Good day, everyone. Welcome to the Stitch Fix Earnings Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Will Leuchter-Mindel, Interim Head of IR. Please go ahead.

Thank you for joining us on the call today to discuss the results for our fourth quarter and full fiscal year 2021. Joining me on today’s call are Elizabeth Spaulding, CEO of Stitch Fix and Dan Jedda, CFO. We have posted complete fourth quarter and full fiscal year 2021 financial results in a press release on the IR section of our website, investors.stitchfix.com. 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 our 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. 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 our 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 Elizabeth.

Thanks Will, and thank you all for joining us. After the market closed today, we issued a press release with details on our quarterly performance and outlook. We delivered strong fourth quarter results to close out a successful fiscal year with Q4 net revenue growing 29% over last year’s fourth quarter and helping us cross $2.1 billion in annual net revenue for the first time. We are excited to share both the highlights of our full year business results as well as our vision looking forward. As I step into the CEO role, I am incredibly honored to be leading this team. We have an exceptional organization, full of leaders and innovators who share my passion for Stitch Fix and a bright future ahead. The last 10 years of Stitch Fix’s journey sets the stage for our future, with our highly differentiated approach to marrying data science and creative human judgment. This differentiation has enabled us to build a deep understanding of the apparel vertical and the engine to power our expansion. We see our future propelled by this incredible strength and it is only the beginning. We are uniquely positioned to deliver the most personalized shopping experience for both our current and future clients. Today, we will focus on three main chapters. First, we will share our fourth quarter results where we saw strong demand trends and positive momentum in our fundamentals. Second, we will discuss the closing out of a successful fiscal year 2021, where we embarked on a meaningful transformation in our business on a number of fronts, including the expansion of Shop to our current client base, the launch and scale of Fix Preview, and foundational investments in our systems and people. And lastly, we will look ahead to our future, discussing our overarching vision as…

Thanks, Elizabeth, and hello to everyone joining us on today’s call. In Q4, we generated net revenue of $571 million, representing 29% year-over-year growth. We saw overall strength in both our Fix and Freestyle channels, with strong demand in our Women’s Fix offering and outsized growth in kids as well as in the UK. We saw increased order volume in Freestyle, driven by several factors, including our increased focus on engagement of Freestyle with existing clients and improved product features, which is expanding brand in shops. Full year net revenue was $2.1 billion, representing 23% year-over-year growth. We ended the year with active clients of 4.165 million, an increase of 58,000 clients quarter-over-quarter and 643,000 clients or 18% year-over-year. Q4 net adds were impacted by our typical summer season where we normally see a slowdown in new active clients. We also pulled back on advertising spend in anticipation of the launch of Freestyle to new to Stitch Fix clients in early August. Overall, net adds for the second half of the year remained largely in line with those in the first half, and we see strong productivity signals from our newest client cohorts, which gives us confidence in our acquisition strategies. Advertising was 6% of net revenue in Q4, a sequential decrease of 340 basis points from Q3 and 420 basis points decrease from the same quarter last year. As noted earlier, we made the decision to launch Freestyle to new to Stitch Fix customers in early fiscal Q1 of this year. This did result in pushing Q4 advertising spend to Q1 fiscal 2022. Since our Freestyle launch, we have already begun increasing advertising spend relative to Q4 FY ‘21, and we expect to continue this elevated investment going forward. This will include our existing acquisition-based advertising channels as well…

Thank you. [Operator Instructions] And we will take our first question from Ross Sandler from Barclays. Please go ahead.

Hey, guys. I know it’s only been a couple of weeks, but just any initial learnings on both the Freestyle uptake since the public launch and how the marketing on new customers is going? Like how the efficiency compares to what you guys were doing in the past? And – yes, I’ll just start with that, I guess.

Yes. Thanks, Ross. This is Elizabeth. I can start on that one, and Dan should feel free to add on. Yes, I think we’re really pleased with what we’re seeing so far. I think overall, if you look back on Q4, one of the things that got us very excited is just the strength across our ecosystem and having consumers participating in both of these channels, as demonstrated by our revenue per active client crossing that $500 mark and really speak to the continued enhancement of what we’re doing with Freestyle. In terms of marketing, we really are just turning on our brand campaign. You’ll see it go live actually this week, and that’s really beginning to tell the story on really the top of the funnel awareness building for the business, which is quite exciting. And then as we’ve launched, we’ve begun experimenting with things that Dan and I mentioned on the call like product listing ads and being able to expose consumers into a new way to start entering Stitch Fix for the first time. So no data to share yet, but I think early momentum we’re really pleased with. And in addition, I think just the new brands, the new offerings that we’re unveiling through the experience, I think gets us really excited because we know we’ve seen traction in some of these less penetrated product categories with fixes already through our current base. And so, the coming quarters will really be the focus of building this brand awareness.

