Stitch Fix, Inc. Price & Performance (SFIX)

With me on the call are Matt Baer, Chief Executive Officer David Osterhart, Chief Financial Officer. We have posted complete second quarter twenty twenty five financial results [indiscernible] a press release on the Quarterly Results section of our website investors.stitchfix.com. [indiscernible] A link to the webcast of today's conference call also be found on our site. On today's call, Matt and David will share their prepared remarks. We will then move to Q and A before concluding with Matt's closing remarks. Before we begin, we would like to remind everyone that we will be making forward statements on this call. Which involve risks and uncertainties. [indiscernible] Actual results could differ materially from those contemplated by our forward looking statements. Reported results should not be considered an indication of future performance. Please review our filings with the SEC a discussion of the factors that could cause the results to differ in particular, our press release issued and filed today, as well as the risk factors sections of our most recent quarterly on Form 10 Q previously 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. During this call, we will discuss certain non GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures 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. In the first quarter of fiscal twenty twenty four, we began to report our UK business as a discontinued operation. Accordingly, all metrics discussed on today's call represent our continuing operations. 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 shortly. And now, let me turn the call over to Matt.

Thanks, Cheryl, and good afternoon, everyone. Thanks for joining us today. Our team delivered another strong quarter as we further advanced our transformation strategy. We exceeded our expectations in Q2 with revenue of $312,100,000 and adjusted EBITDA of $15,900,000 The team achieved a seven ten basis point sequential improvement in year over year revenue comps and a contribution margin of 33%. Our fourth consecutive quarter above 30%. In addition, both our men's business and our freestyle channel returned to year over year revenue growth. We are encouraged by these results and remain focused on the work ahead to return Stitch Fix to overall revenue growth. Based on our current performance, we are also raising our annual guidance for the current year which David will detail shortly. We attribute our progress to a number of improvements we've made to reimagine our client experience. These include increasing newer more on trend styles in our assortment expanding fixed flexibility and strengthening client stylist relationships. In addition, we're investing in Freestyle, our personalized direct e commerce platform. All of these enhancements are resonating with clients Let me touch on each First, the investments we've made to improve the quality of our assortment and ensure a healthy inventory position are working.

In Q2, we delivered AOV up 9% year over year driven by broad based strength in keep rate, AUR and items per fix. We are seeing particular success with new Stitch, We finished Q2 with keep rates for new inventory of 7% year over year. We also continue to leverage our proprietary AI merchandising tool for improved inventory management. As a reminder, this tool utilizes our client transaction and feedback data to predict demand at the individual style and client level. So that our merchandising team can make buying decisions that are more effective, and efficient. It also enables our merchants to spend more time on the art of merchandising including trend identification, vendor partnership and private brand development. Speaking of our private brands, our newest labels The Commons and Montgomery Post are performing well. With The Commons now a top five revenue brand in men's. And styles from national brands such as Viori, Marine Leer, Rhone, Vineyard Bind, Public Red Ferdy and Pistola continue to resonate with our clients. In terms of category performance, for our women's clients, dresses and denim led category growth. Denim sales as a percentage of our overall women's business increased from Q2 of last year and within dresses, workwear dresses generated a positive year over year sales comp of more than 60%.

Meanwhile, the standouts in men's were cashmere and performance workwear up year over year by over 400% nearly 150% respectively. As mentioned, our men's category returned to revenue growth in Q2 and we believe our men's clients have responded well to the enhancements to our assortment, and to the more precise and segmented marketing we've applied. While a smaller percentage of our portfolio today we are encouraged by the growth inflection and remain confident men's can be a durable growth engine for us going forward. I'll also note that as part of our broader focus on newness, we've expanded our non apparel categories across lines of business to deliver full outfitting solutions. We have seen favorable results in sneakers, jewelry and accessories with each category delivering positive revenue comps within the quarter. Second, the enhanced flexibility we are building into our experience has been well received with our clients' response surpassing our initial expectations. Of note, we're seeing increased adoption and greater AOVs We believe that offering this increased level of flexibility helps our clients navigate seasonal transitions outfitting solutions, and changes in their fit profile. And that this change will become an important driver of long term engagement. Third, deep client stylist connections are an essential part of the highly personalized shopping experience we are known for.

