Good day, everyone. And welcome to Stitch Fix Third Quarter 2021 Earnings Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Mr. David Pearce, Vice President of Investor Relations. Please go ahead, sir.

Thank you for joining us on the call today to discuss the results for our third quarter of fiscal 2021. Joining me on today’s call are Katrina Lake, Founder and CEO of Stitch Fix; Elizabeth Spaulding, President; and Dan Jedda, CFO. I would also like to mention that we are joining you remotely today from our home offices. We have posted complete Q3 financial results and a press release, posted on the IR section of our website, investors.stitchfix.com. And starting this quarter, we will not be issuing a shareholder letter. A link to the webcast of today’s conference call can also be found on our site. 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. Also, note that the forward-looking statements on this call are based on the information available to us as of today’s date. We disclaim any obligation to update any forward-looking statements except as required by law. 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 IR 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 the IR website and a replay of this call will be available on the website shortly. I’d now like to turn the call over to Katrina.

Thanks, David. And thank you for joining us. After the market closed today, we issued a press release with details on our quarterly performance and outlook. As you'll hear on today's call, we delivered strong third quarter results with active client growth accelerating to 20% year-over-year and outperformance across net revenue and adjusted EBITDA. This was a function of strong demand and improved client outcomes across both our Fix and direct buy offerings and was reinforced by an improving apparel retail market backdrop. As Elizabeth will discuss later, we continue to roll out new product features in Q3 to enhance both offerings and drive greater client adoption. We believe these new experiences drove momentum in the quarter which will continue in Q4 as we capitalize on the demand strength and relevance of our Fix offering an introduced direct buy to new clients by the end of the quarter. Now let me discuss our Q3 results in more detail. In the third quarter we generated net revenue of $536 million reflecting 44% growth year-over-year. During the quarter we grew our active client count to over 4.1 million representing a year-over-year increase of 689,000 clients or 20% growth. And on a quarter-over-quarter basis, we added 234,000 active clients, our second highest client addition ever. In Q3 we delivered a net loss of $18.8 million and adjusted EBITDA of $11.6 million. Dan will review our results in more detail later on this call, as well as share our updated outlook for fiscal 2021. Over the last decade, we've delighted millions of clients and formed lasting relationships and feedback loops that underpin our unrivaled personalization capabilities. Our radically different client experience is built on getting to know every client and gathering feedback around their detail preferences, resulting in a rich and highly differentiated data.…

Thanks, Katrina. I look forward to our continued partnership, as you transition to the role of Executive Chairperson. I feel both a great sense of responsibility, as well as optimism for all of the possibilities that lie ahead for Stitch Fix. Our mission remains the same as since our inception, to transform the way people find what they love. We are a relationship based brand, creating a more curated and discovery led ecosystem of personalized shopping experiences that is truly transformational. Whether a client prefers to have items handpicked by our talented stylist, select their own pieces or both, clients can trust that Stitch Fix has a shopping experience that uniquely caters to that. With vaccination rates increasing and COVID restrictions easing, we are seeing the overall market for apparel beginning to rebound as more consumers can leave their homes to eat out, attend social gatherings and return to the office. These consumers are turning to us for fresh inspiration and a radically convenient, personalized shopping experience. And in Q3, we saw robust first Fix demand and reactivation rate. Our Fix and direct buy offerings had allowed us to meet consumers in this moment, and position us to further capitalize on this improving apparel demand backdrop in the quarters ahead. With our Fix offering in Q3, we drove strong client acquisition trends and improved client outcomes. In the first three quarters of fiscal 2021, we've already added more net active clients than any full year since 2016. And in Q3, we saw strong client demand from first time and reactivated clients that resulted in our second highest quarter-over-quarter client additions on record. In line with recent quarters, nearly 80% of our first time Fix clients in the quarter purchased at least one items, and shared that they look forward to…

