opinion and concluded internal control over financial reporting was effective.
Important facts for investors to verify
- Whether client growth and Freestyle adoption translate into sustained revenue growth and improved operating profitability.
- Inventory aging, reserve adequacy, sell-through, and the cash tied up in inventory and purchase commitments.
- Whether higher shipping, freight, merchandise, and fulfillment labor costs pressure gross margin or operating expenses.
- Cash generation and capital needs against lease obligations, the new fulfillment center, and credit-facility covenants.
- The sustainability and comparability of FY2021 net loss given the substantial tax benefit, and the ongoing scale of stock-based compensation.