And we have made ongoing investments to strengthen those relationships. Since Stitch Fix's inception, we've combined expert stylists, with best in class algorithms and advanced data science to deliver tailored style recommendations. In Q2, we launched enhancements to our models that deliver better stylist recommendations so that they in turn can deliver the right apparel and accessories to each individual client. Our broader investments in these relationships which also include the launch of stylist profiles so clients can better know who is styling them are resonating. In Q2, the percentage of clients requesting the same stylist for their next fix hit the highest level in nearly five years. I also mentioned that we are continuing to invest in Freestyle as a complement to our fixed offering. While fixed remains a majority of our business, our healthiest clients are those who utilize both channels. In Q2, we ran dedicated campaigns to drive awareness and consideration of Stitch Fix as a destination for holiday shopping for the first time. In addition, we adopted more advanced data driven forecasting tools which expanded our shoppable selection by more than 20% without any increase in inventory ownership. Initiatives such as these contributed to free [indiscernible] and we see more runway to improve future performance.

In aggregate, we are seeing the impact of the changes we've made to our experience in our client metrics. We are making progress toward active client growth Clients new to Stitch Fix increased year over year And importantly, Q2 marked our smallest sequential decline in active client count in three years. Since August, when we introduced the first set of changes to our client experience, each monthly cohort we have acquired has spent more than cohorts from the same month the previous two years. Contributing to ongoing strength in ninety day LTV. We're also pleased to see further increases in clients who have enabled The performance of these cohorts gives us the confidence to invest further in both engaging our existing clients and acquiring new ones. To achieve this, we are building a that explores how Stitch Fix helps solve our biggest shopping fit and style challenges people face. We have also optimized our channel specific media, as well as launched segmented onboarding experiences that speak to distinct needs of different clients. I'd also like to recognize that this earnings call is happening during a time of uncertainty with respect to the macroeconomic environment and in particular the impact of tariffs.

Our team and partners have a history of managing tariffs well and have confidence we'll continue to do so. We currently do not expect that tariffs will impact client prices or margins in the second half.

We remain focused on our clients and we will continue to work hard to deliver the best experience and value to them every day. To wrap up, Q2 was a strong quarter and demonstrates the undeniable progress of our transformation strategy. Our team remains focused on execution to unlock our market opportunity and we believe our recent performance shows we are making the right investments as we look ahead to the growth phase of our transformation. With our expert stylists, curated assortment of private and national brands, best in class AI and recommendation algorithms, and in-depth customer data I believe more than ever that Citrix offers a and we constantly challenge ourselves on how best to serve our current and prospective clients for all of their apparel and accessories needs so that we are their retailer of choice.

I also want to take a moment to recognize the entire Stitch Fix team and thank them for their dedication and hard work in service of this goal. With that, I'll turn the call over to David to share more details of our financial results and outlook. Thanks, Matt. To reiterate, we're encouraged with the momentum we're building. The team delivered a strong Q2 which gives us greater confidence in a return to overall revenue growth during FY 'twenty six. We can see the impact of our transformation strategy across the P and L. Our year over year revenue comps continue to improve each quarter And while they are currently smaller areas of our business, the return to growth in men's and freestyle indicates that we are on the right path we're making the right investments, and we have the right team in place to deliver on our commitments. We're applying learnings from the success of these two areas across our entire business. Now let's dive into the results. Q2 net revenue came in at $312,100,000 down 5.5% year over year and 2% quarter over quarter. Revenue was above our guidance range due to sustained strength in AOV, which was up 9% year over year and 4% quarter over quarter.

