SFIX - NASDAQ

Good afternoon and thank you for standing by. Welcome to the Third Quarter Fiscal Year 2024 Stitch Fix Earnings Call. At this time, all participants are in a listen only mode. After the speaker's presentation you will be invited to participate in a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. And now I'd like to hand the call over to Hayden Blair, Senior Director, Investor Relations and Treasurer. Please go ahead, sir.

Good afternoon, and thank you for joining us today for the Stitch Fix third quarter fiscal 2024 earnings call. With me on the call are Matt Baer, Chief Executive Officer; and David Aufderhaar, Chief Financial Officer. We have posted complete third quarter 2024 financial results and a press release on the quarterly results 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 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 annual report on Form 10-K for fiscal 2023 previously filed with the SEC and the quarterly report on Form 10-Q for our third quarter of fiscal 2024, which we expect to be filed later this week. 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. Reconciliation 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. In the first quarter of fiscal 2024, 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 website shortly. And now, let me turn the call over to our CEO, Matt Baer.

Thanks Hayden, and good afternoon everyone. At Stitch Fix, we are on a journey to transform our business and our efforts remain focused on two areas. First, we are working to strengthen the foundation of our business across all disciplines. This includes embedding retail best practices across the enterprise, identifying operational efficiencies, and ensuring we have the right organizational structure in place to enable our future success. Second, we are reimagining the client experience and taking a holistic approach to rethink how our clients engage with Stitch Fix. I am particularly encouraged by the progress we've made on our foundational work, which outperformed our expectations, as well as delivered results earlier than anticipated, resulting in our revenue and adjusted EBITDA coming in ahead of our guidance for the quarter. In Q3, we achieved net revenue of $322.7 million, and adjusted EBITDA of $6.7 million. We also achieved gross margin of 45.5%, our strongest quarterly result in more than two years. While we are still in the early days of our transformation efforts, our Q3 results reaffirm my confidence that we have the right strategy in place. In addition, our financial position continues to be solid. We have a healthy balance sheet and no debt. This, in combination with our enviable order economics will enable us to invest in the areas of the business that we believe will drive sustainable, profitable growth in the future. Now, I'd like to talk through some of the specific foundational efforts that contributed to our results this quarter. Stitch Fix's unique business model allows us to know more about our clients on day one than many retailers could aspire to know over the course of their entire relationship. This advantage, combined with the AI and data science that have been fundamental to our DNA since day one enables us to create better client experiences, as well as identify business efficiencies. In Q3 we leveraged our analytics capabilities to improve the profitability of fixed transactions while strengthening client satisfaction. Following a robust analysis of client interactions, we found opportunities to reduce underperforming shipments. As an example, we currently offer quick fixes, which provide clients the option to schedule an additional fix immediately following checkout. Utilizing our proprietary demand algorithms, we improve the performance of Quick Fix’s by only offering them to clients when we know the new fixes have a high likelihood of success. Within three weeks of this change, Quick Fix average order value improved by 25%. Another example of work to improve profitability is we recently completed a comprehensive review of our pricing architecture to ensure price points within each of our lines of business are aligned with the value we offer. Within each category, we tested the elasticity of price to ensure we are priced appropriately while still serving our clients needs. The results of these tests indicated more than $20 million of annualized contribution profit opportunity. Building upon our effort to increase client engagement, we're utilizing improved CRM to drive more frequent freestyle transactions and engage our current clients outside of their fixed schedule. As part of this, we are testing new promotional capabilities to drive incremental sales and manage our inventory more efficiently. Looking ahead, we will take a more data-driven approach through the use of targeted offers and promotional events. In addition, as part of our broader approach to embed AI across our business, we continue to scale our AI inventory buying tool to inform a larger set of buying decisions. This tool sifts through our proprietary transactional and client data to predict demand at the individual style and client level, empowering our merchandising team to make buying decisions that are more effective and efficient. This enables our merchants to spend more time on the art of merchandising, including trend identification, vendor partnership, and private brand development. In Q3, the tool informed nearly half of all inventory receipts, and that merchandise outperformed the items selected without the use of the tool. Moving forward, we will further leverage this capability and expect it to increase the productivity of our inventory while delivering our clients the styles they will love. These examples demonstrate the recent progress we've made to strengthen the foundation of our business. As we advance our foundational work, we believe these efforts will continue to increase wallet share and improve profitability. Now, despite this progress, new client acquisition remains a headwind. And we are addressing the challenge of reaching the right client acquisition targets in order to build a healthier and growing client base. In the immediate term, we are making sure we have the right media mix and improving the effectiveness of each marketing channel. Our opportunity remains to improve our conversion metrics as we further optimize our marketing and reimagine our client experience, which together will help us acquire, retain, and reactivate a growing number of highly engaged clients over time. Next, I'll speak to our work to reimagine the client experience, which we believe is critical to ensuring we can better serve the clients we have today, as well as those we plan to acquire in the future. This work continues to progress on schedule. As we have shared before, one of our key differentiators is how well we know our clients. And our success has always been tied to our ability to deliver a convenient and personalized experience that helps clients discover the styles they will love. As we work to reimagine the client experience, we're rethinking every interaction. This includes how we serve clients through the number of items in their fix, how we approach fix discounting, and the more dynamic and visual onboarding we discussed last quarter. We have a number of tests in the market tied to these areas, and we are encouraged by the results we are seeing so far. We expect the first of a series of experience updates to launch this summer. The end result will be a more modern and dynamic Stitch Fix. I'm excited by our progress this quarter. We are seeing the impact of our efforts to strengthen our foundation and are advancing our work to reimagine the client experience. We are on a mission to help people discover the styles they will love that fit perfectly so they always look and feel their best. When we do that, when we nail our clients style and fit, we win. And that's what our transformation is grounded in. With that, I'll turn the call over to David to talk about our Q3 financial results and future outlook.

