Stitch Fix, Inc. continues its expense-cutting efforts as it works to right-size the business and focus on its consumer experience. After deciding to shutter its UK operations this past summer and continuing the work to shut down its distribution center in Bethlehem, PA, the company will soon begin the closure of its facility in Dallas, TX.
According to a notice filed with the Texas Workforce Commission, the Dallas distribution center layoffs are scheduled to begin December 1 and continue through April 5, 2024, the DC’s last day of operation. In total, 558 people are expected to lose their jobs in this latest move. According to the notice, 484 of the cuts are warehouse associates. Supervisors and managers at the Dallas location will also lose their jobs.
When reporting financial results for the 2023 fiscal third quarter, which ended April 29, Stitch Fix said it would not renew its lease at the Hanoverville Road facility in Bethlehem, affecting nearly 400 jobs at its Pennsylvania distribution center by the time it closes it in February 2024. Stitch Fix reportedly hired 500 workers for the Bethlehem location when it opened in 2016.
Stitch Fix Inc. filed a Worker Adjustment and Retraining Notification letter, informing the Commonwealth of Pennsylvania that 393 employees are affected by the move to consolidate its distribution center network. Layoffs will happen in phases and began September 8, with the last date of onsite operations anticipated to be February 2, 2024.
Late last year, Stitch Fix closed its Mohnton Mills operations in Berks County, PA.
Still, the company plans to hire about 400 employees as it ramps up capacity across its three other locations in Atlanta, Indianapolis and Phoenix. The company said it would consider hiring employees from Dallas who move to one of those locations if they are in good standing and a role is available.
Stitch Fix is also shuttering all its operations in the UK.
“After a careful review of our operations in the UK, we made the decision to wind down that business,” said company CFO David Aufderhaar on the company’s fiscal Q4 conference call with analysts on September 18. “We notified the affected employees in August, and we expect the full closure of our UK operations to be completed this calendar year.
The company suggested the U.S. moves and the UK closure of operations were necessary to generate the near-term profitably and cash flow required to reorganize the business for future growth and profitability.
“We made the decision to focus on the core fixed experience [of the consumer], which meant changing our inventory product and marketing strategies,” explained Aufderhaar on the Q4 call. “To allow time for those strategies to take hold, we focused on near-term profitability and cash flow. This meant restructuring our organization, consolidating our warehouse footprint and making the decision to exit the UK market.”
Aufderhaar said the decisions to close the DCs, while difficult, were the right ones.
“Throughout the course of the year, we improved our inventory position, realized over $150 million of annualized cost savings and achieved our goal of returning to positive adjusted EBITDA and free cash flow,” he explained.
The CFO also noted on the call that fiscal 2023 full-year revenue fell 21 percent year-over-year. He said they ended the year with approximately 3.3 million active clients, a decrease of 13 percent year-over-year.
“Despite the revenue decline, we believe we effectively unlocked the leverage potential for our business moving forward,” he continued. “We made great progress through cost savings and restructuring initiatives and ended the year with adjusted EBITDA of approximately $17 million, an improvement of more than $35 million versus the prior year. We also generated nearly $39 million of free cash flow.”
Aufderhaar noted that the company’s fourth-quarter performance was better than expected and reflected the work done to improve gross margin and right-size the company’s cost structure. He said they also made progress on several key initiatives in the quarter.
“After a careful review of our operations in the UK, we made the decision to wind down that business,” he shared. “We notified the affected employees in August, and we expect the full closure of our UK operations to be completed this calendar year.”
Aufderhaar said the plan to consolidate from five U.S. warehouse locations to three is on track to be completed in the current fiscal year, meaning fiscal 2024, which ends in July 2024.
“We believe the consolidation will have immediate cost savings and having inventory in fewer warehouses will make it easier for stylists to build more relevant assortments for clients, and we will realize inventory efficiencies as we scale,” he added.
He said the company continues to expect the combined annualized cost savings related to the closure of the UK operation and the U.S. warehouse consolidation to be approximately $50 million.
Fourth quarter net revenue was $376 million, down 22 percent year-over-year but above the high end of the company’s prior guidance due to higher order volume. Revenue per active client declined 9 percent year-over-year in Q4 to $497 million. Gross margin expanded 330 basis points year-over-year to 43.3 percent of sales in the quarter. Aufderhaar pointed to the efforts of the merchandising teams to improve the composition of the inventory over the last year.
“We ended Q4 with net inventory down 30 percent year-over-year and down 10 percent quarter-over-quarter to $137 million as we continue our efforts to align our inventory position with demand and increase the assortment composition of our successful private brands,” he detailed.
Fourth quarter adjusted EBITDA was reported at $10.4 million, above the forecast range due to better-than-expected revenues and the gross margin and operating leverage.
Stitch Fix generated $18 million of free cash flow in Q4 and ended the year with $258 million in cash, cash equivalents and investments and no bank debt.
Looking ahead, Stitch Fix expects total U.S. revenue to come in between $1.30 billion and $1.37 billion for the fiscal year, with total U.S. adjusted EBITDA between $5 million and $30 million, “primarily reflecting an improved gross margin and ongoing cost savings initiatives.”
The guidance also assumes the company will be free cash flow positive for the full year, though Aufderhaar said they may see some variability between quarters due to the timing of working capital requirements related to inventory purchases.
For the fiscal first quarter, the company expects total U.S. revenue to be in the range of $355 million to $365 million, and it expects U.S. Q1 adjusted EBITDA between $2 million and $7 million.
“We also expect revenues from the UK, which we anticipate will be reported as discontinued operations in Q1, to contribute approximately an additional $7 million in Q1,” Aufderhaar concluded.
Photo courtesy of Stitch Fix, Inc.