Thanks, Elizabeth, and hello to everyone joining us on today's call. Well, I've only worked with Kat for the last six months I want to echo Elizabeth's remarks. Kat has built an amazing and highly differentiated client centric business over the past decade, with so much potential still ahead. I look forward to continuing to partner with her in her new role as Chairperson, and with Elizabeth as CEO. In the third quarter, we generated net revenue of $536 million representing 44% year-over-year growth compared to the same period last year, which was in the COVID-19 trial. We grew active clients to over 4.1 million, an increase of 689,000 clients and 20% year-over-year. This also reflected an increase of 234,000 active clients quarter-over-quarter and our second highest quarterly client addition ever. The momentum in active client growth is driven by strength in Fix demand, lower dormancy rates as we lapped a year ago COVID softness and reengaging past clients. Net revenue per active client of $481 increased to 3% quarter-over-quarter compared to $467 in Q2 2021 and declined 3.4% year-over-year. As he shared in past quarters, this year over year decline is driven primarily by increasing new client growth. With an influx of new clients that are early in their spending journey with us, revenue per client may be lower until these new cohorts of clients have more time on our platform. Q3 gross margin grew 46%, which marked our highest quarterly gross margin since fiscal 2017. It represented a sequential increase of over 310 basis points from Q2, and a 520 basis point increase from the same period last year. Year-over-year these gains are primarily driven by improvements in inventory health and lower merchandise cost. Quarter-over-quarter these gains were largely driven by lower merchandise costs and improved transportation costs.…

[Operator Instructions] We'll take our first question of the day from Edward Yruma with KeyBanc Capital Markets.

Hi, good afternoon. Thanks for taking the question and congrats on the momentum. I guess first you guys called a couple of categories that we're working from an apparel perspective sounds like a lot of time to kind of travel and reopening, I guess how would you characterize performance and where to work? I assume that's going to become a tailwind at some point, have you started to see it? And then as a follow-up, as it relates to direct buy, I think you once commented that the gross margin was comparable and you expected that to go higher over time than Fix. Just kind of curious where you stand with that today. Thank you.

Thanks, Ed. Great questions. I can start with the first one. And then I'll hand it to Dan, on the direct buy gross margin question. Yes, I think we're really pleased what we're seeing in terms of consumer preferences. It's interesting, because active and athleisure continue to be our highest growth category. So I think those are here to stay. I do think we'll probably see those decelerate over time. And we are seeing a growth in clients fixed requests, as well as just overall trends back into work wear and work categories. But we do think there's kind of a trend towards more comfortable attire, given the hybrid work environment. So we do believe this is a tailwind. We're particularly excited about our men's business. Because we think this is a set of categories that's going to bring him back shopping again more often, as well as within our women's segment. So we're starting to see that. Within direct buy and the gross margin, let me hand it to Dan for that.

Hi, Edward, thanks for the question. What we said in the past is that we thought they were very comparable. And we look at this pretty close and on a gross margin basis, that's accurate, they're very comparable. We do like what we see on a contribution margin basis as we look at the units, the contribution profit per unit in shop, just because there's less costs associated with styling and the pick. We pick five items for Fix 10 for kids. But both are -- we like the profitability of both and shop is going to continue to expand in that area. And so we're excited about that. But what we see our contribution profit per unit in the shop experience.

Thank you.

Next, we'll hear from Mark Mahaney with Evercore ISI.

Let me try two questions. One, Kat I think you talked about the ability to get 10s of millions more customers in the future, just a high level you build this business from scratch, when you think about getting to those kind of numbers would be which would be materially higher than where you are today? What are the bogeys or the proxies that make you think you can get there? How can you go from 4 million to 10s of millions of customers? And then Elizabeth on the reactivations? What do you think if you peel back, what drove that was that just people finally coming back out and wanting to shop again? Or the extent that was some of the personalization things you've done? Or the way you reengage with clients? So how much of those activations were kind of market driven versus company specific driven? Thank you.

Thanks for the questions, Mark. I’ll start. I mean, honestly, Elizabeth will be I think, just as well more equipped, I think to answer that first question. But I think that, thinking about direct buy and thinking about what a different use case it is. And I think some of the examples that Elizabeth shared in the earnings call kind of show light on those where Fixes really are, it's an amazing vehicle to be able to have more of like a lean back and have the shopping done for me experience. But there's a lot of market opportunity both and in the being able to help people to discover and a more active shopper and somebody who's looking more for something specific and somebody who wants more of a say what they're receiving. And this is a really amazing kind of point in time when a lot of people are really shifting market share onto online channels and where people really are looking for really differentiated experiences, and ones that really speak to them. And I think Stitch Fix is really well suited for that. I was just wanting to give us the best.

