Good day, ladies and gentlemen. Welcome to the Stitch Fix First Quarter 2018 Earnings Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to David Pearce, Head of Investor Relations.

Thank you for joining us on the call today to discuss the results for our first quarter of fiscal 2018. Joining me on today’s call are Katrina Lake, Founder and CEO of Stitch Fix; Paul Yee, our CFO; and Mike Smith, our COO. We have posted a complete Q1 financial results and our Shareholder Letter on the Investor Relations section of our Web site, investors.stitchfix.com. A link to the webcast of today’s conference call can also be found on our site. We would also like to remind everyone that we will be making forward-looking statements on this call, which involve a number of risks and uncertainties. Actual results could materially differ from those contemplated by our forward-looking statements. Reported results should not be considered as an indication of future performance. Please take a look at our filings with the SEC for discussion of the factors that could cause the results to differ. 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. Also, during this call, we will discuss certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are provided in the shareholder letter on our IR Web site. These non-GAAP measures are not intended to be a substitute for GAAP results. Finally, this call in its entirety is being webcast to our Investor Relations Web site. A replay of this call will also be available on our IR Web site shortly. I'd now like to turn the call over to Katrina.

Thanks, David. And thanks to all of you for joining us on the call today. We're excited to report our first quarterly result as a public company. First, we'd like to thank our employees, our vendors and our clients for your support throughout our recent IPO. Also, we are thankful for our new and perspective investors we look forward to working together. I'll start off by providing highlights from our shareholder letter, currently posted on our Web site. Then before we get into results for the quarter, as this is our first earnings call, I wanted to take some time to share first Stitch Fix story, how the model work and our strategies for growth. After that, I'll hand it over to Mike and Paul to talk a bit more about our business and our financials. First, some Q1 financial highlights. We grew our active client base 30% year-over-year to 2.4 billion active clients. We drove 25% top-line growth, reaching $295.6 million in net revenue and we delivered $13.5 million in GAAP net income and $11.8 million in adjusted EBITDA. Paul will provide more color on our quarterly financial performance later in this call, but first, a few minutes to share the Stitch Fix story and how our model works. I founded Stitch Fix in 2011 because I wanted to work at the apparel retailer of the future. I love the apparel industry, it's huge, it consists of consumers making meaningful and thoughtful purchase decisions. And yet, it's an industry that's largely untouched by technologies and relative to many other categories, people are buying far less apparel online today than you'd expect. Looking at the world through the lens of how are people going to buy cloths decades from now, I didn't see a solution out there. In today's world…

Thanks, Katrina. As Katrina referenced, I'd like to take a few minutes to talk about our core women's business, as well as to discuss the success we’ve had leveraging our platform of personalization into new categories. In Q1 fiscal '18, we saw continued growth in our core Women's business year-over-year. Behind the scenes in Women's, we've added both style and aesthetic variation in addition to some of the price point extensions that I'll talk about, which helped us better serve our core Women's client. Relative to last quarter, the fact that we have greater variation has enabled us to better serve our core Women's clients, which is evidenced by the fact that these clients are providing more positive feedback on their items, particularly as it relates to style and the fit. One of the benefits of reaching greater scale is the ability to build an assortment that better meets the many needs of our clients. As recently as two years ago, we would have needed to place small unit orders of premium product. Today, we’re at such a scale that it makes sense for us to build an assortment on both the lower and higher price points to better serve the needs of our core Women's client. As a result, over the last year we've expanded our assortment in both lower price points and Premium Brands as enhancements to our core Women's business. In August of 2017, we successfully introduced Premium Brands in both our Women’s and Men’s businesses to cater to clients seeking apparel from brands that they know and love in the $100 to $600 price range. We've added more than 100 brands to our platform, including brands like Alice & Olivia, Helmut Lang, Kate Spade, Rebecca Minkoff, and Theory. We've also seen these clients are providing more…