Got it. And then the other one I want to ask is on the comment about the lowest churn in company history kind of at the, I guess, end of 2021. So just any additional color? There is a lot going on in the business in terms of new products, expanded selection, and then like improving keep rates. What’s driving the higher retention versus previous periods of all these different things that you guys are doing?

Yes, I can share a few thoughts on that. I think one of the things we’re really excited about is the scaling up of Fix Preview, which we believe is one driver that increased performance both on success rate, but overall, we know it’s impacting client happiness, which tends to impact ultimately, of course, things like retention and churn. And so we’ve been really happy to see the continued gains, both on keep rate as well as on retention, and then of course, just having more ways to engage with us. We know that there were use cases that we were unable to satisfy with consumers in a Fix-only model. So, we would anticipate just our ability to serve more user needs, more occasions, being a bigger part of our consumers’ lives is also kind of increasing loyalty, driving higher reactivations, all those good things by just enhancing the value-add of our offering.

Great. Congrats on the results.

Thank you.

Thank you. We will take our next question from Edward Yruma from KeyBanc Capital Markets.

Hey, good afternoon guys. Thanks for taking the questions. I guess first, I think you mentioned in one of the previous calls that at that moment, what you were then calling direct by not calling Freestyle was kind of gross margin neutral. As we think about your medium-term view of at least what’s assumed in the guidance, kind of what is the margin implication from Freestyle? And then just as a bigger picture question for Elizabeth, I know Kath had made her North Star kind of 20% growth and felt like that was a good kind of exciting growth rate, but wouldn’t stretch your organization. You’re pretty close at in and around 15%, what do you think the longer-term growth rate of your business should be? Thanks.

Yes. Thanks for the questions, Ed. I can – how about I start on the longer-term view, and then I’ll hand it over to Dan to talk about the gross margin question related to Freestyle. And we had a very strong gross margin this quarter that we can share more on as well. I think of that long-term growth vision. I think we will have more to share in the quarters to come. What we do know is that by opening up Freestyle, we are opening up so much potential on consumer expansion, use case of shopping occasions, category growth potential in many categories that we’re very underpenetrated in today. All of those present opportunities for, frankly, accelerated growth. This fiscal ‘22 is going to be very heavily focused on building awareness, building that foundation of more brands, more categories, some of the new marketing channels that we talked about. And so, opening up and now having built this foundation of a $2 billion business, we actually see so much potential, especially with the category that is shifting so meaningfully from a consumer standpoint. So, no updates on the long-term guide, but we absolutely think what we’re doing today sets us up to achieve a very different scale because of the expansion of our platform. Let me hand it to Dan to talk about gross margins.

Yes. Thanks, Elizabeth. To your question on gross margins, we did talk about this in prior calls that on a gross margin basis, the economics of Freestyle versus Fix are fairly comparable. What we love about Freestyle is the average order value is actually high. It’s a very strong average order value, and therefore the economics on the gross margin side are comparable. And we’ve also said, and I’ll continue to reiterate that the contribution profit on Freestyle is higher than Fix business, which is also something we’re very excited about. We love the economics of it. It is materially higher than Fix. And a lot of that is due to just efficiencies on the variable side. And we have a lot of room to improve on that, such as reducing our split shipments, and other operational efficiencies that we feel we can get from Freestyle. So the economics are very favorable for us on Freestyle.

Thank you.

Thank you. We will take our next question from Mark Mahaney with ISI.

Okay, thanks. I want to ask about gross customer adds. And if you had that record low churn, given the number of net adds you had, that would suggest that gross adds were very low, maybe record low gross adds. Could you address that?

