STITCH FIX, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-K) – Marketscreener.com

Overview
For the fiscal year ended July 30, 2022, we reported $2.1 billion of revenue representing a year-over-year decline of 1.4% from the fiscal year ended July 31, 2021. As of July 30, 2022, and July 31, 2021, we had approximately 3,795,000 and 4,165,000 active clients, respectively, representing a year-over-year decline of 8.9%.
Net loss for the fiscal year ended July 30, 2022, was $207.1 million, compared to net loss of $8.9 million for the fiscal year ended July 31, 2021.
For more information on the components of net loss, refer to the section titled “Results of Operations” below.
Key Financial and Operating Metrics
Non-GAAP Financial Measures
Our non-GAAP financial measures should not be considered in isolation from, or as substitutes for, financial information prepared in accordance with GAAP. There are several limitations related to the use of our non-GAAP financial measures as compared to the closest comparable GAAP measures. Some of these limitations include:
•adjusted EBITDA excludes interest income and other expense, net, as these items are not components of our core business;
•adjusted EBITDA does not reflect our income tax provision (benefit), which may increase or decrease cash available to us;
•free cash flow does not represent the total residual cash flow available for discretionary purposes and does not reflect our future contractual commitments.
(1)Excludes $1.1 million of stock-based compensation expense reflected in “Restructuring and other one-time costs” for the year ended July 30, 2022.
Free Cash Flow
We define free cash flow as cash flows from operating activities reduced by purchases of property and equipment that are included in cash flows from investing activities. The following table presents a reconciliation of cash flows provided by (used in) operating activities, the most comparable GAAP financial measure, to free cash flow for each of the periods presented:
9,044 $ (50,931) $ 12,670 Cash flows provided by (used in) investing activities $ 10,233 $ 39,093 $ (70,461) Cash flows provided by (used in) financing activities $ (60,250) $ (38,885) $ (1,435)
Net Revenue per Active Client
Factors Affecting Our Performance
Inventory Management
Client Acquisition and Engagement
The largest component of our marketing spend is advertising, which was $183.8 million for the fiscal year ended July 30, 2022, compared to $174.7 million for the fiscal year ended July 31, 2021.
Investment in our Operations and Infrastructure
To grow our client base and enhance our offering, we will incur additional expenses. We intend to leverage our data science and deep understanding of our clients’ needs to make targeted investments in technology and product.
Merchandise Mix
Components of Results of Operations
Revenue
Selling, General, and Administrative Expenses
Interest income is generated from our cash equivalents and investments in available-for-sale securities.
Income Tax Provision (Benefit)
Results of Operations
Comparison of the Fiscal Years Ended July 30, 2022, July 31, 2021, and August 1, 2020
The following table sets forth the components of our results of operations as a percentage of revenue:
For the Fiscal Year Ended
Note: Due to rounding, percentages in this table may not sum to totals.
Revenue and Gross Margin
Selling, General, and Administrative Expenses
Income Tax Provision (Benefit)
Liquidity and Capital Resources
Sources of Liquidity
Our principal source of liquidity is our cash flow from operations.
As of July 30, 2022, we had $130.9 million of cash and cash equivalents and $99.8 million of investments. Our investment balance includes $82.0 million of short-term investments with contractual maturities of 12 months or less as of July 30, 2022.
We believe our existing cash, cash equivalents, investment balances, and the borrowing available under our Amended Credit Agreement, if needed, will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months and beyond.
Share Repurchases
Cash Flows
The following table summarizes our cash flows for the periods indicated (in thousands):
Net cash provided by (used in) operating activities $ 55,395
Net increase (decrease) in cash and cash equivalents $ 1,150
$ (13,670) $ (27,477)
Cash provided (used in) by operating activities
Cash provided by (used in) investing activities
During the fiscal year ended July 30, 2022, cash provided by investing activities was $10.2 million, primarily related to net cash flow from purchases, sales, and maturities of $56.6 million in highly rated available-for-sale securities, partially offset by $46.4 million in purchases of property and equipment.
During the fiscal year ended July 31, 2021, cash provided by investing activities was $39.1 million, primarily related to net cash flow from purchases, sales, and maturities of $74.4 million in highly rated available-for-sale securities, partially offset by $35.3 million in purchases of property and equipment.
Cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Contractual Obligations and Other Commitments
Critical Accounting Policies and Estimates
Stock-Based Compensation
•Expected volatility of our common stock-based on an even blend of historical and implied volatility;
•Expected term of our stock options-the period that our stock options are expected to be outstanding based on historical averages.
•Expected dividend yield-as we have not paid and do not anticipate paying dividends on our common stock, our expected dividend yield is 0%; and
Income Taxes
Revenue Recognition
We have not made any material changes to our revenue recognition accounting policies during the fiscal year ended July 30, 2022.
Recent Accounting Pronouncements
For recent accounting pronouncements, please see “Significant Accounting Policies” in Note 2 of the Notes to Consolidated Financial Statements included in this Annual Report.
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