Thanks, Mike. I’m pleased to discuss our results with you today for the first time as a public company. I’ll start by sharing perspectives on how we manage the business. And then go to more detail on our first quarter performance and our outlook for the second quarter and full year. In six short years, Stitch Fix has grown to an impressive scale, reaching nearly $1 billion in revenue and over 2 million active clients; all after raising just $42 million in capital. Four key principals have guided us to this point and we’ll continue to do so as we create shareholder value in the future. First, we firmly believe that enabling a great client experience is the path to positive business results. Second, we’ve run our business with a long-term mindset and confidently invest for growth. Third, remain focus on balancing this growth with profitability. And finally, we have leveraged the ample data we have on hand and apply ROI framework to decisions we make. Our first quarter of 2018 results reflect these principals in action. We deliver another quarter of sustainable profitable growth and continue to make the right investments for the long-term. As Katrina shared, Q1 net revenue grew 25% year-over-year to $295.6 million. We saw a growth across the business, driven by newer category such as Men’s and Plus, as well as by our core women’s business. Active clients grew to 2.4 million, an increase of 30% year-over-year. Gross margin was 43.7% compared to 46.6% in Q1 of last year, a year-over-year decline of 290 basis points was expected given our launch into men’s and plus. While, these categories are currently dilutive, we expect our gross margins to improve overtime with scale. Overall, we’re pleased with our gross margin for the quarter. Higher than expected gross…

Thank you [Operator Instructions]. We’ll hear first from Lindsay Druckerman with Goldman Sachs.

I guess I just wanted to start with a question on active users. This quarter relative to the fourth quarter, you added something like 200,000 net users, which is one of the strongest quarterly quarter-over-quarter net adds that we’ve seen in sometime. Can you talk about, first of all, what you attribute the momentum to? And second, how we should think about this as a pace? Is it considerable that as we look at the second quarter and the back half of the year that you will be able to sustain that kind of a run rate? Or what are some of the variables that might cause net-adds to accelerate or decelerate from this run rate?

I'll start with this question and then Paul maybe can fill in if I miss anything. Yes, this is a great quarter for us. On the marketing side, we saw -- on the customer acquisition side, we saw efficiencies that were in line with what we expected and in some channels actually, we’re better than what we expected. And so we actually pulled forward some marketing spend to take advantage of some of those efficiencies that we saw and some of those positive efficiency that we saw. And so that definitely was part of what drove this very successful quarter on the customer ad side. In terms of overall momentum, I guess what I would say is I think you, you should take this as indicative of what we’re capable of doing. And in terms of what you should expect in the next quarter and the quarters to come, I think the full year guidance that we’re sharing is probably going to be the best guide for you of what our expectations are. The second quarter is the quarter that we typically lay-off a little bit on the marketing side. Right now is a time when probably you can see it in your inbox today. This is a time when people are screaming for consumer’s attention and so this is a time that’s very competitive and very expensive on the marketing side. And so very deliberately lay off a little bit in this quarter and that’s definitely something that you’ll see and you should expect, I think, in the next quarter. But I do think that this was a good quarter for us on the marketing side and can be a good signal for you in terms of what the team is capable of doing.

And I would just add to Kat’s comments, we feel confident based in Q1, of our ability to even marginally to drive clients and our abilities of overall with what we’re doing to retain clients. In terms of the guidance for net revenue, I would just think of active client count is driving that. We think we have, both new businesses with men's and plus on new clients as well as opportunities to bring in even more to our core women’s business. So we do expect our overall net revenue to be [driven] by continued growth in net new clients.

And just a follow-up with two parts, on the gross margin side. Can you address -- and maybe you covered this in your clearance comment, but how were mark downs in the quarter year-over-year? And secondly, can you quantify the benefits gross margin in this quarter from the timing shift of clearance versus maybe also quantify the detriments of the second quarter from that timing shift?

Why don’t I take the first part and then Paul, have you take the part about the benefits and the timing. On gross margin markdown, is not a big part of our business. So when we've tested this concept quite a bit as you can imagine there's a lot of people with retail backgrounds. And the reality in our model is that if we have a dress for example that it's not working, a dress that doesn't fit at $98 also doesn't fit at $68, and we're better off spending some of this dress at full price that they’re going to love rather than marking it down. And so markdowns in general are not a big driver. One of the things we saw, we had a warmer fall, I would say. And so we sold through -- we were selling through that summer product later this year than we normally do. And so we were selling through at most of kind of full price shorts and tank tops through September and weeks that you wouldn’t normally see that. And so we saw probably some benefits from that that is reflected in seasonality and gross margin. And then maybe Paul you can talk about the timing shift.

Yes. As Katrina noted, we did have lower markdowns or rather we -- clearance is probably the term we’d use, we cleared less inventory in Q1 because of the success of our ability to sell more summer items. We think that's [logic] timing. And I would say from a magnitude standpoint, roughly a third of our upsize in gross margin versus what we expected is shifting into Q2. So hope that [indiscernible] [gives you] the size of that down. But really from a first half standpoint, we expect clearance to be in line with what we had planned for the quarter and for the two quarters.

