falsedesktopSFIX2020-10-31000157694220000144{"tbl_sim": "https://q10k.com/tbl-sim", "search": "https://q10k.com/search"}{"q10k_tbl_0": "\tPage No.\nPART I. FINANCIAL INFORMATION\t\nItem 1. Financial Statements:\t3\nCondensed Consolidated Balance Sheets\t3\nCondensed Consolidated Statements of Operations and Comprehensive Income (Loss)\t4\nCondensed Consolidated Statements of Stockholders' Equity\t5\nCondensed Consolidated Statements of Cash Flow\t6\nNotes to the Condensed Consolidated Financial Statements\t7\nItem 2. Management's Discussion and Analysis of Financial Condition and Results of Operations\t19\nItem 3. Quantitative and Qualitative Disclosures About Market Risk\t27\nItem 4. Controls and Procedures\t27\nPART II. OTHER INFORMATION\t28\nItem 1. Legal Proceedings\t28\nItem 1A. Risk Factors\t28\nItem 2. Unregistered Sales of Equity Securities and Use of Proceeds\t48\nItem 3. Defaults Upon Senior Securities\t48\nItem 4. Mine Safety Disclosures\t48\nItem 5. Other Information\t48\nItem 6. Exhibits\t49\nSignatures\t50\n", "q10k_tbl_1": "\tOctober 31 2020\tAugust 1 2020\nAssets\t\t\nCurrent assets:\t\t\nCash and cash equivalents\t200346\t143455\nShort-term investments\t187979\t143037\nInventory net\t156786\t124816\nPrepaid expenses and other current assets\t52322\t55002\nTotal current assets\t597433\t466310\nLong-term investments\t41592\t95097\nProperty and equipment net\t71275\t70369\nOperating lease right-of-use assets\t135561\t132615\nOther long-term assets\t34363\t5038\nTotal assets\t880224\t769429\nLiabilities and Stockholders' Equity\t\t\nCurrent liabilities:\t\t\nAccounts payable\t129547\t85177\nOperating lease liabilities\t25531\t24333\nAccrued liabilities\t110800\t77590\nGift card liability\t8319\t8590\nDeferred revenue\t14963\t13059\nOther current liabilities\t5902\t3406\nTotal current liabilities\t295062\t212155\nOperating lease liabilities net of current portion\t140298\t140175\nOther long-term liabilities\t16277\t16062\nTotal liabilities\t451637\t368392\nCommitments and contingencies (Note 6)\t\t\nStockholders' equity:\t\t\nClass A common stock $0.00002 par value - 2000000000 shares authorized as of October 31 2020 and August 1 2020; 60979702 and 58440930 shares issued and outstanding as of October 31 2020 and August 1 2020 respectively\t1\t1\nClass B common stock $0.00002 par value - 100000000 shares authorized as of October 31 2020 and August 1 2020; 43742039 and 45314577 shares issued and outstanding as of October 31 2020 and August 1 2020 respectively\t1\t1\nAdditional paid-in capital\t367760\t348750\nAccumulated other comprehensive income (loss)\t1727\t2728\nRetained earnings\t59098\t49557\nTotal stockholders' equity\t428587\t401037\nTotal liabilities and stockholders' equity\t880224\t769429\n", "q10k_tbl_2": "\tFor the Three Months Ended\t\n\tOctober 31 2020\tNovember 2 2019\t\t\t\t\t\t\nRevenue net\t490423\t444815\t\t\t\t\t\t\nCost of goods sold\t270972\t243513\t\t\t\t\t\t\nGross profit\t219451\t201302\t\t\t\t\t\t\nSelling general and administrative expenses\t238984\t201142\t\t\t\t\t\t\nOperating income (loss)\t(19533)\t160\t\t\t\t\t\t\nInterest (income) expense\t(1161)\t(1653)\t\t\t\t\t\t\nOther (income) expense net\t205\t834\t\t\t\t\t\t\nIncome (loss) before income taxes\t(18577)\t979\t\t\t\t\t\t\nProvision (benefit) for income taxes\t(28118)\t1157\t\t\t\t\t\t\nNet income (loss)\t9541\t(178)\t\t\t\t\t\t\nOther comprehensive income (loss):\t\t\t\t\t\t\t\t\nChange in unrealized gain (loss) on available-for-sale securities net of tax\t(663)\t(172)\t\t\t\t\t\t\nForeign currency translation\t(338)\t1755\t\t\t\t\t\t\nTotal other comprehensive income (loss) net of tax\t(1001)\t1583\t\t\t\t\t\t\nComprehensive income (loss)\t8540\t1405\t\t\t\t\t\t\nNet income (loss) attributable to common stockholders:\t\t\t\t\t\t\t\t\nBasic\t9541\t(178)\t\t\t\t\t\t\nDiluted\t9541\t(178)\t\t\t\t\t\t\nEarnings (loss) per share attributable to common stockholders:\t\t\t\t\t\t\t\t\nBasic\t0.09\t(0.00)\t\t\t\t\t\t\nDiluted\t0.09\t(0.00)\t\t\t\t\t\t\nWeighted-average shares used to compute earnings (loss) per share attributable to common stockholders:\t\t\t\t\t\t\t\t\nBasic\t104134850\t101557546\t\t\t\t\t\t\nDiluted\t109477354\t101557546\t\t\t\t\t\t\n", "q10k_tbl_3": "\tFor the Three Months Ended October 31 2020\t\t\t\t\t\t\n\t\tCommon Stock\t\tAdditional Paid-In Capital\tAccumulated Other Comprehensive Income (Loss)\tRetained Earnings\tTotal Stockholders' Equity\n\t\tShares\tAmount\t\t\nBalance as of August 1 2020\t\t103755507\t2\t348750\t2728\t49557\t401037\nIssuance of common stock upon exercise of stock options\t\t525316\t0\t5106\t0\t0\t5106\nIssuance of common stock upon settlement of restricted stock units net of tax withholdings\t\t440918\t0\t(7002)\t0\t0\t(7002)\nStock-based compensation\t\t0\t0\t20906\t0\t0\t20906\nNet income (loss)\t\t0\t0\t0\t0\t9541\t9541\nOther comprehensive income (loss) net of tax\t\t0\t0\t0\t(1001)\t0\t(1001)\nBalance as of October 31 2020\t\t104721741\t2\t367760\t1727\t59098\t428587\n\tFor the Three Months Ended November 2 2019\t\t\t\t\t\t\n\t\tCommon Stock\t\tAdditional Paid-In Capital\tAccumulated Other Comprehensive Income (Loss)\tRetained Earnings\tTotal Stockholders' Equity\n\t\tShares\tAmount\t\t\nBalance as of August 3 2019\t\t101397480\t2\t279511\t(187)\t116674\t396000\nIssuance of common stock upon exercise of stock options\t\t122668\t0\t518\t0\t0\t518\nIssuance of restricted stock units net of tax withholdings\t\t188498\t0\t(2212)\t0\t0\t(2212)\nStock-based compensation\t\t0\t0\t12903\t0\t0\t12903\nNet income (loss)\t\t0\t0\t0\t0\t(178)\t(178)\nOther comprehensive income (loss) net of tax\t\t0\t0\t0\t1583\t0\t1583\nBalance as of November 2 2019\t\t101708646\t2\t290720\t1396\t116496\t408614\n", "q10k_tbl_4": "\tFor the Three Months Ended\t\n\tOctober 31 2020\tNovember 2 2019\nCash Flows from Operating Activities\t\t\nNet income (loss)\t9541\t(178)\nAdjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:\t\t\nDeferred income taxes\t0\t(1960)\nInventory reserves\t(1343)\t1801\nStock-based compensation expense\t19925\t12126\nDepreciation amortization and accretion\t6961\t4652\nOther\t271\t13\nChange in operating assets and liabilities:\t\t\nInventory\t(30665)\t(31837)\nPrepaid expenses and other assets\t(28299)\t2973\nOperating lease right-of-use assets and liabilities\t(225)\t272\nAccounts payable\t44609\t21721\nAccrued