Yes, I think I captured it well. I mean, if you think about just the 100% share of wallet of consumers and their purchase occasions, we can just address even more by opening up shop. And so I think it's a lighter weight entry point, but also just a greater share of purchase occasion. So I think Kat answer that well. And we're already seeing that in terms of incrementality with our current clients, but also just as we've asked clients on their interest level, we know that it appealed very, very widely. And then on reactivations, we're really excited about what we've been seeing there. I think there are lots of reasons to be starting to get dressed again. So I'm sure that's part of the tailwind, but we're also just seeing really strong strength in our organic channels, whether people are coming directly to stitchfix.com organic search. We've also seen strength within some of our media channels that are building awareness. But I think when we see things like reactivations, what gets us excited is that typically means like there's a lot of promoters out there what we're doing, and people frankly, just wanting to shop again and coming back that they'd be work shopping as much during COVID and are coming back to us. And then I think we've just seen, all the channels that work well for us and marketing just continue to work hard. So overall just real strength at our customer demand and people kind of vote in for their feet for this to be their form of shopping.

Okay, thank you, Elizabeth. Thank you, Katrina.

Next, we'll hear from Mark Altschwager with Baird.

Good afternoon. Thanks for taking my question. So on the quarterly net ads in the second time this year, we've seen the over 200k. Obviously recycling a period of some easier compares with some clients not engaging in the categories much and perhaps some pent up demand here, but maybe to help us understand, one, in what role do you think stimulus played in this, if any? And to what extent do you think there's been a bigger unlock here in terms of how you're approaching, both acquisition and reactivation that could potentially drive a faster pace and that kind of quarterly net add big year as we move forward to the next several quarters here?

Yes, thanks Mark for the question. Why don't I let Dan, to take that one? I'm happy to chime in after.

Yes, thanks for the question, Mark. We looked at the stimulus and to see if we could see anything in there. And there was nothing that we came to any conclusive analysis that had more stimulus played an impact on us. As we mentioned previously, the sequential ads for this quarter was a combination of new to Stitch Fix, like customers that have lapsed that have reengaged, which makes a lot of sense, since we know those customers, and they're ready to buy again. And as you mentioned, as well as the lower gross ads a year ago during the COVID trout. Going forward, as we go into Q4, there is the summer season that we see ahead of us. And so we'll continue to watch are as closely. But the tailwinds we see, we're happy with.

That's great. And maybe Dan, if I could follow-up just kind of more broadly, I think in the investor deck, most recent investor deck that was posted, we're still talking about the kind of 11% to 13%, longer term margins, so any high level guideposts you can provide, and how we should be thinking about the level of profitability in fiscal 2022?

Yes, so again, we're in a unique position to expand our addressable market, as we talked about. So we are in growth mode, we see an incredible opportunity with us in expanding our addressable market with the launch with direct buy and we're excited about that. And at the same time, we're focused on operational efficiencies in all the areas you would expect, including on our ops side, making sure our marketing is very efficient. But we're going to continue to invest as we grow depth and selection on inventory as we hire new tech and product people for the client experience as we build out new warehouses. So we're not providing guidance going forward. But we're focused on operational efficiency where we have it and we're going to continue to invest, as we focus on growth and have a real focus on long-term free cash flow, given this addressable market that we think is quite expansive and enormous in front of us.

That’s really helpful. Thanks for all the color and best of luck.

We now hear from Ross Sandler with Barclays.

Hey. Congrats for the quarter, just two questions here. The keep rate historically has been around like two items per Fix, I believe. And the question is, with the new Fix preview product, are you seeing a noticeable increase for people that use that versus not use it in terms of the keep rate? And then the second question, any color on the gross margin? Dan you listed a couple of things, but are your own exclusive brands having an impact there and how do you feels about the sustainability of the 46% looking forward? Thanks a lot.

Thanks, Ross. Great questions, I can start on the first one with Fix preview and then I can hand it to Dan to add on and take the other on gross margins. Yes, I think one of the things we're very excited about with Fix preview is that we have seen positive momentum on AOV as a result of actually kind of a combination of keep rate as well as AURs and something that we've seen in the UK as well as in the U.S. Overall, though, I would say keep rates are improving as well on our traditional Fixes. That's something that we saw improved quarter-over-quarter and year-on-year across all of our categories of women's men's kids in the UK. So I think in general, we just continue to improve across the board. But Fix preview does have an extra boost, we think, in part because clients get kind of two bites at the apple, so to speak of giving us input on their Fix. Let me hand it back over to Dan.