Our next question will come from Douglas Anmuth with JPMorgan.

First you guys talked a lot about just the progress that you're making on both the high end and the low end in terms of Women's with Premium Brands and also lower price points, and it seems like you will push harder on each of those going forward. Can you just talk a little bit about how we should think about the trade-off there in terms of average order value? And then second -- just hoping you could just maybe qualitatively help us with anything around trends you're seeing in keep rate, average unit retail, order frequency any of those metrics? Thanks.

First, on progress we’ve lower and higher price points, I think one is the benefits that we have is the scale that we're at now is that we can really in a fine tuned way be able to understand what the price preferences of our customers are and make sure that we’re matching against those. And so two years ago, we weren’t at a scale where it made sense for us to do much on the higher or the lower end, and now we're at a place where we can invest more there. And we've been really excited to see that be successful. And so what we share and what the data point that we share on that front is that we’re seeing higher ratings of us being able to get people's fit and style better. Those are really good indicators for us is just to help our ability to serve clients well and seeing on those improvements come to life. In terms of I guess how you can expect those fits well, like our -- the lower price point offset each other obviously, I think the Premium Brands that we’re doing a lot of that product is at significantly higher price point than we've been historically, but from a volume perspective, there is a greater opportunity in the $20 to $50 price range. And that’s the price range that we are seeing more-and-more demand for, it's a price point that we could serve very profitably and effectively. And so there is probably going to be greater investment in that lower price point than in the Premium one. And so I think net-net, while they do cancel each other out a bit, the lower price point will probably have a more dominant effect. How that will, I guess how you…

Our next question comes from Ross Sandler with Barclays.

I have two questions. First on marketing, you mentioned in the letter that you’ve yet to assign your data science capabilities to marketing. So I guess, what opportunity do you see in driving up efficiency and reducing [indiscernible], when you do that. And what’s the timing or what’s the thinking around timing on when that might happen given that you’re already seeing improvements that you mentioned? And then your second question is on extras. You recently started testing adding more items in the box above the five threshold that you guys started with a few years ago. Can you just talk about the opportunity around extras and driving higher keep rate or higher overall unit economics with the opportunity there? Thank you.

Thanks Ross. On marketing, there is a significant -- we think about data science as being pervasive in our business and we apply data science very deeply in merchandising and in styling. And in marketing, I think, we’re in early days. We use a lot of data science. And on the analysis side of understanding after we have spent marketing dollars what happened and how to quantify it and how to generate ROI. And so we, I would say that today, we’re using data science to think about how to think about our results rather than actually delivering results. And so I think the next frontier is really for us to be using data science more in the way that we're bidding for clients. There, we could be using data science more in, for example, if we had a client today who was going to generate thousands of dollars of LPV but that would be a client that we would pay $500 to acquire. That's a client that we don't have the capability today to say that even though this is a client that's expensive to acquire, we actually probably should acquire them because they look to be a good client overtime. And so that very personalized capability is being able to look at individual clients that we're acquiring and then have a perspective on what the LTV would be on that individual client as a capability that we don't have today. That for example, I think could be much more advanced capability that we could develop. So in terms of timing, this isn't going to be a silver bullet. There is not going to be an on and off switch, it's kind of before and after. But I think what I can say is that we're already devoting increasing…

We'll go to Mark Mahaney with RBC.

Thank you. Three questions please. One could you talk about the impact on your brand awareness or the brand campaigns you've been running since the beginning of the year. Secondly, could you talk about the impact of the lower price points on customer retention and acquisition? I asked that since some of the survey work we had done showed that that was one of the biggest pain issues or reasons that people were not shopping as much, we're not shopping with Stitch Fix. Did you find that you've already seen an impact on customer retention because of the lower price points? And then third, could you please just comment on customer acquisition cost trends that you're seeing now. Are they relatively stable? Is there way to get at it slicing out the big -- the brand advertising spend? Thank you very much.