Yes. Thanks, Mark. I can start on that, and Dan, feel free to add on. Yes, maybe I’ll share a few things. I think we look a little bit at the back half of the year just because Q4 tends to be a seasonal trough for us. So on that full second half basis, we added nearly 3,000 – 300,000 net adds, which we feel very good about. I would say a couple of things impacted this quarter, in particular, it being a Q4 that tends to be a lower period of adds just that summer period for consumers with both our model, but just in retail in general. Dan mentioned one of them on the call, which is just our investment in marketing spend. We definitely spent less than we were initially anticipating in anticipation for really being able to start to build the brand, build the offering of Freestyle this quarter and beyond. The second thing that we did see some headwind with, which I think everybody experienced was the transition to iOS 14. We are still more heavily mobile web versus app based. So it didn’t affect us that materially, but I think the adapting to being able to optimize our campaigns, understand users which we feel very good about going forward, but that was something we experienced a bit in Q4 as well. But overall, to some extent where we thought we would be in terms of delaying some of that marketing spend and just that tends to be a quarter where we have fewer net ad spending periods like Q1 and Q3.

Okay. And then I want to follow-up on Ed’s question about the potential for recovering to that 20% plus growth rate that the company really did consistently, I don’t know, 10 or 11 quarters prior to COVID at a reasonable scale, too. That was pretty impressive. And your guidance here is for kind of mid-teens, maybe high-teens growth, but you talk about acceleration. So what would be the potential biggest drivers of acceleration? And can I throw out a few? Is it categories like kids? Is it geographies like the UK and any others that you would think about there? Or is it just simply the successful rollout of Freestyle? So if there is material acceleration and you are able to recover to above 20% revenue growth, and we’d look back on it, what would – what do you think is most likely to have caused that?

Yes. I think it’s really a combination of things that we believe can translate into that type of growth. First is, if you think about it from a share of wallet standpoint, which is one way of looking at it, there are purchase occasions as well as categories to the mentioning of tops, bottoms is a big focus relative to many other very large product categories that consumers are buying into. So, that in and of itself is obviously a big opportunity for both new customers and existing customers. Then if we look at just broadly consumers, we know there are a lot of consumers that would prefer to start with personalized shopping and in general are maybe a bit more of a lean forward consumer segment that have an appetite for fashion. They really enjoy being engaged in the experience. And we’ve seen that actually within our core segmentation of our user base. We know that, that comprises double-digit percentage of our consumer base today, but we know we’re under-indexed relative to that consumer spending capacity and just the overall size of those segments. And so we believe with this expansion into an experience that really has fluidity across us doing more of the work for you, providing guidance and discovery together with consumers having more agency. Being able to have that one click shopping experience, we believe really just expands our addressable market and penetrating consumer groups that we’re less penetrated in today. And then, of course, to your point, moving into additional geographies over time, we shared some of those growth rates of more early-stage businesses. And you could just see the kind of ramps that we’re on as we enter a combination of new user experiences, new categories, new geographies. All those things together, we think contribute to that accelerated picture going forward.

Okay, thank you very much.

I think I’ll just add to that. If I could just add to that real quick, too, I think it’s important to know that while Freestyle awareness within our Fix customer base is relatively high, outside of our Fix customer base, it’s really low. And as we said that we’re going to invest in building the awareness of Freestyle throughout this year. We have a heavy investment in marketing to do that. And we feel that, that will also bring the accelerated growth in the back half as we build that awareness. And as we – as I said earlier, the economics of Freestyle are very favorable for us. So I just reiterate what Elizabeth said on the categories and the geographic. But first and foremost, we simply got to get the word out there. We could not obviously market Freestyle to new to Stitch Fix customers until we launched it and built the onboarding experience that is now out there. So we’re very excited about building the awareness of the Freestyle business throughout this fiscal year.

Okay, thank you, Dan.

Thank you. We will now take our next question from Erinn Murphy from Piper Sandler.

Great, thanks. Good afternoon. A couple of questions for me. First, I was hoping you could talk a little bit more about the Men’s business. It seems that you guys have been driving a little bit more promotional activity with the $25 off if you refer a male customer. Can you talk about how successful that’s been and what kind of you’re looking at to maybe improve that area of the business? And then Second question around supply chain. Could you just talk about what you’re seeing in the supply chain? What percent of your private label product is sourced from Vietnam or other regions in Southeast Asia that have been impacted by factory shut-ins? And then how are you compensating on freight, be it air freight or are you seeing kind of logistical challenges with ocean at this point? Thank you.