liabilities\t32237\t16170\nDeferred revenue\t1906\t(25)\nGift card liability\t(271)\t(354)\nOther liabilities\t2712\t2150\nNet cash provided by (used in) operating activities\t57359\t27524\nCash Flows from Investing Activities\t\t\nPurchases of property and equipment\t(5985)\t(7502)\nPurchases of securities available-for-sale\t(41307)\t(67535)\nSales of securities available-for-sale\t16193\t5306\nMaturities of securities available-for-sale\t32800\t23210\nNet cash provided by (used in) investing activities\t1701\t(46521)\nCash Flows from Financing Activities\t\t\nProceeds from the exercise of stock options net\t5106\t518\nPayments for tax withholding related to vesting of restricted stock units\t(7002)\t(2212)\nNet cash provided by (used in) financing activities\t(1896)\t(1694)\nNet increase (decrease) in cash and cash equivalents\t57164\t(20691)\nEffect of exchange rate changes on cash\t(273)\t1538\nCash and cash equivalents at beginning of period\t143455\t170932\nCash and cash equivalents at end of period\t200346\t151779\nSupplemental Disclosure\t\t\nCash paid for income taxes\t38\t7\nSupplemental Disclosure of Non-Cash Investing and Financing Activities:\t\t\nPurchases of property and equipment included in accounts payable and accrued liabilities\t4880\t731\nCapitalized stock-based compensation\t981\t773\nLeasehold improvements paid by landlord\t0\t7406\n", "q10k_tbl_5": "(in thousands)\tOctober 31 2020\tAugust 1 2020\nDeferred revenue\t\t\nUpfront styling fees\t10681\t9119\nStyle Pass annual fees\t2699\t2711\nDirect order\t1583\t1229\nTotal deferred revenue\t14963\t13059\nGift card liability\t8319\t8590\nOther current liabilities\t\t\nReferral credits\t5454\t2577\n", "q10k_tbl_6": "(in thousands)\tRevenue Recognized From Amounts Previously Included in Deferred Balances at August 1 2020\nUpfront styling fees\t9110\nStyle Pass annual fees\t1361\nDirect order\t884\nGift card liability\t1572\nReferral credits\t1498\n", "q10k_tbl_7": "\tOctober 31 2020\t\t\t\tAugust 1 2020\t\t\t\n(in thousands)\tAmortized Cost\tGross Unrealized Gains\tGross Unrealized Losses\tFair Value\tAmortized Cost\tGross Unrealized Gains\tGross Unrealized Losses\tFair Value\nFinancial Assets:\t\t\t\t\t\t\t\t\nInvestments:\t\t\t\t\t\t\t\t\nU.S. Treasury securities\t87125\t314\t(2)\t87437\t67335\t516\t(1)\t67850\nCertificates of deposit\t6150\t0\t0\t6150\t6150\t0\t0\t6150\nCommercial paper\t31368\t0\t0\t31368\t35331\t0\t0\t35331\nAsset-backed securities\t35979\t244\t(7)\t36216\t44854\t410\t(4)\t45260\nCorporate bonds\t67968\t433\t(1)\t68400\t82821\t723\t(1)\t83543\nTotal\t228590\t991\t(10)\t229571\t236491\t1649\t(6)\t238134\n", "q10k_tbl_8": "\tLess Than 12 Months\t\tMore Than 12 Months\t\tTotal\t\n(in thousands)\tFair Value\tUnrealized Losses\tFair Value\tUnrealized Losses\tFair Value\tUnrealized Losses\nFinancial Assets:\t\t\t\t\t\t\nInvestments:\t\t\t\t\t\t\nU.S. Treasury securities\t11125\t(2)\t0\t0\t11125\t(2)\nCommercial paper\t8659\t(7)\t0\t0\t8659\t(7)\nCorporate bonds\t3419\t(1)\t0\t0\t3419\t(1)\nTotal\t23203\t(10)\t0\t0\t23203\t(10)\n", "q10k_tbl_9": "\tOctober 31 2020\t\t\t\tAugust 1 2020\t\t\t\n(in thousands)\tOne Year or Less\tOver One