Thanks Matt. As Matt indicated earlier, we're seeing signs of progress on our transformational work, driven by detailed analytics that helps us identify opportunities to improve multiple facets of our business. These efforts drove successful client outcomes, strong AOV and product margins, and improved freestyle performance in the quarter. Additionally, within our operations, our ongoing focus on carrier diversification further supports our expanding gross margins and cash flow. As a result of these efforts, we expect FY 2024 transportation costs as a percentage of net sales will be lower than any year since FY 2020. We also completed the closure of our Dallas distribution center in the third quarter and expect to continue to optimize our warehouse and transportation costs. Because of the work all of our teams have done to drive gross margin and variable labor efficiencies, our unit and order economics continue to improve. This quarter marked our highest contribution margin since Q1 of FY 2022. We are now above our historical 25% to 30% range in contribution margin. We believe all of the work we are doing across merchandising, pricing, client analytics, transportation, and operations will provide opportunities to further invest in areas that will drive sustainable, profitable growth in the future. Now let me get into the Q3 results. Q3 net revenue was $322.7 million, down 16% year-over-year and down 2% quarter-over-quarter. Revenue per active client for the third quarter was $525, up 2% year-over-year, and up 2% quarter-over-quarter. We saw stronger AOVs, both in terms of AUR and keep rate due to the cumulative impact of the ongoing work to improve our inventory health, our pricing science, and our focus on improving the profitability of our transactions. Net active clients ended the quarter at approximately 2.6 million clients, down 20% year-over-year, and down 6% quarter-over-quarter. Gross margin for the quarter was 45.5%, up 280 basis points year-over-year and up 210 basis points quarter-over-quarter, driven by strong product margins and the transportation leverage discussed earlier. Q3 advertising was 9% of revenue, up 7% year-over-year and up 18% quarter-over-quarter, due to our typically stronger seasonal spend versus the second quarter. Q3 adjusted EBITDA came in at $6.7 million, or 2% margin, down 140 basis points year-over-year and up 80 basis points quarter-over-quarter. This result was above the guidance range we provided due to top-line leverage, improved gross margins, as well as our ongoing cost management discipline. Net inventory decreased 20% year-over-year and 9% quarter-over-quarter. We continue to expect inventory balances to remain at these lower levels for the remainder of FY 2024 as we align our inventory position with demand and further utilize our AI inventory buying tool to drive efficiencies. Free cash flow was $18.9 million in the quarter, and we ended Q3 with $245 million in cash, cash equivalents and investments and no debt. Turning to our outlook, for Q4 we expect total net revenue to be between $312 million and $322 million, which increases our full year revenue range to between $1.33 billion and $1.34 billion. This reflects continued strength in AOV with expected year-over-year improvements in both keep rate and AUR. We expect Q4 adjusted EBITDA will be between $5 million and $10 million, which increases our full-year adjusted EBITDA range to between $25 million and $30 million. We expect gross margins for Q4 to be between 45% and 46%. And we expect Q4 advertising to be between 9% and 10% of revenue. We also continue to expect to be cash flow positive for both Q4 and the full year. As our transformation progresses, our team is galvanized by the significant opportunity ahead to address a large retail market. We have a healthy balance sheet and we continue to actively manage our expense base. Because of this, we are well positioned to transform our business and invest in the areas that will drive sustainable, profitable growth in the future. With that, I'll turn the call back to Matt.