The first one on the impact of brand awareness. So what we had shared we've done three ways on TV advertising, each way has been more effective than the last, which is the something that we've been really pleased with. And we were able through those campaigns to drive awareness from, correct me if I'm wrong, Paul, but I think it in the 20s to driving it to being in the 40s on the women’s inside. Men’s, we think men's is de minimis. We actually aren’t even measuring that today. Men's, we just in the last month or two I think, just started doing TV that was targeted towards men on men’s channel with a Stitch Fix commercial that more prominently featured the male role in that. And that’s actually been effective also. So we’re excited to use that to drive the men's business also. And so I think what we’ve seen is we’ve seen a positive impact on brand awareness through the broad based TV campaigns that we’ve been doing but we’re also seeing is there still a lot of opportunity and still many people who are completely unaware of the service. Your question on the lower price point and the impact on retention and acquisition, that’s interesting that your survey work show that. The feedbacks that we get from clients also show that there was a big opportunity to better serve clients who are looking for a service like Stitch Fix, but wanting more of this accessible price point of that $20 to $50 range. And so that’s been an opportunity that we’ve been aware of. And really in the last year, year and half or so, we have early focused on how can we build out a better assortment there, how can we make sure that we’re…

We’ll continue on to Erinn Murphy with Piper Jaffray.

A couple of questions from me, I guess, first just longer term on your gross margin. I'm curious on how big or over what time do you expect your newer category, whether it's men’s or Premium, how big do you think the scale and to what you’re fully optimizing all five of those [indiscernible] -- so that those businesses could potentially be at a gross margin level closer to the women’s?

I'll start and then I'll have Mike share some thoughts on distribution strategy. Right now, as we [technical difficulty], our men's and plus businesses are in early stages, and that has a dilutive impact on our gross margins. The drivers are threefold; one is there’re smaller merchandise size, which affects their initial mark up; two our distribution footprints little bit more few in numbers, so the shipping costs are higher; and three, there’s associated inventory cost as we really build our client base for those new businesses. But we do expect as this business grow to get improvements from margins. And I think one way to look at this is if you look at the history of Stitch Fix our gross margins improved 9 points from 2014 to 2016. And that was just the women's business, and that’s reflective of the benefit of the scale that we saw on that business over time. So we feel confident that as we grow these businesses, we get clients what they want and we'll be able to see benefits on all those fronts. And then I'll turn it over to Mike.

I mean we’re in again two distribution centers today with men’s and we won't be explicit about sort of the timing of when we feel like we’ll get to scale, because we're not breaking out the categories at the business level. But I could say like in the next 12 months, we certainly expect to get to another one. And then I'd probably say in the next two years is where we'll feel like the business is at scale, where it's evenly distributed and you wouldn't expect shipping to be a driver or dilutive in Men's business is it relates to gross margin.

Just staying on gross margin, you guys did call out 70 basis points of shrink as an impact in Q1. How does that look over the last 12 months? And maybe talk about some of the initiatives you're working on internally to have that level come down?

So, I'll start out. So yes shrink has increased over the past year and that's reflected in the MD&A we shared in our shareholder letter. I think there’s two buckets of shrink; one is client shrink and the other is carrier shrink. I would say there is definitely opportunities on both fronts; we're tackling from a cash flow standpoint and strategic standpoint. On the carrier side, it's just simply on just staying half a bit [indiscernible] process for our customer service team to put in claims. So I think it's for me very easy win to kind of get that money back into our pockets. On the client side, there’s probably two things going on; one is we probably haven't been as robust in making sure we are charging for items that have been [indiscernible] cards that have been declined. So we have engineering work going on to just get the process in place to make sure we are charging enough time to get the money. I think more strategically kind of tying back to Katrina's point, as we are reaching new clients, we probably can use intelligence to find into still clients who we think are the right fit for us. And I think right now as regarding the funnel, we're reaching out to clients we see an opportunity for us to distill who would be the best fit for us. And I think we’re doing that more strategically investing in system intelligence to make sure we're reaching the right clients over the long term.

And just last question, Paul, I think you’re on the hot seat, one more for you. Inventory, what was that up year-on-year? I didn't see Q1 of last year in the letter to the shareholders. I am just curious on your dollar rate, what was that up and how should you expect inventory growth to trend versus sales guidance that you gave for the year? Thanks.

So inventory grew 65% year-over-year. And really what that reflects is our investment in our new categories. On our core women's business inventory, we actually grew in line with sales but as you think about our new categories, we really want to make sure we have the right inventory in place to make sure this client is upfront. And I’d also think about our broadening of the assortments. When you think about the anecdote of Katrina’s sharing in her remarks about being able to have that Tommy Hilfiger jacket for that teenage client, that’s what we believe is the right thing to do to provide personalized products for our clients over time. So I do think over the next year, you will see inventory growth outpace sales. We think it's the right investment for this business. But certainly rest assured, we're using all the various tactics from using data science to drive our inventory buys, and helping our merchandizing teams really manage their inventory over time to help us offset that investment. But again bigger picture, we want to make sure we have the right inventory for our clients.