Thanks, Erinn. I can start on the Men’s question, then I can hand it to Dan on the supply chain topic. Yes, our Men’s business, one source of growth in that business has always been and similar for Women’s and Kids, client referrals. And one thing that we know has been effective is bringing in clients both new to Stitch Fix prospects, but also adding family member accounts, both in Kids and Men’s has been very effective for us. And so we episodically are doing things like taking our user base and offering credit referral to engage those client base. Typically, a $25 referral on those tend to be very high ROI. And so as we’ve been expanding our inventory, our offering, those – that is an area that tends to be very ROI positive for us. And especially as we know, we’ve improved and added some great brands to our assortment, we have been activating that as a channel. It’s actually something we’ve had activated on a historic basis. You may have seen some of those e-mails this summer, especially in gearing up for the fall time period. But that tends to be a very effective vehicle and as part of our historic marketing mix, and we will be a part of it going forward. I can hand it to Dan for the supply chain topic.

Yes. To your question on supply chain, we are seeing some impact, but they are not material for us yet. We do not source any material amount out of Vietnam. A matter of fact, it’s in the single digits of our sourcing. So that’s helpful. I know Vietnam has had some impacts due to COVID. But we are seeing some small impacts on supply chain, not that are going to impact our fall or winter. We feel very good about our selection entering fall and winter. So we’re covered on H1. We’re watching very closely for H2. And the reason, by the way, is we bought – of course, we bought that product for fall and winter several months ago. We are not typically using airfreight. We don’t – we’re not in a position where we need to do that, so that’s a positive for us as well. But the end to finish the thought on that is H1 recovered we are watching H2 very closely. We’re very proactive in managing what we see on the supply chain side. And so far, we don’t see an impact for us, just given how we bought for H1, and we’re ahead of this on H2 and watching it very closely.

Got it. And then just a follow-up there, the inventory at the end of the year was up 70%. Is that just kind of covering what you think the demand will be in the first half and just trying to get ahead of maybe any potential challenges in the supply chain or is there anything else that is driving that inventory up so substantially?

Yes. It’s a great question. Quarter-on-quarter, we’re flat. And you’re right, year-on-year. Of course, a year ago, inventory was in a precarious position for us simply due to COVID. So that’s probably not the right comparable. We do – we are – we did buy in advance of supply chain to some extent. We are also increasing selection, as Elizabeth said, and we’re going to continue to increase that selection going forward. And looking for the rest of the year, we probably won’t be back to historical turns that we normally would see, and that’s again, because we’re very focused on increasing the selection for Freestyle. That being said, I think by the time – in the back half of the year, we’re targeting more of that four to five on a turns basis. But again, it’s very dependent on the selection we bring in for our Freestyle experience, which is our number one priority.

Thank you so much.

Thank you. We will now move on to our next question from Cory Carpenter with JPMorgan.

Thanks for the questions. On gross margins, how do you think about the runway from here just given you exceeded the high end of what has typically been your long-term guide for the first time this quarter? And then for Dan, maybe specifically on the 1Q guide, the midpoint, it implies a slight step-down in revenue sequentially despite ramping marketing spend. So I was hoping you could talk about the trends you’re seeing so far this quarter and what could be impacting that? Thanks.

Great. Thanks for the question, Cory. I can start on both of those, and then I’ll hand it over to Dan. On the gross margin side, we’re very pleased with what we’ve seen. I think there is some real positive drivers there in terms of our product margin, both favorable mix shifts, but also some of the programs we have with our vendors that are providing really nice tailwind, and we do think there is good sustainability there. I can let Dan speak more to that. And then in terms of the marketing relative to growth guide that we are investing, we’re – in dollars in marketing. We are really in this period, as Dan mentioned earlier, of really building brand awareness of what Stitch Fix is becoming. People who have awareness of Stitch Fix have known us for a very specific offering. And we have now really opened the door to this whole new ecosystem, this ability to shop in a personalized way. And we know that’s going to take some time for people to build awareness, like the awareness of Stitch Fix Freestyle is obviously high in our current user base, but very, very low for the market as a whole. And some of the spend we are making we anticipate will pay off in future quarters versus the current quarter. And so that’s part of what you are seeing there probably in terms of just the anticipation and the build that we are investing in terms of building that awareness. Dan, do you want to add on the gross margin or either of those?