On the gross margin question, we did see strong gross margins in Q3 at 46%. We do have some seasonality going into the summer season, where our ASPs will come down as people are buying more summer versus fall versus spring merchandise. And so that might have a small impact on gross margins, so we are seeing tremendous momentum with our private label. We're happy with it, it is strong gross margins. And we're going to continue to add as I mentioned earlier, depth and selection so we will continue to add inventory for our direct buyer experience, we think selection matters tremendously. How that plays out in gross margin, again, we don't guide to that. But we don't see anything that is negatively impacting gross margins except for seasonality and of course, as we grow our selection for inventory for our direct Fix customers.

Mr. Sandler, do you have anything further.

No, that was great. Thank you.

Thank you. We’ll now hear from Cory Carpenter with JP Morgan.

Great, thanks for the questions. Two, maybe first, could you talk a bit about where you are with Fix cycle times? And are those kind of back to the pre COVID levels? And then, when you talk a bit about the UK, where you recently had your second anniversary, maybe if you could just talk about the progress you've made there in the state of UK business today? Thanks.

Great. Thanks, Cory, I can start, I'll actually start with your second question on the UK. And then I'll hand it over to Dan on the Fix cycle time. We're really pleased with what we're seeing in the UK. You're right we just had our second anniversary, which is very exciting. We've seen triple digit growth year-on-year and just continued momentum in that business of acquiring new women's and men's clients. And, as you know, we incubated the Fix preview experience there, which has had a very positive impact on average order value. So everything we're seeing just gives us a lot of optimism, both for continuing to expand and grow in the UK, but really a lot of conviction on what this means for us to be able to take our business global, and continue to bring Stitch Fix to more geographies, so overall really pleased with the momentum there. With that, let me hand it to Dan on the cycle time.

Yes, hi Cory. On the cycle times, we mentioned in March, during our Q2 call that we'd seen an increase in cycle times during the holiday. Then again, in February, which we attributed to the weather and we expected those cycle times to come down in March and April and we did in fact, see cycle times come down mainly on both our client holding time and our carrier delivery times. They have come down to pre-holiday levels. Again, we were excited to see that they're still up year-on-year. But again, they are back to pre-holiday levels.

Great. Thank you.

We’ll now hear from Erinn Murphy with Piper Sandler.

Great, thanks. Good afternoon. Two questions for me as well, first, for Elizabeth. Could you talk about how growth broke down during the quarter across men's women's and kids and as kids, as you lean into the back half of the year is that a bigger opportunity with back-to-school being in person this year? And then a question for Katrina on, just as you shift your focus deeper into sustainability, can you talk about the role that you see if at all for resale of rental? And how do you innovate around the shipping of the Fixes? Thank you so much.

Thanks, Erinn. Great questions. Yes, I mean, we're really pleased with the momentum we've seen on a broad basis across the business, I think, in particular, women's kids, the UK have really had extraordinary growth. I think our men's business is not quite yet where we want it to be. I think and probably we believe those consumers just have not been shopping as much we've started to see really good things on success rate and our assortment we have a lot of confidence is the right assortment. And we're just seeing the kinds of requests our men's clients are having, of course, grew year-on-year, but we expect to start to see more acceleration as we move into really people getting back into apparel and back to work. On the kids business. Yes, I think, that business overall has been up triple digits year-on-year, we've passed a number of great milestones that we don't disclose externally but we feel really confident. We actually had a very strong back-to-school season last year was actually about 60% growth year-on-year, even though kids were largely in remote mode, kids still grow. So we would hope that it will be even stronger this year, as kids are getting back-to-school, so we of course, are gearing up for that. I'll hand it over to Kat on the sustainability question.

Yes, great questions that I mean. I think the high level answer is a little bit on kind of to be determined I'm not going to have a lot of specifics to share yet. Stitch Fix, we just recently joined the sustainable apparel coalition. It's been really kind of productive and helpful to be able to work with many other industry leaders around what are the elements in which we can be more sustainable. You mentioned shipping, I mean, shipping certainly is a place where, I think there's some room for improvement, I would also say that the studies that we've done have actually shown that shipping product is actually a much more kind of efficient way, then kind of heating and cooling really large footprint, retail stores that is actually a quite an efficient way as we think about the expense to our environment. Those stores are actually much worse for the environment, then shipping back and forth. And so it's not to say there's not more room there, but it's definitely just kind of an interesting finding that we found. And then to answer your question around rental and secondhand, we're very interested in kind of how can we extend the life of the garments, we have many clothes that we've sold into people's homes, we know a lot about that. The data advantage that we have can be just as powerful if not more powerful in the secondhand world in the first hand world, directionally I think we're probably more interested in secondhand versus rental, to be honest. But there's definitely a lot of excitement and internal momentum, we have nothing to share specifically on it, but it's definitely something that's on our minds as a business.

