Stitch Fix (NASDAQ:SFIX) held its third-quarter earnings conference call on Wednesday. Below is the complete transcript from the call.
Stitch Fix reported a 4.7% increase in revenue to $340.3 million, marking the fifth consecutive quarter of year-over-year revenue growth.
Active clients grew by 21,000 to 2.3 million, with revenue per active client reaching a record high of $578.
Adjusted EBITDA was $13.2 million with a margin of 3.9%, exceeding expectations due to strong revenue and disciplined expense management.
The company continues to focus on strategic growth in activewear, footwear, and accessories, aiming to unlock approximately $1 billion in incremental revenue.
Stitch Fix is leveraging AI technology to enhance inventory management, pricing, and the client experience, aiming to deepen customer engagement.
The company plans to maintain strong financial discipline, with full-year revenue guidance between $1.346 and $1.351 billion and adjusted EBITDA between $49 and $52 million.
Household accounts have seen strong adoption, contributing to client base growth, and the company is focused on capturing additional wallet share.
Advertising expenses were 10.2% of revenue, in line with expectations, and the company plans to continue targeted marketing efforts to drive client acquisition and retention.
Management expressed confidence in the resilience of their business model and their ability to navigate macroeconomic challenges.
Thank you for joining us and welcome to Stitch Fix Third Quarter 2026 Earnings Results Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Cheryl Valenzuela, Head of Investor Relations. Please go ahead.
Cheryl Valenzuela (Head of Investor Relations)
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. In particular, our press release issued and filed today as well as our quarterly report on Form 10Q for the second quarter of fiscal 2026 and subsequent periodic reports filed with the SEC.
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. Please also Note that fiscal 2024 was a 53 week year due to an extra week in the fourth quarter. As such, references to consecutive quarters of year over year revenue growth rates on this call are based on an adjusted 52 week basis, removing the impact of the extra week to provide a comparison that we believe more accurately reflects our performance.
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 investor relations 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 investor relations website and a replay of this call will be available on the website shortly. And now let me turn the call over to Matt.
Matt Baer (Chief Executive Officer)
Thanks Cheryl and good afternoon everyone. Revenue in the quarter grew 4.7% to $340.3 million, marking our fifth consecutive quarter of year over year revenue growth. Active clients reached 2.3 million and increased 21,000 sequentially, a significant milestone in our transformation journey. Revenue per active client or RPAC reached $578 in Q3, now the highest level we have reported. We set just last quarter. These results demonstrate how we are strengthening our position as our client's retailer of choice for apparel, footwear and accessories.
As we scale, we maintain our focus on operating with financial discipline resulting in healthy profit margins. Gross margin in Q3 was 43.7% and contribution margin remained above 30% for the ninth consecutive quarter. Our adjusted EBITDA was $13.2 million and our adjusted EBITDA margin was 3.9%, both also better than expected. Our revenue outperformance in Q3 was driven by strength in our fixed channel. Fix average order value, or AOV increased year over year for the 11th straight quarter primarily due to higher items per fix as a result of expanded adoption of our larger fix offering.
Growth in average unit retail or AUR, also contributed meaningfully to the overall AOV upside, reflecting the benefits of our ongoing assortment improvements. Over the last several years we have significantly enhanced the breadth and depth of our assortment to more fully meet client needs and capture more wallet share. Our strategy has been anchored on optimizing our portfolio of market brands, investing in our own private brands and expanding into new categories to better offer head-to-toe outfitting.
We are seeing the results of this work. Both our women's and men's businesses saw top line gains in Q3. Within our women's business we saw robust demand for activewear and athleisure which grew a combined 50% year over year. We also had a successful seasonal transition with strength in sandals, skirts and sneakers. Some of the brands that posted the strongest growth were our private brands namely Montgomery, Post, 41, Hawthorne and Market and Spruce.
Men's grew double digits year over year for the fourth strong straight quarter with standout performance in warm weather categories such as shorts, short sleeve woven tops and casual shoes which each grew more than 30%. Some of the brands that posted the strongest growth were our private brand Aylesbury, as well as Travis Mathew, Vuori, and Bonobos. With regards to expanding into new categories, we previously shared our belief that growing our relevance in activewear and athleisure footwear and accessories can unlock approximately $1 billion in incremental revenue if we achieve our fair share with our existing client base and we are actively pursuing this opportunity by expanding our offerings in these key categories. As an example, we recently launched Women's Sunglasses, introducing brands like Le Specs, Air, and Quay and we are strengthening our footwear assortment with new brands like Frye, while seeing growth in established brands such as Adidas and New Balance. We are also building on our momentum in activewear and athleisure. We recently added Outdoor Voices, Malvin, Golf, Spiritual Gangster and Cotopaxi as well as deepened our penetration with client favorites like Varley, Rhone, and our private label brand We Wander.
We are also seeing strength in men's and kids swimwear with the addition of brands like Fair Harbor. The improvements to our assortment are bolstering our position in the market and translating into further market share gains. According to the latest Circana data, Stitch Fix again meaningfully outperformed the total U.S. apparel, footwear and accessories market in the most recent quarter. With our year over year revenue growth rate more than four times the growth of the total market.
We also remain focused on the quality and durability of our client base. A central focus of our transformation has been acquiring and retaining high lifetime value (LTV) clients who value our service and whom we are uniquely positioned to serve exceptionally well. As I noted earlier, we reached an important milestone in this work as we successfully grew our client base. We also hit our eighth consecutive quarter of year over year growth rate improvement in active clients and remain encouraged by this steady progress.