January was a particularly positive month for us as we were well positioned from an assortment perspective to better meet our clients' apparel needs. As Matt noted, the AOV upside in the quarter was driven by higher keep rate AUR and items per fix, This contrast with last quarter's growth in AOV which was primarily due to AUR. This quarter, we saw strength across all three of these AOV drivers. Our AOV has now increased year over year for the last six quarters which is encouraging. And we believe there is additional opportunity. On the client side, active clients ended the quarter at $2,400,000 down 16% year over year and down 2.6% quarter over quarter, in line with our expectations. Returning to client growth is a big opportunity and one we're focused on. Though progress may not be linear and we still have work to do to get there. Within the context of our active client declines, it's important to note that our recent AOV increases could present more challenging revenue growth comps in the future. And that's a factor we're considering as we look ahead to FY 2026. Revenue per active client or ARPAC for the quarter was $537 up 4% year over year and relatively flat on a sequential basis.

Gross margin for Q2 came in at 44.5%, up 110 basis points year over year, driven primarily by AOV up upside and improved product margins. Our contribution margin in Q2 was 33%, our fourth consecutive quarter above our historical range of 25% to 30 Our warehouse and styling teams continue to drive leverage. And we believe this new cost structure is sustainable going forward. It's because of the great work our teams have done in building and maintaining a strong foundation for our business that we can continue to lean in and invest in areas such as inventory assortment, and marketing.

In advertising, we came in slightly below our estimated range 7.8% of revenue in Q2. Down 160 basis points quarter over quarter. We consistently bring a disciplined ROI lens to our marketing spend. And the holiday period tends to be a more expensive time to acquire new clients. With our focus on long term durable growth, adjust our ad spend regularly. Aiming for efficiency and acceptable ROI. We ended Q2 with net inventory of hundred and $9,600,000 down 13% year over year and down 8% quarter over quarter. Due to our improved inventory management. Which as Matt mentioned is aided by AI tools that help us maintain healthy levels across our assortment to meet client needs and balance risk. Q2 adjusted EBITDA was $15,900,000 or 5.1% margin. Up three eighty basis points year over year up 90 basis points quarter over quarter.

Free cash flow was negative in line with our expectations. As I said last quarter, we anticipated Q2 would be negative due to the timing of working capital requirements related to inventory purchases. We ended the quarter with $230,000,000 in cash, cash equivalents and investments, and no debt. Turning to our outlook. As a result of the strength we saw this quarter, are raising our annual revenue and EBITDA guidance. Today's update reflects our current expectation that tariffs will not impact client prices or margins in the second half of this fiscal year. We'll continue to monitor the potential impact of tariffs as well as the increased uncertainty in macroeconomic conditions and consumer sentiment. For full year FY 2025, we expect total revenue to be between $1,225,000,000 and $1,240,000,000 We expect total adjusted EBITDA for the year to be between $40,000,000 and $47,000,000 This guidance still assumes we'll free cash flow positive for the full year. For Q3, we expect total revenue to be between $311,000,000 We expect Q3 adjusted EBITDA to be between $7,000,000 and $10,000,000 We expect both Q3 and full year gross margin to be approximately 44% to 45%. And we continue to expect full year advertising to be at the high end of the 8% to 9% range we provided last quarter.

In closing, our first half results and second half outlook demonstrate that we are making clear and measurable progress across many areas, We're methodically executing on our strategic priorities with financial discipline, and striking a healthy balance by maintaining a lean cost structure and a strong balance sheet, while making disciplined investments that aim to fuel future sustainable profitable growth. And with that, I will turn the call over to the operator for questions.

And that will come from the line of Anisha Sherman with Beren Your line is open.

Thank you, Sameet for taking my question.

Matt and David, I was wondering if you could start by telling us reminding us a little bit about your customer demographics in terms of household income and any other demographic features you think are relevant given the current changes in consumer sentiment across income bands?

And then I have a follow-up regarding some of the comments that you've made previously in your presentation around market size. You're under 1% of the total accessible market as you define it in U. S. Apparel. Do you think that you need Freestyle in order to expand that TAM? Or do you think there is continued opportunity for expanded TAM with just the fixed model in terms of driving brand awareness and and penetration? Thank you so much.