Thanks, David. At Stitch Fix, we have a powerful value proposition that combines a strong team of stylists, carefully curated merchandise assortment, and advanced AI and data science capabilities, which together create an experience that only we can deliver. I'm encouraged by how we are advancing our efforts to strengthen our foundation and reimagine the client experience in support of our transformation. While we still have work to do, I'm confident that the strategy we have in place will enable us to deliver sustainable, profitable growth in the future. We look forward to continuing to share our progress with you along the way. With that, I will turn it over to the operator for Q&A.

Thank you. [Operator Instructions] Our first question comes from the line of Youssef Squali from Truist Securities. Your question, please.

Great, thank you very much. Hi, guys. Two questions for me. First, Matt, you talked a little bit about reimagining the client experience and how that's on schedule. You teased a little bit something coming up. I think you talked about a first experience, something coming up this summer. Could you maybe unpack that a little bit for us and just how different is the new experience going to be from what we're used to? And then David, based on all the things that you guys are doing to drive user growth and reactivation, et cetera, how should we be thinking about the decline in active clients for Q4? I guess, what's baked into that guide? Thank you.

Hey, Youssef, it's Matt. Appreciate the question. So, in terms of the re-imagination of the client experience that we spoke to, I think really important to take a step back and just remind in terms of this really strong competitive differentiation that we have at Stitch Fix where before a client makes their first transaction, we know more about them than most retailers aspire to over the course of their entire relationship. We know their style preferences, we know their value orientation, and we have the data that we need in order to nail their fit. The work that we're doing to reimagine the client experience is how do we take that information and make sure that we're delivering the absolute best, holistic, end-to-end client experience to capitalize on that differentiation. The work, it's going to be critical in terms of how we better serve the clients, both that we have today, but also in terms of those clients that we acquire into the future. So, as noted previously, some of the work or some of the areas that we're focused on, it does include creating a more modern and dynamic interface, bringing more flexibility to that fixed experience. And one example of the latter is sending more than the traditional five items so that we can continue to improve our outfitting capabilities and better serve our client needs. And keeping in mind that our stylists continue to play a critical part in our value proposition, and something that our clients have told us is that they want to get to know the stylist behind their fixes. So part of the reimagination of the client experience will also be working to make our stylist a more central part of that experience, offering new touch points for clients to interact with stylists and vice versa. And as you noted, we do expect a series of these experiences or these updates to launch this summer. So we've been piloting and testing various aspects of the reimagine client experience along the way, really encouraged by the positive early results that we've seen from those tests. And everything that we do is rooted in better serving our clients, both in terms of the feedback that we've received of them and to capitalize on what we have as a unique competitive advantage here. David?

And then, Youssef, on the second part of your question around the Q4 guide, there are a couple components to that. First, we do expect the positive trends in AOV that we saw this quarter to continue into Q4, and that is included in our guide. But it also does include the continued negative trends that we've seen around active clients. And so we do expect active clients to be lower quarter-over-quarter in Q4. Rough size and shape down about 5% quarter-over-quarter. And all of that is reflected in the revenue guide of $312 million to $322 million for the quarter. On the expense side as well, we specifically called out, we expect gross margins to be between 45% and 46%. So we're continuing to see the benefits we've highlighted there. And then we are continue to actively manage our expense base as well. And so that's all reflected in the adjusted EBITDA guide of the $5 million to $10 million for the quarter.

Great, that's helpful. Thank you both.

You're welcome.

Thank you. One moment for our next question. And our next question comes from the line of Simeon Siegel from BMO Capital Markets. Your question, please.