Thank you so much.

Youssef Squali with Truist has our next question.

Hi, this is Daniel Speed on for Youssef. Thanks for taking the questions. On inventory, it looks like another big build this quarter. Any changes there in terms of mix either among categories or exclusive brands versus vendor brands? And then if you could provide any update on the progress around the new inventory models you've been experimenting with, whether it's Plex or the consignment model? Thanks.

Thanks, Daniel. Let me start with the second question on the new inventory models. And then I'll hand it to Dan, on the first question on the build of inventory. Yes, we definitely are excited about the investments we're making behind a consignment like model as well as dropship we see. Just overall the growth in our selection to be a big strategic priority as we expand our offering. We really consider our secret sauce to be around matching clients with the best product for them and helping transform the way they find what they love. And part of that means we want to be able to ungate selection for our clients. And so we've made progress every quarter for the last year or so on developing the technology, partnering with many of our great vendors in beta mode of these new offerings. And so we have nothing specific yet to share, but that we will be making multi quarter investments to scale up these new models. So hopefully we can share more in the next couple of quarters. That's more specific than that, but we definitely viewed as a priority for the business. Dan, do you want to take the first question?

Sure, yes, on inventory. As you mentioned Daniel, we are up 16%, quarter-on-quarter to $215 million of that inventory. And again, we're -- as Elizabeth mentioned, and I mentioned earlier, as we scale direct buy breadth and depth of selection become important as we want our direct buy customers to come back weekly and daily. And we're going to continue to invest in selection, we are focused on inventory, making our inventory buying our inventory in most efficient way possible. We don't break out mix of inventory. But we're going to continue to focus both on private label and third party. And again, Elizabeth just gave the update on the different inventory models. So it's something we are aware of and focused on. But the client experience is what we're really focused on as we scale up shop, and likely we will continue to invest in the breadth and selection for inventory.

Great, thanks.

Our next question comes from Simeon Siegel with BMO Capital Markets.

Thanks, everyone. Good afternoon, great results. And Kat and Elizabeth, congrats to both of you on the next chapters. How are you guys thinking about expectations for revenue per client, as you continue the rollout of new initiatives just anyway -- and maybe for this quarter just thinking about where you round it out anyway to parse out revenues per client from, I guess, the new cohort of active clients versus maybe the existing clients? Thanks.

Thanks Simeon. Great question. Let me hand that one to Dan.

The Rpac we talked about the change year-on-year and we've addressed this last quarter and again, this quarter, we have such a strong influx of new clients, and it does take time with them to spend on our platform. And as you know, we define revenue per active based on a 12 month trail. What I can share is that when we look at it on a cohort basis, we like what we see because we see the newest cohorts spending more than previous cohorts. And so that's a big positive for us. Again, the way that Rpac is calculated on that 12 month trend just means that we need more time for these influx of new clients to spend with us. So again, we're happy with what we see on share of wallet from every cohort that we look at.

Awesome, thank you and then maybe for Kat or Elizabeth. So as you think about the broader promotional environment, it just seems everyone is seeing better full price sell through. How do you think about -- does that give you an umbrella, I know you're not normally in direct competition with let's say somebody walks into a store, but just how do you think about that the clusters called the positive inflation we're seeing across apparel and what that does to the way you price?

Yes, I can take that one Simeon. It's a great question. I mean, we've continued to see great demand, albeit not being a promotional player and I think that just speaks to the strength and sort of the core model for us is meeting the need of getting the client the right product versus a highly discounted product that might not actually fit them. And so I think that's always been a big strategic advantage for Stitch Fix. And I think there's a lot of pent up demand right now to get the product you really want, which plays really well to our model overall, as consumers are looking for things that they maybe haven't shopped for in a long time, which I think it's also demonstrated by some of these big growth rates and categories of the assortment that probably were less addressed over the last year or so. So probably it does play well to our model. We also do a really good job, I think of offering a combination of lower price points, mid-price points and high price points. And we have seen real strength in those lower price points over the course last year, as consumers in many situations have been economically constrained. And so I think we pride ourselves on just really matching the client with the right product.