Starting with new clients, they grew for the third consecutive quarter up more than 10% year over year. In Q3, as our marketing becomes more targeted and precise, we are seeing that rigor show up in the quality of new client cohorts. New client LTVs increased year over year for the 11th consecutive quarter and were nearly double what they were three years ago, reinforcing our belief that we are building a healthier and more durable client base. That momentum is being reinforced by the sustained adoption of family accounts which is creating an additional organic pathway for client acquisition.
As more clients adopt the feature, family accounts have become an efficient way for us to add high intent clients while also expanding family wallet share. We are also focused on re engaging former clients. Our targeted campaigns are bringing clients back to Stitch Fix and as they return, we are focused on deepening engagement through a more personalized and flexible experience. At the same time, retention rates continue to strengthen with steady improvement over seven straight quarters.
Thank you for the work you do every day. With that, I'll turn it over to David to discuss our financial results and outlook.
David Aufterhaar (Chief Financial Officer)
We are confident in the path ahead, encouraged by the traction we are building, and committed to delivering further progress in the quarters to come. With that operator, we can open the line for Q and A.
Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press Star one. Again, we ask that you pick up your handset when asking a question to allow for optimum sound quality and if you are muted locally, please remember to ununmute your device. Please stand by while we compile the Q and a roster. Your first question comes from the line of JSole from UBS.
Your line is open. Please go ahead.
Great. Hope you can hear me. So very interesting on the AOV trends. Can you double click on those a little bit? I mean you mentioned what's driving it, but it seems like it really outperformed in the quarter. You know, tell us maybe some of the strategies that are really the key to getting, you know, the more units per fixed and some of the other drivers of AOV that you mentioned. Thank you.
We've also been investing heavily into our private brands, delivering exceptional value and quality across the board. Our clients have continued to take notice there, which has helped us again capture higher average unit retails within our private brand portfolio, while not directly or not impacting average order value. Worth noting that our private brands are also delivering about 500 basis points higher than higher gross margin than the market brands.
Got it. And maybe Matt, if I can ask you about just the active client, the momentum you've gotten sequentially. I think active, the trend in active client growth improved for the eighth quarter in a row. I guess looking ahead to the fourth quarter, how are client acquisition and retention trends shaping up and what's your level of confidence in being able to maintain the positive sequential momentum?
And so because of that, we actually expect Q4 to be down slightly sequentially, somewhere between about a half a percent to a percent down sequentially. With that said, to your point, we still do expect year over year comps to continue to improve in Q4 as they have the last eight quarters. And because of that work, we continue to be really encouraged by the overall trends that Matt highlighted in the remarks earlier around new, re-engaged and client retention.
And that methodical approach is the one that we will continue to use to make sure that we're rebuilding a healthy and profitable client base. And that continues to be our focus in Q4. And our goal remains to return to that year over year client growth in FY27. And you know, these results and our guides sort of show clear progress towards that.
Got it. If I can squeeze in one more and I'll pass it on, you know, if you maybe just put your finger on exactly what it was to allow you to raise the adjusted EBITDA guide, you know, especially the lower end of the guide as much as you did, you know what's, what's happening that's allowing you to do that of all the different things that you mentioned.
And part of that is also SBC expense, which I know is below ebitda, but another area that we continue to focus on. And so I think we just continue to make sure that we are driving financial discipline while still certainly investing in growth. And that's really where we felt comfortable putting ebitda. Where it is from A guide.
Got it. Okay. Thank you so much. Your next question comes from the line of Owen Rickard from Northland Capital Markets. Please go ahead.
Thanks for taking my questions here. First for me, Household Accounts were called out as a growth initiative. How much penetration have you seen there? And what is the RPAC list associated with clients who do adopt that feature?
Okay, got it. That makes sense. Super helpful. And then lastly for me, maybe, how are you thinking about the balance between fix and Freestyle as the primary growth drivers going forward? And maybe does the mix shift between the two have any meaningful margin implications?
Great. Super helpful guys. Thanks for taking my questions here.
Something that we take a tremendous amount of pride in in terms of where we see the consumer today. We're really encouraged about the resilience of the Stitch Fix client the Stitch Fix client continues to show up and in a really encouraging fashion, the Stitch Fix client at every single income cohort that we track continues to show up. Equally, we see the same levels, nearly the same levels of revenue growth, no matter the household income of our clients.
Your next question comes from the line of David Bellinger from Mizuho securities usa. Please go ahead.
Hey everyone, thanks for the question. I want to go back to the consumer comments you were just making. You mentioned a few times in the prepared remarks some of this increasingly dynamic spending backdrop. Can you walk us through the cadence of this quarter and anything on quarter to date that's changed or this has shown up in the business? And does this have to do anything with this sequential contraction that we're looking for in fiscal Q4.
And so, you know, really encouraged by that. And we see that continuing in Q4, and all of that is included in our guide.
Understood. Thanks for all that. And then going forward, thinking about SG&A dollars, the last few quarters have been in this $150 million or so range. As the business gets back to growth mode, is there anything we should think about that should come into that base or some type of incremental uplift in SGA dollars as the business returns to growth? Thank you.
We just want to make sure we're still driving leverage in the P and L. Your next question comes from the line of Anisha Sherman from Bernstein. Please go ahead.
It was just in Q3 we got there faster than we had expected in being able to rebound to be able to land just above 6% for the quarter in Q3. And that's one of the reasons why we didn't necessarily play forward the beat is because we already had the strength included in Our guide for Q4 last quarter.
And, and we have lots of different segments that we're able to focus on similar to that, as well as ensuring that the clients that we bring in we just continue to serve at a really high level overall.
Of course, at this time. There are no further questions. I would now like to turn the call back to Matt Baer for closing remarks.
We're operating from a position of strength, and I'm confident in our ability to continue to do so. I appreciate your interest in our business, and I look forward to sharing our continued progress in the future. Thank you.