Thanks. Hey, everyone. Good afternoon. And I guess progress on the gross margins. Could you quantify maybe the quarter's moving pieces a little bit more and how you're thinking about how those should look both in Q4, but then really as you make these changes how you think about beyond what gross margin could look like. And then just apologize if I missed it, did you give the 90-day RPAC? Thank you.

Yes, Simeon, a couple things there around gross margin. Some of the big components are really similar to what we've talked about in the past, that there was nothing structurally different about the organization that suggests that we couldn't get back to the 45% mark. And you can see that we're there. And so, a big part of that is the work that the merch teams have been doing around driving inventory health and so that's been a big component to this. The other component is the transportation side of the business. And I think we've called this out before. And as you know, different than other retailers, we have significant reverse logistics. For a majority of our fixes that we sent out, we have items sent back to us. If someone keeps three items or four items out of a fix, they're able to return those at no cost to them. And so shipping is a big part of our expense base. It's something we focus on quite a bit. And so, the last couple of quarters, the teams have done a lot of work in really focusing on our existing carriers, diversifying into carriers, and even using last mile carriers to drive efficiency there. And even in some of those last mile carriers, it's also driving efficiency while having a better client experience. And so just a lot of great work there. And so that's sort of the double-click into gross margins. And those are the benefits that we see and we expect them to continue going into Q4.

That's great. Thank you. And then just, did you guys give 90-day RPAC?

Yes, we didn't give a specific number, but we're seeing the same trends that we've seen historically that absolutely new client cohorts are still very healthy, and we see that coming through the 90-day RPAC, where it continues to increase from a year-over-year perspective. So definitely happy with what we're seeing there.

That's great. Thanks a lot, guys. Best of luck for the rest of the year.

Thank you, Simeon.

Thank you. And our next question comes from the line of Aneesha Sherman from Bernstein. Your question, please.

Thank you. So congrats on a nice quarter. So you've talked in the last few quarters about cycling through some lower LTV clients and retaining kind of higher LTV fix first, higher quality clients. It looks like some of the metrics of quality in your P&L are improving like RPAC, gross margins. Do you feel like you're almost there? I know you're guiding for another quarter of active declines, but a lower number. Do you feel like you're there at the point where you should start to see improvements in active client numbers in 2025 with a higher quality base of clients?

Yes, Aneesha, I'll take that. We're not guiding to FY 2025, but the way that I look at this from an active client standpoint is sort of both sides of active clients. If you think about our business and how we drive revenue, it's about engaging our existing clients as well as adding new clients. And what you saw this quarter and what you're alluding to absolutely is that foundational work and we're seeing that come through in engaging our existing clients with AOV up 6%, RPAC up from a year-over-year perspective for the first time in a while, at 2% up year-over-year. And so definitely seeing those trends with engaging our existing clients. And that's really a testament to the foundational work that we're doing. And what we've called out the last couple of quarters is, we still see a lot of opportunity on adding active clients and driving conversion. And so that's a lot of the focus that includes the foundational work, but it also includes the marketing work that Matt had called out earlier as well as the reimagining of client experience. And those things together, we believe, will put us on a path to return to growth in the future.

Okay, that's really helpful. And then can I ask a quick follow-up on gross margin and dig into some of the drivers? David, you talked about product margin strength, just putting inside the transport side, just kind of underlying product margins. Can you elaborate on the drivers of that? Is that primarily the private brands mix or lower markdowns or something else?

I think it's a couple components. I think it's what you described. I think it's also us looking -- I think we talked a couple quarters back around sort of looking at our vendor base and making sure that we are rationalizing our vendor base And really making sure that we are partnering with strategic vendors and really combining some of those efforts. And so that's part of it, is the work that we've done there, where we can just drive better IMUs through that as well. And then it is composition. It's the merch teams really driving towards much better composition of our inventory and focusing on the fix experience and what that means from an inventory perspective. And then also utilizing the AI buying tools that we've highlighted. I think that's a big component to it as well is leveraging our technologies to make sure that we're being as efficient as possible in the inventory that we're buying.

Okay. Really helpful. Thank you.

Thanks.

Thank you. And our next question comes from the line of Maria Ripps from Canaccord. Your question, please.

Good afternoon, and thanks for taking my questions. So you talked about some of the new or improved functionality like Quick Fix. Can we dive a little bit deeper into some of the specifics behind the Q3 outperformance, especially what seems to be on the revenue per customer side, and maybe just talk about how sustainable some of those could be as we kind of look over the next -- sort of towards the next couple of quarters?