Yes. Just again, I will reiterate, we feel very good about gross margins going forward. Our product margins remain at record levels for us. And we are very focused on transportation, as being very efficient on transportation and making sure we are balancing the right client experience with the right operational efficiencies. So, we feel good about gross margins. As you know, we have always been a full-price business with Fix. Opening up shop does lead to the possibility for clearance, although that’s nothing that we are focused on in any big way. That could eventually drive some impact on gross margin, but that’s simply getting rid of clearance based inventory in the most economically efficient way possible. So, more to come on that going forward. But gross margins are – we think that they will maintain this level going forward. And to your question on guidance, I will just reiterate what Elizabeth said. As we go forward and look at H1, we are very focused on building the awareness for Freestyle and increasing the selection for Freestyle and launching new product features for Freestyle. And we feel that, that will take some time. That will take a little bit of time to build that awareness to get the actives going. So, we felt our guidance appropriately reflects that in the first half of the year. And as I mentioned in the call, in the back half of the year, we are simply comping some very aggressive revenue achievement that we received in H2 of FY ‘21.

Thank you.

Thank you. We will hear next from Mark Altschwager with Baird.

Good afternoon. Thanks for taking the question. I wanted to dig into the branded shop initiative a little bit more. I guess, first, how do you see that scaling over the next year or 2 years? And how should we be thinking about the investment behind that from a marketing perspective? As you pursue some new channels, would you be at the higher end or above the historical kind of 9% to 11% target from a marketing perspective? And then relatedly, Dan, as you mentioned, I mean Stitch Fix has historically been a full price channel for brands. I guess – do you see any change to that, I guess, to the promotionality of the offering as the brand shops roll out and consumers have the ability to more effectively compare pricing across other retailers? Thank you.

Thanks Mark. I can start on that. I appreciate the questions. So, on the branded shop, Stitch Fix has always carried several hundred, if not, low-thousand number of brands, both a combination of national brands, our own exclusive brands, unique to Stitch Fix offerings that we partner on with third-parties, and that really isn’t changing. I think what’s happening is really more of an expansion to deepening our portfolio of some of those brands that we already have, extending into some new brands that we know, some of the newer clients that we are bringing on to our platform will appreciate. And it’s also just a really natural entry point for many consumers who typically have a few brands that they tend to really love and it’s a great way to experience Stitch Fix for the first time, might be something they are searching for, something that they know fits them well. And that creates just a really amazing jumping off point for us to show them outfits that go with that, have our stylists assist them with other looks that they might like with it, helps us identify goods that are likely to fit them incredibly well and match their personal style. And so from a marketing investment standpoint, it actually represents some efficiencies for us because it’s part of what will allow us to participate in some of the product listing ads and search or allow us to have influencer partners talk about specific products on our platform, whether it’s our own brands like the Elevate program that we are expanding into or our own exclusive brands as well as well-known brands. Dan can touch more on the percentage expectation of how that acts to historic. We are making investments in brand at a more global basis that I do think we will see some increased investment, but we always are very focused on real efficiencies at that customer acquisition level. And then on the full price front, our differentiation is really around helping clients discover things that they otherwise would not have on their own. And so it’s fit, it’s discovery, it’s convenience that has historically characterized the real value proposition of Stitch Fix and that eye towards personalization versus promotions. And so I would expect that set of characteristics to absolutely continue. I would view a lot of this brand expansion as making sure we are matching consumers with what they love and some of those brands may be brands that they have never discovered before. But of course, ensuring we have always put a lot of focus into price comparing and making sure that our price points are competitive in the marketplace.

I will just add to the question on marketing. So, we are very focused on acquiring healthy customers, and we do that in our customer acquisition strategy. And of course, we are – as we mentioned, we are investing in many new channels of marketing inclusive of SCM and brand-based marketing and we are also going to invest in influencer marketing. But in total, we expect that marketing to still be in that 9% to 11% of revenue going forward. It’s just making sure that we are very efficient in the channels that we do have. And so that’s something that we look at every week to make sure our marketing investments are efficient and we are bringing in the right clients for us. And so going forward, you should expect that to be more in line with historical of the 9% to 11% on revenue.

Thank you.

Thank you. We will now take our next question from Dana Telsey with Telsey Advisory Group.

Good afternoon everyone and so nice to see the progress. As you think of the average order value in excess of $500, how much of that would you say was Freestyle? How much of it came from Fix? And was there any different categories that added to that? And then can you expand any further on the improvement in the UK and what you are seeing there? Thank you.