We’ll hear from Scott Devitt with Stifel.

First is, as you’re taking more of the marketing process in-house in the past year, I’d be interested in understanding what you’re learning as you manage more of the process. And how much visibility do you have in terms of future acquisition cost to be able to plan the business with high conviction around those costs? And then secondly, on exclusive brands, I think that number was roughly 20% of revenue in ’17. How should we think about exclusives or private labels as a percentage of the business long-term? Thank you.

On marketing process, bringing those channels in house is -- there is financial benefits and there is also just on benefits to the business in the long-term. And I think as we brought channels in house, there have been some channels where we actually were able to gain efficiency right off of that bringing them in-house. And then the bigger thing is actually the learnings is being able to generate those learnings and as we think about things like algorithm capabilities those are all, really only possible when we have those channels and those learnings in-house. And so there is a lot of benefit there. In terms of visibility into future acquisition cost, I think right now we have a lot of confidence of where we are and being able to have -- I think one of the reasons having a diverse set of channels that are effective is important is just because, firstly it reduces any liability around being too dependent on one channel. And so you hear a lot of buzz -- I don’t know if Google changes the algorithm or Facebook changes the algorithm, and of course those impact us also. But to be able to feel like we have a diverse set of channels means that we won’t feel like we’re over-dependant on one channel. And it also means that we have many channel for fire power. And so that to be able to find efficient ways to have TV work for men’s and to be able to have a variety of social channels that are working, all that is just important as we think about putting more and more dollars to work and being able to put more and more dollars to work in an efficient way, and having avenues for that. So in terms…

Thank you. Our final question will come from Ralph Schackart with William Blair.

Just in terms of men's client satisfaction, I think in the letter you talked about it being up year-over-year. Could you walk through what were some of the main drivers of this and how do you further drive men’s satisfaction rates? And then the follow up to that is how with the men’s satisfaction rates that you're seeing today compare to core women's at a similar stage. And how much of the previous learnings within core women's, either from the algorithms or data have you been able to leverage in terms of driving the men's satisfaction? Thank you.

I think, my one answer is just is that men’s -- where we are in the men’s business now one year in is so, so-far above where we were at women’s one year and are even actually women’s at the volume scale that it is right now. Men's is far far outperforming on every metric. I'm going to have Mike probably explain a little bit of the why and how we were able to do that?

I mean, you touched on some of them. Maybe, one it starts with the learnings that we had from the women's business early on. And this power of a platform of personalization is real; you get so many learnings from sort of the algorithms; you get real leverage from the existing infrastructure that we’ve built; and it really comes down to quite simply like product matching with the client base and understanding our clients really well. And so; one, we -- and Katrina referenced sort of exclusive brands being a little bit more prevalent in men's, because we didn't see it s in the vendor base. We've actually done a really nice job of developing our exclusive brand business in men's and that certainly helps a lot too. So we're excited about what we’ve seen in the men's and client satisfaction. We think there is still, just like the rest of the business room, to improve and get better but so far it got there like Katrina said, faster than we had almost expected and it's been very positive in the business.

I think, in particular, I’ve been very impressed with what the team has done around fit and price point. I think those are two areas that the team focused on really early and fit in particular we find is very, very important for driving men's customer satisfaction and to be able to iterate really quickly on fit walks and reacts really quickly to things that we are hearing from clients was in the first three-four months of launch, and bring that back into the assortment and improve the product. I think that had a significant impact. And really investing and seeing where people are launching assortment in certain price points and really focusing on that. I think those are two areas in particular that I see the team be really successful on.

One quick add to that is we are able to help other even market brands by noticing fit trends in extra-extra large, as an example, where we think point of measurements on every piece of clothing and we can see what's working and what's not working and we end up sharing that back to our market brands to help them make better products. So [indiscernible] those are big better product for us and for the ecosystem, but we want them to be a long-term partner of us and that's where you see the data science rally influence our relationship with our market brands.

Thank you. I'd like to turn the conference back over to Katrina Lake for any additional or closing remarks.

Thanks again for joining us today. We look forward to seeing analyst and investors at conference in the months to come and we'll keep you updated with our quarterly calls and press releases. Have a wonderful holiday break everybody.

Thank you, ladies and gentlemen. Again, that does conclude today's conference, thank you all again for your participation. You may now disconnect.