Year Through Five Years\tOver Five Years\tTotal\tOne Year or Less\tOver One Year Through Five Years\tOver Five Years\tTotal\nFinancial Assets:\t\t\t\t\t\t\t\t\nInvestments:\t\t\t\t\t\t\t\t\nU.S. Treasury securities\t87437\t0\t0\t87437\t38794\t29056\t0\t67850\nCertificates of deposit\t6150\t0\t0\t6150\t6150\t0\t0\t6150\nCommercial paper\t31368\t0\t0\t31368\t35331\t0\t0\t35331\nAsset-backed securities\t6127\t30089\t0\t36216\t6657\t38603\t0\t45260\nCorporate bonds\t56897\t11503\t0\t68400\t56105\t27438\t0\t83543\nTotal\t187979\t41592\t0\t229571\t143037\t95097\t0\t238134\n", "q10k_tbl_10": "\tOctober 31 2020\t\t\t\tAugust 1 2020\t\t\t\n(in thousands)\tLevel 1\tLevel 2\tLevel 3\tTotal\tLevel 1\tLevel 2\tLevel 3\tTotal\nFinancial Assets:\t\t\t\t\t\t\t\t\nCash equivalents:\t\t\t\t\t\t\t\t\nMoney market funds\t7938\t0\t0\t7938\t2394\t0\t0\t2394\nU.S Treasury securities\t3730\t0\t0\t3730\t0\t0\t0\t0\nInvestments:\t\t\t\t\t\t\t\t\nU.S. Treasury securities\t87437\t0\t0\t87437\t67850\t0\t0\t67850\nCertificates of deposit\t0\t6150\t0\t6150\t0\t6150\t0\t6150\nCommercial paper\t0\t31368\t0\t31368\t0\t35331\t0\t35331\nAsset-backed securities\t0\t36216\t0\t36216\t0\t45260\t0\t45260\nCorporate bonds\t0\t68400\t0\t68400\t0\t83543\t0\t83543\nTotal\t99105\t142134\t0\t241239\t70244\t170284\t0\t240528\n", "q10k_tbl_11": "(in thousands)\tOctober 31 2020\tAugust 1 2020\nCompensation and related benefits\t17723\t11987\nAdvertising\t20601\t14979\nSales taxes\t11637\t7134\nShipping and freight\t15264\t8624\nAccrued accounts payable\t7721\t5892\nInventory purchases\t20474\t15427\nOther\t17380\t13547\nTotal accrued liabilities\t110800\t77590\n", "q10k_tbl_12": "(in thousands)\tSeverance and Other Termination Benefits\nBalance at August 1 2020\t3156\nCash payments\t(2758)\nBalance at October 31 2020\t398\n", "q10k_tbl_13": "\tChanges in Accumulated Other Comprehensive Income (Loss)\t\t\n(in thousands)\tAvailable-for-sale Securities\tForeign Currency Translation\tTotal\nBalance at August 1 2020\t1213\t1515\t2728\nOther comprehensive income (loss) before reclassifications(1)\t(548)\t(338)\t(886)\nAmounts reclassified from AOCI\t(115)\t0\t(115)\nNet change in AOCI\t(663)\t(338)\t(1001)\nBalance at October 31 2020\t550\t1177\t1727\n", "q10k_tbl_14": "\tChanges in Accumulated Other Comprehensive Income (Loss)\t\t\n(in thousands)\tAvailable-for-sale Securities\tForeign Currency Translation\tTotal\nBalance at August 3 2019\t391\t(578)\t(187)\nOther comprehensive income (loss) before reclassifications(1)\t(172)\t1755\t1583\nNet change in AOCI\t(172)\t1755\t1583\nBalance at November 2 2019\t219\t1177\t1396\n", "q10k_tbl_15": "\tOptions Outstanding\t\t\t\n\tNumber of Options\tWeighted- Average Exercise Price\tWeighted- Average Remaining Contractual Life (in Years)\tAggregate Intrinsic Value (in thousands)\nBalance - August 1 2020\t6817196\t17.10\t7.41\t40252\nGranted\t795\t36.01\t\t\nExercised\t(525316)\t9.54\t\t\nCancelled\t(614429)\t23.04\t\t\nBalance - October 31 2020\t5678246\t17.16\t7.25\t98125\n", "q10k_tbl_16": "\tUnvested RSUs\t\n\tClass A Common Stock\tWeighted- Average Grant Date Fair Value\nUnvested at August 1 