Hey, Nisha. It's Matt. I appreciate the question. So first in terms of who our clients are, we really think about our clients from more of a attitudinal or behavioral standpoint. And we see that client base really span across all different levels of household income. And what's really important and noteworthy within our client base is why they come to Stitch Fix and why our core value proposition is built uniquely to serve them. So our clients are coming to us. They're looking for help or advice or solutions or additional convenience when it comes to shopping for apparel and accessories, when it comes to understanding what is in style or on trend, when they need help putting together outfits, And one of the things that's really exciting and compelling about the Stitch Fix value proposition is that's the majority of this country. When you look at the data that exists out there, is a recent article in the Wall Street Journal actually only about 10% of U. S. Consumers are satisfied with the in store shopping experience for apparel right now. And similarly, and along those lines, about 90% of people feel Stitch when deciding either what to buy or what to wear when they're getting dressed each day.

And that stress and anxiety, really coupled with the challenges that they have with the alternative shopping method, is why the core value proposition of Citrix is one that resonates so strongly. We're able to provide the service that we offer that's what makes it possible for these folks to really find the styles that match their style preferences, That's what enables us to service them within their value proposition And it's also what enables us to make sure that the apparel that we send them is going to fit And you really compare that against the alternative shopping methods that they have. And those clients, they really don't prefer to spend hours traversing around a department store or trying on clothes in a disheveled poorly laid dressing room. They're also not interested in browsing endlessly online seeing products that don't match their style preference or more expensive than the budget at the time were so cheap, they questioned the authenticity or value of the garment. And then of course, if they do buy online, you're going to get boxes piling up at their house and often very little of that assortment ultimately going to fit them. We provide a solution for all of that.

We make it easy for those folks. And we do that through our deep understanding of each individual client. And that's powered by our AI driven insights proprietary algorithms as well as the skills of our and the expertise of our human stylists. And in a period in time in which consumer might be more tight with their discretionary income, we also feel like we have a competitive advantage in that situation. The relationship that our clients have with Stitch Fix is one that's enduring. They come to understand and appreciate the additional convenience and the solution orientation of our service the fact that we make it really easy for them to get their needs met. We also through our the recurrence of our relationship with them in our business model It's such that our product ends up at a consumer's home. They get try it on within their own closets. And they don't if they are thinking about reducing a shopping journey, whether that's opening a shopping app or driving to a mall, we basically circumvent that based on the really strong relationship and the recurring shipment dynamic that we have with them. We feel that we're strategically really well placed to find success even in a tougher consumer environment.

I think a lot of that can also be seen by our more recent results. As David noted in his prepared remarks, January was particularly strong month for us. We continue to see strength in our business performance through February. We can performance in March. And I think that should be clearly evident in the significant raise that we had in the full guidance for this fiscal year. So we feel like we're really well positioned to serve clients no matter what their household income is, no matter what demographic they have because of the compelling value proposition and the unparalleled service that Stitch Fix provides for us. Or provides for clients rather. On the second question, in terms of the role of Freestyle and how Freestyle helps us to to really address the larger market for us. I think that Freestyle plays a critical role for us and for our clients It's something that enables our clients to shop in between fixes It also enables that if the client, for example, gets a polo shirt within their fix and they love how it looks, they love how it how it feels and the price is right, they can jump right back into the Stitch fix ecosystem and buy that same polo shirt in multiple colors.

Which makes I think tremendous sense. We also have all of this same leading personalization technologies built into our freestyle experience. So that when clients after a fixed experience, they can come in if they really like to a particular item, they're then able to jump into the freestyle experience and build outfits around that specific item that they kept within their fix. And since the launch of our Stitch file as well, the individual style persona that every client has, You also have personalized shopping tailored to your style file which clients have really resonated with and have really appreciated since we launched that last year. So the Freestyle business, what it does, it really serves complementary to our fixed experience. It helps us capture greater wallet share for our clients. It helps ensure that when a client anytime they have an apparel and accessories need, Stitch Fix will be the retailer of choice for them. So as it helps us increase our wallet share with each individual client, it will also help us expand our penetration of the total addressable market.