Thanks a lot, guys. Great job and best of luck for the year.

Thank you.

Lauren Schenk with Morgan Stanley has our next question.

Great, thanks for taking my question. I just wanted to ask about the inventory reserve benefit in this third quarter. I think it was a fairly sizable tailwind, just sort of help us quantify that, and then how much it should hurt or help in the fourth quarter since I think we're lapping a significant reserve benefit last year in the fourth quarter as well? Thanks.

Thanks, Lauren. Dan, do you want to take this one?

Yes, I'll take this one. Yes, we did mention that the increase year-on-year in gross margin was primarily due to inventory health and lower merchandise costs. And you're right, there were some reserves that we took in a year ago, as we were in the COVID trout, and our fulfillment centers were shut down and economies were closed down. We don't give guidance on inventory going forward, we do feel good about the health of our inventory, a lot of what we're receiving, we're buying because of the demand that we see. And so without providing few forward looking guidance, what we saw in Q3 from an inventory perspective is the best guidance I can give at this point, because we feel pretty good about the health of our inventory in what we're buying.

Okay, thanks. And then just a quick follow-up on the net ads. Any way to quantify percentage of new versus existing or sort of reactivated customers during the quarter?

Dan do you want to take that one as well?

Yes, we don't break out ads. I guess we’ll say that, there were very strong across the different spectrums, including new and reactivations, we're very happy with what we saw, and our customers coming back to us. And again, that makes a tremendous amount of sense, because they want to buy we know them, they love of course, the styling services we offer. And so we did see strength in both channels.

Okay, thank you.

Maria Ripps, with Canaccord has our next question.

Great, thanks for taking the questions. So now the direct buy of the broader launch a few months away, can you maybe talk about your marketing strategy around it? And how do you need to adjust your messaging maybe to educate consumers about this sort of emerging new offering? And then secondly, just to follow up on the UK, since like you have is sort of a lot of progress there. Can you maybe just talk about what are some of this additional investments that are still needed to further sort of improve your scale in that market?

Yes, thank you, Maria. Great question. So on direct buy, we're very eager and excited to start opening that experience up at the end of this fiscal year to new customers, and then over the course of fiscal 2022, we'll definitely be evolving and growing our approach to marketing. And yes, it's a very good point, I think we have reasonably good brand awareness and a good understanding of what Stitch Fix has meant historically in terms of our styling services and Fix offering. So, we've done some early testing on new messaging, and we'll be continuing to do that over the months to come. And really being very cognizant of how do we open up the aperture of how people think about Stitch Fix and this broader notion of personalized shopping and sort of shopping and styling on demand, so to speak with our shopping feed based experience. So what anticipate seeing some new marketing for us in fiscal 2022, as we begin to tell that story? And then on the UK, yes, we're very pleased with the progress, we have yet to open up direct buy within that market, so that's, of course, a similar idea of what we've been doing in the U.S. that we need to bring to that market, we continue to grow the strength of our exclusive brands and our assortment there. So it's really just a continuation of what we've been doing as well as bringing the innovation that we're building in both markets to that geography. But it's scaling nicely. I mean, I think we feel great about the offering we have but absolutely see off opportunity to innovate and expand it the same way we're doing in the U.S.

Great, thanks for the color, that’s very helpful.

Next question will come from Ike Boruchow with Wells Fargo.

Hey, congrats everyone. I guess Dan just another question on inventory. As you're building it up to deal with the increased breadth and depth that you need, especially for things like shop your categories. Is there a way to think about inventory going forward for the company, what is needed on the balance sheet versus in the years past, when direct buy wasn't as meaningful, just trying to understand how much inventory the model should be carrying going forward given some of the shifts in strategy? Any color, that would be great, thank you.

Yes, again, outside of saying, the focus on breadth and depth, we're not providing any guidance. And we're going to ensure that our customers have great selection in the direct buy experience. We don't -- again going forward, we're still building the way our assortment will show. And we're not giving guidance to inventory at this time.

Okay, thanks.

Our next question comes from Janet Kloppenburg with JJK Research.