2020\t9123341\t20.11\nGranted\t3601020\t24.87\nVested\t(440918)\t22.02\nForfeited\t(639041)\t20.95\nUnvested at October 31 2020\t11644402\t21.47\n", "q10k_tbl_17": "\tFor the Three Months Ended\t\n\tOctober 31 2020\tNovember 2 2019\t\t\t\t\t\t\nExpected term (in years)\t5.5\t6.0 - 6.2\t\t\t\t\t\t\nVolatility\t55.9%\t51.2%\t\t\t\t\t\t\nRisk free interest rate\t0.3%\t1.7%\t\t\t\t\t\t\nDividend yield\t-%\t-%\t\t\t\t\t\t\n", "q10k_tbl_18": "\tFor the Three Months Ended\t\n(in thousands)\tOctober 31 2020\tNovember 2 2019\t\t\t\t\t\t\nIncome (loss) before income taxes\t(18577)\t979\t\t\t\t\t\t\nProvision (benefit) for income taxes\t(28118)\t1157\t\t\t\t\t\t\nEffective tax rate\t151.4%\t118.2%\t\t\t\t\t\t\n", "q10k_tbl_19": "\tFor the Three Months Ended\t\t\t\n\tOctober 31 2020\t\tNovember 2 2019\t\n(in thousands except share and per share amounts)\tClass A\tClass B\tClass A\tClass B\nNumerator:\t\t\t\t\nNet income (loss)\t5425\t4116\t(96)\t(82)\nNet income (loss) attributable to common stockholders - basic\t5425\t4116\t(96)\t(82)\nReallocation of undistributed earnings (loss) as a result of conversion of Class B to Class A shares\t4116\t0\t0\t0\nReallocation of undistributed earnings (loss) to Class B shares\t0\t(60)\t0\t0\nNet income (loss) attributable to common stockholders - diluted\t9541\t4056\t(96)\t(82)\nDenominator:\t\t\t\t\nWeighted-average shares of common stock - basic\t59205535\t44929315\t54867211\t46690335\nConversion of Class B to Class A common shares outstanding\t44929315\t0\t0\t0\nEffect of dilutive stock options and restricted stock units\t5342504\t1610475\t0\t0\nWeighted-average shares of common stock - diluted\t109477354\t46539790\t54867211\t46690335\nEarnings (loss) per share attributable to common stockholders:\t\t\t\t\nBasic\t0.09\t0.09\t(0.00)\t(0.00)\nDiluted\t0.09\t0.09\t(0.00)\t(0.00)\n", "q10k_tbl_20": "\tFor the Three Months Ended\t\n\tOctober 31 2020\tNovember 2 2019\t\t\t\t\t\t\nRestricted stock units\t3910451\t3735946\t\t\t\t\t\t\nStock options to purchase Class A common stock\t1647310\t2186564\t\t\t\t\t\t\nStock options to purchase Class B common stock\t137977\t4418546\t\t\t\t\t\t\nTotal\t5695738\t10341056\t\t\t\t\t\t\n", "q10k_tbl_21": "\tFor the Three Months Ended\t\n(in thousands)\tOctober 31 2020\tNovember 2 2019\t\t\t\t\t\t\nNet income (loss)\t9541\t(178)\t\t\t\t\t\t\nAdd (deduct):\t\t\t\t\t\t\t\t\nInterest (income) expense\t(1161)\t(1653)\t\t\t\t\t\t\nProvision (benefit) for income taxes\t(28118)\t1157\t\t\t\t\t\t\nOther (income) expense net\t205\t834\t\t\t\t\t\t\nDepreciation and amortization\t6459\t4966\t\t\t\t\t\t\nStock-based compensation expense\t19925\t12126\t\t\t\t\t\t\nAdjusted EBITDA\t6851\t17252\t\t\t\t\t\t\n", "q10k_tbl_22": "\tFor the Three Months Ended\t\n(in thousands)\tOctober 31 2020\tNovember 2 2019\nFree cash flow reconciliation:\t\t\nCash flows provided by (used in) operating activities\t57359\t27524\nDeduct:\t\t\nPurchases of property and equipment\t(5985)\t(7502)\nFree cash flow\t51374\t20022\nCash flows provided by (used in) investing activities\t1701\t(46521)\nCash flows provided by (used in) financing activities\t(1896)\t(1694)\n", "q10k_tbl_23": "\tOctober 31 2020\tAugust 1 2020\tMay 2 2020\tFebruary 1 2020\tNovember 