Really helpful. Thank you.

You're welcome.

Thank you. One moment for our next question. And that will come from the line of Dana Telsey with Telsey Advisory. Group. Your line is open.

Hi, good afternoon, everyone. As you think about the dynamic world of tariffs that we're in, how are you thinking of that impact on your pricing and own brand versus national brands?

And then as you've expanded the number of brands that you carry, what categories are you seeing that are performing what categories are being Stitch? Thank you.

Hey Dana, appreciate the questions. The first question really around tariffs. I think the second in terms of the mix within our within our different brand portfolios and then also in terms of the category penetration that we're seeing. I think we talked about it a little bit in the prepared remarks and happy to share a little bit more details in terms of how we're approaching the current environment with the reality of tariffs. And the continued kind of volatility of what tariffs might be in the future. So we have a tariff task force in place This is a team of folks that have a proven track record of doing a really good job mitigating the impact of tariffs previously And they put together, I think, a really good tariff mitigation strategy. That will enable us to protect the profitability within our private brands. Our private brand portfolio consists of several vendors Many of those vendors have production across multiple countries, which gives us optionality to be very strategic if necessary. In order to reduce what would be a longer term financial impact from tariffs. It's a bit of an overlap with the second part of your question, but it's a multi brand vast matrix of national and market brands in addition to our private brands.

So if necessary in order again to mitigate any potential impact from tariffs, We're able to shift within that portfolio or within that matrix of brands I think really strategically as well. And I think ultimately, I just reiterate what we said in the prepared remarks that as we're looking at the balance of this fiscal year, we're not currently anticipating any impact to our margin or any required increase in cost client facing. And I think that gives us a really nice competitive advantage relative to the position that others might find themselves in this situation. And credit to the team for the really sound strategy and the execution of that. When it comes to the matrix between our national brands and our private brands, We've talked about this before. I appreciate the question because it's really important I think, for us to reiterate, we're going to continue to be client led. We're going to continue to focus on what client demand is telling us And that will help us determine what is that right balance between private brands and national brands. We have a really strong portfolio of private brands. As noted in the prepared remarks, we've recently launched two new private brands that are resonating really well with our clients.

It was awesome to see the comments pop up to be one of the top brands in our entire men's portfolio. And I think we're going to continue to find success as we continue to invest in the value proposition within those private brands. If you recall some of the conversations that we were having last fiscal year and even earlier, we did a lot of work earlier in my tenure to really edit within our overall assortment. To make sure that the national brands we are carrying are ones that added incremental value and [indiscernible] what we were already offering with our private brand portfolio. That great work from our merchant organization is what's enabled us now to go back out into market and to reinvest and to bring in new [indiscernible] within the consumers that we're serving today. And that's really strengthened our overall assortment matrix. I believe that investment in newness across our assortment that recalibration of where we sit within the style and trend spectrum has really helped us drive a lot of the success that we've been speaking to in terms of keep rate and AOV and our items per fix. And we're going to continue to lean in there.

It's really critical that as an apparel and accessories retailer, we are standing behind all of the assortment that we're bringing in and all of that matrix of it. And then I think the final piece in terms categories we've always and historically been really do a really good job in our tops and bottoms business we continue to invest there and we continue to maintain our market share within those categories. What I love about how our merchant team has responded to the challenge, particularly over the last nine months, is how do we continue to lean in and ensure that we're capturing fair share in all of our other categories. We've seen a lot of success across the board as we're looking to building out additional categories and growing our market share. And capturing the wallet share to consumer level. Within each of them. One thing that I will note, and it's been a continued focus as mentioned in the prepared remarks is our particular emphasis within the non apparel categories It's great to see sneakers and accessories become growing categories for us. And we'll continue to invest [indiscernible] other thing that I believe is really important when you're thinking about our category expansion and deepening our market share within each category.