Hi, everybody, and congratulations on a nice quarter. Not to be the dead horse on inventory. But I was wondering if you could talk a little bit about your confidence in your assortment planning and by category and seasonality, as you broaden the direct buy program. And I was wondering if you thought you had the right tools to buy at the right level by category. And to think about transitioning from summer into early fall into holiday? And also as that selection expands, I was wondering whether we should think about any residual issues that may become more prominent, because offering more products to a wider audience. So I'd love to learn more about that? Thanks so much.

Thanks, Janet. Great question. I can take that and Dan, if you have any other color to add, feel free to chime in. Yes, I think we've been having kind of a dual channel approach for a while now, of course, we're planning to expand direct buy in a very meaningful way. But I think we have a good understanding of what we're seeing we've kind of shared even sort of a year ago, some of the differences that we see in direct buy have different categories and tend to have deeper penetration and what we've seen in our Fixes, so whether that's footwear, or outerwear, or accessories, we know the kinds of categories that we're able to actually start to penetrate in a more meaningful way with direct buy, which is exciting. We also have, I think one of the big benefits of the way Katrina and the team envision this model with all the different places that we get feedback and early signal from our clients, the combination of style shuffle our client feedback notes to our stylists, which of course even can help us understand trends before they come for direct buy as well, feedback that we get on 85% of items we ship. So all of that has helped really inform the kind of continued buying of our assortment. So I think we're feeling overall very optimistic and that we're in good shape on it. I do think this points that Dan and I both raised around going deeper with the great brands we have and starting to broaden that selection. That is a big push for us over this coming year, so I'm sure we'll learn as we go. But given how data driven we are, we're feeling like we're in good shape in terms of being able to predict that assortment. Dan, I don't know if you've anything you want to add on there?

No, I think you covered it. I think our customers continue to tell us that they want more selection as they come back for direct buy and that's very telling for us. And so we want to make sure that from a client satisfaction perspective, we have the selection and assortment to bring our clients back, multiple times throughout a month or even a week for that matter. So, yes, we'll get to continue to invest in this area going forward. But as Elizabeth mentioned, we're still building this and we'll provide more on selection in future quarters.

And if I could ask one more on private label. I think when it began, it was focused on filling envoys and focused on core and essentials, and I'm wondering as you have gaining confidence in this business and obviously the margin enhancing nature of it. If you're thinking or broadening it to include more innovation and newness and fashion?

Yes, that's a great question Janet. We definitely are expanding our offering there. I think one thing we're really proud of is the kind of client happiness and success rates we do see, with our exclusive brands. For example, in our kids business, we actually see higher happiness and like scores with most of our exclusive brands over what are wonderful national brands. So we think it's incredibly important to have that breadth of assortment for our clients, both market brands as well as our an exclusive brands, what we are seeing continued strength of our ability to innovate and outperform there and use our data to build great products, including categories where we also carry market brands. So we definitely have more to come in the quarters we will be launching some additional new brands and categories that we think are of particularly strength right now. So we will be continuing to invest there.

Thanks so much.

And our final question will come from Dana Telsey with Telsey Advisory Group.

Good afternoon, everyone, and nice to see the progress. As you think about the number of stylists and engagement given the growing customer base. How are you thinking about stylists and, and scaling them especially given new features like what you're doing with live styling? What is the retention of stylists adding a new stylist? How is that adding to average increase in revenues? Thank you.

Yes, I can start on that Dana and Dan, feel free to chime in if you have anything to add there. We have added a large number of stylists over last year and we'll continue to invest in that differentiation for Stitch Fix, to you point on life styling, they play a role in a number of places, for our clients both our Fixes, Fix preview, life styling, they also play a very active role in training our machine learning models with our data science team for outfits, which our ability to generate algorithmic outfits and a feed is, we think, a real source of differentiation that requires that human touch to help build and train those models as well as quality control. So, we feel like we have pretty good understanding of forecasting how to grow that population and we'll figure out things like life styling, that's not probably something a client does every week, it's probably a more episodic type of experience. And as we go from incubating that to figuring out the right way to scale it, we’ll definitely take a kind of test and learn approach of how best to scale that. But I think, it's the population we understand well, we'd love that we're able to broaden the kinds of experiences and the way they add value to the customer experience.

Thank you.

That will conclude today's question-and-answer session. I will now turn the conference over to Ms. Spaulding for any additional closing remarks.

Thank you so much for joining us today. We look forward to seeing you virtually or hopefully in person in the coming months.

This concludes today's call. Thank you for your participation. You may now disconnect.