Thank you, Dana. Great questions. I can start. On the AOV front, yes, I think we are excited both for the impact we are seeing from Fix Preview, clients being able to really find what they love there and having really that two-step process we know has had a positive impact. And then secondarily, we know our cohorts continue to improve in the penetration, especially in early life cycle and the adoption of Freestyle. So, I would say it’s definitely a combination of those. Dan can add more. There are other drivers we want to touch on. And then in the UK, I think just our value proposition is absolutely resonating. We have seen real strength in our marketing. We have seen real strength and the unit economics continuing to improve. That is the market where we first incubated Fix Preview and scaled even earlier in its life cycle to get to the full market, and that’s had a positive benefit. And then we just continued to get to know that market better and better. Our brand awareness is building. Our understanding of that UK consumer base continues to get sharpened in terms of our merchandise and assortment, which over the first year was a big learning opportunity for us. And so we are really, really pleased with what we are seeing and just the continued momentum there.

Yes. And I will just add the question on RPAC. I think I mentioned earlier that the AOVs that we see are comparable between Freestyle and Fix. And I think Elizabeth mentioned that roughly 30% – over 30% of our women’s Fix customers do engage in Freestyle. And while that doesn’t answer your question directly, it does give you an indication of the meaningful driver that Freestyle is of our revenue per active customers. We will give more data points on that as we get more Freestyle new clients in and we look at what their trends are. It’s obviously very early in our journey for new to Stitch Fix customers for Freestyle, but [Technical Difficulty].

Thank you.

Thank you. We will now take our next question from Youssef Squali from Truist Securities.

Great. Thank you for taking the questions. Two, if I may. First, maybe Elizabeth, where are you guys in your inventory imagination between 1P, consignment, drop ship, etcetera? You had talked about making some strides there. Trying to understand how quickly you guys are able to layer that in and how much of your 2022 growth expectations are baking in, maybe a mix of different inventory sources? And then I don’t know if you addressed this question, Dan. But maybe can you just speak to linearity of demand in last quarter and what you are kind of seeing so far the first, I guess, three weeks of the quarter? Thanks.

Great. Thank you, Youssef. I can start on the inventory one and then pass it over to Dan on the demand trends. Yes, we continue to be very optimistic and are investing in our new inventory models, both consignment-like inventory as well as drop ship. And we have had multiple beta programs across both of those. And we are really in build mode of the infrastructure, the vendor tools, the ability to automate, the capabilities to be able to bring that fully to life. And so that will be a big focus of FY ‘22. In terms of like the materiality to the business and really impacting working capital and that expansion, we would expect to see those more in FY ‘23 as we start to truly scale them. But we are absolutely in build mode and teaming very closely with our vendor community and vendor counsel and have been really pleased with the success that we have seen in these early test phases, so more to come on that. We are definitely very focused on the build out, and we will see more of the impact in the next fiscal year. I will pass it over to Dan for your second question. Actually, I think Dan might have actually had the phone dropped. I just saw a text from him. So let me take, Youssef, your second question. You were asking about the linearity. Just to clarify the question. Are you just asking about quarter-on-quarter growth or could you just clarify exactly what you are asking there?

Yes, of course. No, just trying to understand how the demand progressed throughout the quarter? And because we have seen some data points that would suggest that the quarter – the demand accelerated coming out of the quarter and remains at a pretty high level. I just wanted to kind of see how you guys are seeing it from the inside?

Got it. Okay. Yes, I think Q4 tends – I guess you are asking a little bit insight into like what we are seeing now, which we are not reporting yet on Q1. But I will say just historically, that May time period tends to be a real strength in our business. And as we get further into the summer months, we kind of internally think of it. And I think a lot of folks in our category is a bit of a summer slump. And we know consumers this year were back to vacationing again and being out more than they were a year ago. But in general, all good things like the revenue per active, etcetera, but that tends to be a quieter period. And then the fall season tends to be a period of consumers really shopping again with change in season, back-to-school, back to work. And so I think consistent with that, this is typically kind of an uptick time period that we see in our business. I think Dan is back. So Dan, feel free to add on if you have anything on top of that.

Yes. Sorry about that. My phone dropped. No, I think our guidance does take into account what we are seeing on trends. And that – that’s all we have for now.

Got it. Okay, it’s helpful. Thank you both.

Thank you. We will take our next question from Lauren Schenk with Morgan Stanley.