Is the continued penetration and adoption of the Flex Consumers and our clients absolutely love that we're allowing them to choose six, seven or eight items within a particular fix Every time we look at the data, the adoption rate continues to exceed our updated expectations. And in a really exciting way too, we continue to see even better order economics. The more items that a client is [indiscernible] And that's what gives us that ability to really lean into that category expansion and ensure that expanding in a new category doesn't in any way cannibalize [indiscernible] key driver of our wallet share expansion and our market share expansion as we And Dana, I would just add really quickly that when we look at that [indiscernible] to know that we can do that and still maintain the gross margins that we have and that we guided to in our prepared remarks, still being in the back half of the year From a full year perspective, in the 44% to 45%, and still having really healthy contribution margins. We had 33% this quarter and we believe that that's sustainable going forward. And so just really encouraged with the leverage that we're driving the business to to allow those investments as well.

Thank you.

Thanks, Linda.

Thank you. One moment for our next question. And that will come from the line of Jay Sole with UBS. Your line is open.

Hi. This is Suri Sabarajak on behalf of Jay. Congrats on a nice quarter. My first question is on gross margins. Just wondering if you have any outlook for 3Q right? In 2Q, it looks like gross margins expanded about 105 basis points. So I was just wondering what were some of the drivers of that? And similarly, do you have like what are you expecting to drive gross margin expansion or contraction in 3Q? Yes, Serge. Thanks for the question. In it was really more about typical seasonality. In gross margin. We tend to see a quarter over quarter decline between Q1 and Q2. Certainly, promotions play a part in that. But we're still very comfortable with the 44% to 45% that we have for the full year guide. And I think thinking about the back half, I would still think about the back half in that same range. Got it. Got it. And then just one more quick one if I can. You briefly mentioned that March was strong. But just wondering if you can give any more color on sort of quarter to date trends Anything you're seeing in February and March? Is it similar to what you were seeing in 2Q?

Is there is it a little stronger? Yes. Maybe I'll jump in at a very high level and David, if you want to follow-up with a little bit of detail. Serge, nice to chat again. Look, I mean, we're just incredibly encouraged by the momentum that we are seeing. We were really encouraged by the results that we had in Q2 that exceeded our expectations. And the initial response is just I think based on the very significant increase in our guidance over the back half of the year, we're looking to see that momentum not just continue, but also accelerate over time, which I think is just a really good way to be thinking about what that performance was in February and what we've seen March to date. The piece that I think is also maybe worth reiterating a bit from the prepared remarks, I'd shared that since August, when we both launched the rebrand of Citrix as well as the first set of changes around our client experience or the reimagination of that client experience we just continue to see tremendous success with all of the clients that we have been acquiring over that period of time. And normally when you launch a rebrand and you launch so many net new updates to your client experience, often you actually see a bit of a short term setback in your performance metrics.

And then often also some initiatives will take root and perform while others might not take root or might not perform to expectations. I think in credit to the team for having the right strategy and credit to the team for really great execution of that strategy, Since that moment in August, nearly every initiative that we've introduced as part of that reimagination of the client experience has performed well. And nearly every initiative has also [indiscernible] our expectations. And that performance is what enabled us to achieve year over year revenue growth in men's, That is what has enabled us to achieve year over year revenue growth in our freestyle channel And although not noted in the prepared remarks, I think also really important to share that that's also what enabled us to drive significant improvement in trend in our women's business and also what enabled us to drive significant improvement in trend within the fixed channel. So I think ultimately we've really focused on strengthening the foundation of our business and instituting retail best practices across the board. And now with the reimagination of the client experience layered on top of that, we're really starting to see that outsized improvement in trend in our business overall.