Hey Maria, appreciate the question, it's Matt here. I'll provide some insights and David, go ahead and follow up. But when we talked about Quick Fix’s, I think one of the things to be really mindful of is just the way that we've been approaching our business, the way that we've been working to strengthen the foundation of our business, is that we're constantly reviewing our ongoing programs. We want to ensure that we're delivering the absolute best client experience in every single fix that we ship, every single fix that our clients receive. And as we shared and what we're really excited about is that, we were able to make very successful adjustments to existing programs and they're paying immediate benefits. So some of those changes were made closer to the start of the year and are now beginning to have a compounding impact. Others were made within Q3 and had almost an immediate positive impact. As we've made these changes, and as you noted, we've seen the fixed AOV hit some of the highest levels we've ever seen, as well as material improvement in the trend of client retention metrics. So we're able to retain the best aspects of these programs from both a client experience and a financial perspective, while reducing negative outcomes. It's our fundamental belief that every client has the potential to be a healthy, high-value, long-term client with us and we're focused on delivering the right personalized experience to each client. That includes the right style of clothes, the right quantity, the right cadence, and the right thing to do for the business is getting that highest quality fix and the right cadence that serves those clients' needs. That remains our focus. In terms of how much of this pulls forward, I'll let David click into the details, but as he noted, our Q4 guide anticipates the positive trends that we're seeing in AOV carrying forward into the quarter.

Yes, Maria, I'll just add a little bit about Q3 and then I'll talk about the go-forward as well. Like for Q3, I think the first thing to call out is, from a methodology standpoint, we definitely aim to establish guidance that's reasonable and achievable. And I think what we saw in Q3 is simply just better than expected performance across multiple initiatives that Matt had just highlighted. And so, seeing that come through in both fix, AUR and keep rate where those benefited from those initiatives and were exceeded our expectations. The Quick Fix example is a great one that Matt talked about where that was implemented in mid-March and by early April, we were seeing AOV increases of 25% on those shipments and the pricing work, the merch work, so there's just quite a bit of things in the same quarter is really what the performance was about. In addition to that, our promotional strategy that we continue to hone resulted in better than performance on the freestyle side. And so definitely quite a few components in the quarter. When you're talking about playing those forward, Certainly to Matt's point, I think we've included what we expect to play forward in the Q4 guide. If you're talking sort of longer term, we're not providing any specific guidance around FY 2025 yet. We'll provide guidance next quarter, but a couple of big pieces to think about. First, as we highlighted, we expect Q4 active clients to be down sequentially in Q4, and we expect that to continue into FY 2025. That's why we remain focused on driving more clients into the experience and engaging them in a more dynamic way. And that's all about that reimagining work and the marketing work that Matt had highlighted. On the expense side, we called out gross margins. We've done a lot of work across our business to drive leverage in the overall P&L. And we've been able to get gross margins back to that 45% level and we expect the benefits of that to sort of continue into FY 2025. And then on sort of the rest of the expense base, I know we've talked about SG&A spend in the past, and if you look about where we are this quarter from an annualized perspective, if you go back to Q3 FY 2022 and look at annualized spend there and where we are now, we've been able to remove over $400 million in SG&A spend. And so, I think we're really comfortable with where we are from an expense management standpoint and we'll continue to actively manage that. And so as Matt and I both called out earlier, we've got a healthy balance sheet, no debt, and we'll continue to focus on adjusted EBITDA and free cash flow positivity to protect that position. And we'll do that while balancing the necessary investments to drive growth into the future.

Got it. That's very helpful. Thank you. And maybe just a quick follow up. Can you maybe share an update on the advertising spending environment? And is there anything to highlight around the competitive intensity?

Maria, can you please repeat the question?

Yes, can you maybe share an update on the broader advertising spend environment? And is there anything that you would highlight around the intensity of the competitive dynamics or competitive spending out there?