Hi. This is Nathan Feather on for Lauren. Can you just talk through a bit the drivers of the higher product margin within the quarter and any potential impact from exclusive brands, etcetera? And then are you able to potentially size or talk about how we should think about the impact of marketing shifting from 4Q into 1Q with the Freestyle launch?

Great. Thanks, Nathan. Dan, do you want to take both of these? I can add on, if needed.

Yes. On the product margin side, we do – we are seeing improved product margins for a couple of different reasons. We are seeing a mixed shift. We do continue to have very strong private label, especially within our Fix business and our Freestyle business, and that does help product margins. I think going forward, as we bring on national brands, we will watch that closely. But we also have a lot of opportunity in product margins to keep them where they are at. So, we feel very good about the product margins in terms of both the mix and what we see from our clients engaging with our private label. And to your – can you repeat the second part of the question, please?

Yes. Can you just talk about how to think about the sizing of marketing moving from 4Q into 1Q with the Freestyle launch?

Yes. I think – I will basically say what I said earlier is getting back to that 9% to 11% is where we see the entire fiscal year for ‘22, and that includes Q1, which again is a step-up from Q4, which we very intentionally delayed some of our marketing spend until we launched Freestyle.

Thank you.

Thank you. And we will take our last question from Roxanne Meyer from MKM Partners. Please go ahead.

Great. Thanks for taking my question. I am just wondering how you are thinking about growth of the Fix business as your Freestyle business ramps? Obviously, you are seeing nice trends in the AOV. And in the past, you have talked about low cannibalization, but I am just curious to get any updated thoughts.

Yes. Thank you, Roxanne. Great question. I think overall, we are just focused on clients being able to enter the Stitch Fix ecosystem and what works best for them. And obviously, over the course of last year, we have seen real strength in our Fix business, and we know that it is incredibly appealing to many consumers. And so, as you will see in our new on-boarding experience, there are opportunities to engage directly in Fixes, to engage directly in Freestyle and personalized shopping, which we really like the ability to cater and actually help clients find what’s best for them. And so I think what we would anticipate over time is many new clients coming in through this new Freestyle experience, but then finding their way to certain use cases and occasions that our Fix is really a great experience to add on to and vice versa continuing to see clients also enter through Fixes. I would imagine a few years down the road, we will probably just be talking more about Stitch Fix as a whole and more fluidity between stylist led support, stylist led experiences that we will expand over time including things that will be more deeply integrated into the shopping experience of Freestyle as well. In terms of, like, I guess, the specific cannibalization question, maybe two thoughts to offer. One is just we think that revenue per active client that we shared and the knowledge we have of like the newer cohorts of clients is the real strength and incrementality of these two offerings really been quite complementary. We do know that in this new phase of on-boarding we are in, we have a lot to learn of helping consumers find the right fit over the coming quarters so that they can engage in the full Stitch Fix ecosystem. So more to come, but I think we see solid growth in both sides of the business in the coming year.

Great. Thanks for that color. And then just as a follow-up, I am just wondering if you could talk about the inventory strategy for your Fix and Freestyle businesses? Are those going to be completely separately managed? And how should we think about the mix of private label versus brand for each of those businesses?

Yes. Thanks, Roxanne. That’s a great question. We love our exclusive brands. We know that they are incredibly high-performing and client love and fit the data that we apply to designing those products. And we actually share the same data with our vendors so that they can build new products. For example, we help 30 of our vendors build new plus size products given the uniqueness of entry in that product category. As we think about Fixes and Freestyle, we know there are certain product segments that tend to do better within Freestyle just because – and also actually Fix Preview, where clients tend to be higher intent. They brought less on impulse like outerwear, accessories, footwear. And so there are product categories that we will probably be intentional thinking about how those are going to perform in each channel. But there actually is a benefit where we are sharing the pool of inventory across and we can get the benefit of seeing how these products perform in both and having the benefit of some of these probably over time, higher fashion, higher trend that may be more higher sell-through in Freestyle, but being able to now participate in some of those goods in a bigger way in Fixes as well as a result of having these two channels.

Great. Thanks so much for all the color.

Thank you. And that does conclude today’s question-and-answer session. I would like to turn the conference back over to Elizabeth for any additional or closing remarks.

Well, thank you all for joining us today. We look forward to seeing you in the coming months.

Thank you. That does conclude today’s conference. We do thank you all for your participation. And you may now disconnect.