And we expect that momentum to continue. And as I noted, I believe that should be quite evident in the raised guidance that we shared for the balance of the fiscal year. Yes. And Serge, just to add a little bit more detail around some of the numbers, For this quarter, we saw a 9% year over year increase in fixed AOV and that was a big part of the outperformance and certainly the performance versus expectations. And there were a couple of things going on there. First, we saw higher than expected adoption of that Flex Fix offering. Increases the average number of items sent in a fix. Fixes with that extra Flex [indiscernible] 40% from the end of Q1 to the end of Q2. Second, we also saw higher than expected keep rate in the quarter. Historically, we've seen a pretty significant decline in keep rate coming out of the holidays. But the teams, the merchandising teams, the technology teams, the styling teams, really took a number of actions to make sure that improved this year and we saw that come through and we saw it build throughout the quarter. A stat just to sort of show that build is AOV in January was 16% year over year.

And so just a really strong quarter. And to Matt's point, we played forward some of that AOB upside and also some of the volume benefits we've been seeing recently and played that forward in in our overall guidance for the year. The other thing I would call out is sort of the active client side. We're definitely encouraged with what we're seeing from an active client standpoint. And when you play that out into future quarters, for Q3, we expect active clients to be down quarter over quarter, but improving from last quarter. So So roughly sort of approximately about 1% down quarter over quarter. The only call out there is there is seasonality to active clients as well. And so Q4 Q3 tends to be a stronger quarter than Q4 for us. And so because of that, we probably expect Q4 to be down slightly more quarter over quarter than Q3, but still much better than what we saw last last year.

Thank you, Brad.

Thank you. One moment for our next question. And that will come from the line of Dylan Carden with William Blair. Your line is open.

Thanks. Maybe David, just following from that. Line of [indiscernible] The comments that AOV go forward might present kind of a headwind to growth. Can you just unpack that a little bit?

Yes, definitely. Thanks for the question, Don. I mean, basically AOV has been a really strong for us. AOV has been up six quarters in a row. And really, as you start copying that, if you think about the two year stacks, I mean, in 9% up this this Q2, last Q2 was up 4%. So that's a 13% stacked comp over the last two years. And so what I was alluding to is with those increases, certainly comping that going to next year just creates a little bit more of a challenge. And certainly in the environment that we just described around active clients as well, active clients we do expect active clients to continue to climb into FY 2026 and that along with sort of harder comps from an AOB perspective are just things that we're certainly taking into account as we start looking at FY26 six. Got it. And so I guess the flip side of that is that the growth that you're kind of forecasting is more of an active client growth story then than kind of continuing to push on spend per I think we've actually talked about this the last couple quarters is I think we have opportunity in both areas.

And certainly what we're seeing right now is strength in existing client engagement and really offering them a lot more value and different ways to engage. And so we've been seeing that. But I think what we've said historically is that we really want to see both to talk about long term sustainable growth. So I think there's a path to growth without that inflection active clients. But certainly when you have both, that's when you get to that sustainable long term growth that we're really driving towards.

Thank you. I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Matt Baier for any closing remarks.

Okay. Thank you. To recap, I think just want to reiterate how encouraged I am by our recent results. For the second quarter, we exceeded our expectations for both revenue and adjusted EBITDA and we also raised our full year outlook for both metrics. And that momentum that we're seeing in our business, that momentum is undeniable. The improvements our team has made to our client experience, are clearly resonating We're getting great feedback from our clients on these changes and our clients are telling us that we're increasingly delivering on our mission. The mission to help them discover the styles they will love that fit perfectly. So they always look and feel their best. Importantly, we're also making progress toward active client growth. And we've already returned top line revenue growth in both our men's business and our freestyle channel. And all this progress wouldn't be possible without our team, and the team continues to build a stronger operational foundation for our business to grow upon. That foundation will enable us to scale and move towards the growth phase of our transformation. I continue to believe that a judicious and disciplined transformation is one that will lead to profitable and sustainable growth in the future.

Given Stitch Fix's compelling value proposition, which we just discussed, the innate strength of the business model and all that we've accomplished in the first half of fiscal twenty twenty five I'm more confident than ever Stitch Fix's future and our ability to be the retailer of choice for an expanded base of clients.

We very much appreciate your interest in Stitch Fix and look forward to sharing our continued progress with you on our next call.

Thank you for participating in today's conference. This does conclude the program. You may all disconnect. Have a great day.