Yes, absolutely. Happy to answer that. So as you know, and as part of us strengthening the foundation of our business, we continue to be maniacally focused on a healthier client franchise. We're being extremely judicious with our marketing spend. We're being extremely methodical in terms of which clients segments we're targeting. And that's so that when we bring a client into the experience, they're demonstrating all the characteristics of high lifetime value customers and ones that will have an enduring relationship with us over a longer period of time. We do continue to see competitiveness in the media market. There's a lot of people aggressively spending, and we're working hard to manage through that so that we can make sure that we're attracting or speaking to the right perspective clients with the right message on the right tactic at the right time. I think the team is doing a good job leaning in there, continuing to evolve our media mix, continuing to optimize each of our media tactics so that we can make the most of our media budget in delivering against what I just shared as our objectives. So I think that we're encouraged by the positive signs in terms of the new client RPAC and LTV for the clients that we are bringing in, the clients that we are acquiring, and that gives us confidence in our strategy going forward as well.

Great, thank you both.

Thanks, Maria.

Thank you. [Operator Instructions] And our next question comes from the line of [David Belanger from Mitizo] (ph). Your question please.

Hey good afternoon, thanks for the question. Let me do a follow-up on the last one. Just on the active customer number, down about 20% year-over-year. Looks like you're guiding to a similar level for fiscal Q4. And those are both while ad spend is moving up and moving higher year-over-year. So maybe just walk us through that. You talked about the headwinds on new customer acquisition. So is there potentially a re-baselining higher ad spend dollars in order to even maintain your customer base, if not even grow further from here? How do we think about the level of ad spend required in 2025 and going forward?

Hey, David. It's Matt. I appreciate the question. So I'll start at a higher level. And David, if you want to jump in with any additional details here. But in terms of us attracting new client acquisition, the primary priority remains to drive sustainable growth over the long term. And we really believe that our focus on strengthening the foundation and reimagining the client experience will help us attract and retain high lifetime value customers. So we continue to evolve both program and channel strategies, as I just shared, to optimize that media mix for efficiency and to strengthen our brand affinity. Because we do know that when we reach the right client for whom our offering resonates, they have a higher order value and purchase frequency. And as I just shared and as we also shared in the prepared remarks, as we're seeing higher LTV and RPAC from our new client acquisition, that gives us additional confidence to go out into the market and to acquire these customers. So in terms of what -- where is our ad spend as a percentage of revenue, that will continue to move as we optimize towards getting it at the right level based on a pretty rigorous analysis of where that return on investment is. So when we see new client acquisitions with higher fix frequencies, with higher AOVs, that gives us the confidence to go out and spend more to acquire them. And we're reviewing that every day, every week with the team so that we can get to the right place at the right time. So it's really something that's evolving over time. But again, as I shared previously, we're pretty confident in the strategy that we have at the moment and how our team is going out to market in order to execute against it.

And I think, David, the only thing I would add is I think what Matt just highlighted is the methodical approach that we've talked about over the last few quarters that we're taking to managing marketing investments and it is sort of about an LTV to CAC ratio. And I think the encouraging signs that we're seeing right now on the LTV side allow us to feel more comfortable investing more in marketing. I think I would also call this back to what we had said earlier around sort of the two different sides of our business and clients that the more we can engage our existing clients in dynamic ways, the more we can drive higher LTVs of those clients. That's why we've really been focused on a lot of that foundational work and how that will tie to our reimagining of the client experience, because it creates a really healthy loop of really engaging our existing clients that drives higher LTV. And it provides confidence in sort of our marketing efforts as well.

Understood, that's very helpful. Then my second question, maybe more of a macro one, but a lot of our companies have been talking about the splitting between the lower and the middle or upper income consumer. Have you seen that play out or widen even more as the quarter progressed? Just any update of what you're seeing in your customer base, any differences across the segmentation?

Yes, David, I'll jump in. So I think in terms of what we're seeing from impacts of the macro environment. We're not seeing any material impact at the moment, but I do think that in a discretionary category like ours, there does remain ample reason to take a cautious view of the US consumer. They remain under pressure. I think that is being noted as particularly true in higher income households trading down at the moment. We have not seen any of that with our current -- with our client base at the moment. And also as I've shared previously, where we are regardless of the macro conditions, our teams remain focused on what is within our control. We work every day to serve our clients better. Our focus, regardless of conditions, will be having the best assortment, the most intelligent pricing, judicious in terms of our client acquisition, and strengthening our experience to foster deep and enduring relationships with our clients. And we're seeing that in the results that we just shared. And it manifests in the work we're doing to strengthen the foundation of our business. So delivering for our clients, in my mind, is the best way to navigate a tough environment, and that's what our team is focused on.

Very good. Thank you both.