2 2019\nActive clients (in thousands)\t3763\t3522\t3418\t3465\t3416\nNet revenue per active client (1)\t467\t486\t498\t501\t485\n", "q10k_tbl_24": "\tFor the Three Months Ended\t\t%\n(in thousands)\tOctober 31 2020\tNovember 2 2019\tChange\t\t\t\t\t\t\nRevenue net\t490423\t444815\t10.3%\t\t\t\t\t\t\nCost of goods sold\t270972\t243513\t11.3%\t\t\t\t\t\t\nGross profit\t219451\t201302\t9.0%\t\t\t\t\t\t\nSelling general and administrative expenses\t238984\t201142\t18.8%\t\t\t\t\t\t\nOperating income (loss)\t(19533)\t160\t*\t\t\t\t\t\t\nInterest (income) expense\t(1161)\t(1653)\t(29.8)%\t\t\t\t\t\t\nOther (income) expense net\t205\t834\t(75.4)%\t\t\t\t\t\t\nIncome (loss) before income taxes\t(18577)\t979\t*\t\t\t\t\t\t\nProvision (benefit) for income taxes\t(28118)\t1157\t*\t\t\t\t\t\t\nNet income (loss)\t9541\t(178)\t*\t\t\t\t\t\t\n", "q10k_tbl_25": "\tFor the Three Months Ended\t\n\tOctober 31 2020\tNovember 2 2019\t\t\t\t\t\t\nRevenue net\t100.0%\t100.0%\t\t\t\t\t\t\nCost of goods sold\t55.3%\t54.7%\t\t\t\t\t\t\nGross margin\t44.7%\t45.3%\t\t\t\t\t\t\nSelling general and administrative expenses\t48.7%\t45.3%\t\t\t\t\t\t\nOperating income (loss)\t(4.0)%\t-%\t\t\t\t\t\t\nInterest (income) expense\t(0.2)%\t(0.4)%\t\t\t\t\t\t\nOther (income) expense net\t-%\t0.2%\t\t\t\t\t\t\nIncome (loss) before income taxes\t(3.8)%\t0.2%\t\t\t\t\t\t\nProvision (benefit) for income taxes\t(5.7)%\t0.2%\t\t\t\t\t\t\nNet income (loss)\t1.9%\t-%\t\t\t\t\t\t\n", "q10k_tbl_26": "\tFor the Three Months Ended\t\n(in thousands)\tOctober 31 2020\tNovember 2 2019\t\t\t\t\t\t\nIncome (loss) before income taxes\t(18577)\t979\t\t\t\t\t\t\nProvision (benefit) for income taxes\t(28118)\t1157\t\t\t\t\t\t\nEffective tax rate\t151.4%\t118.2%\t\t\t\t\t\t\n", "q10k_tbl_27": "\tFor the Three Months Ended\t\n(in thousands)\tOctober 31 2020\tNovember 2 2019\nNet cash provided by (used in) operating activities\t57359\t27524\nNet cash provided by (used in) investing activities\t1701\t(46521)\nNet cash provided by (used in) financing activities\t(1896)\t(1694)\nNet increase (decrease) in cash and cash equivalents\t57164\t(20691)\n", "q10k_tbl_28": "\tExhibit Number\tDescription\tIncorporation By Reference\t\t\t\t\n\tForm\tSEC File No.\tExhibit\tFiling Date\tFiled or Furnished Herewith\n\t3.1\tAmended and Restated Certificate of Incorporation of Stitch Fix Inc.\t8-K\t001-38291\t3.1\t11/21/2017\t\n\t3.2\tAmended and Restated Bylaws of Stitch Fix Inc.\t8-K\t001-38291\t3.2\t11/21/2017\t\n\t10.1\tOffer Letter by and between Stitch Fix Inc. and Dan Jedda dated October 29 2019.\t\t\t\t\tX\n\t31.1\tCertification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.\t\t\t\t\tX\n\t31.2\tCertification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.\t\t\t\t\tX\n\t32.1*\tCertification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.\t\t\t\t\tX\n\t101.INS\tInline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).\t\t\t\t\tX\n\t101.SCH\tInline XBRL Taxonomy Extension Schema Document\t\t\t\t\tX\n\t101.CAL\tInline XBRL Taxonomy Extension Calculation Linkbase Document\t\t\t\t\tX\n\t101.DEF\tInline XBRL Taxonomy Extension Definition Linkbase Document\t\t\t\t\tX\n\t101.LAB\tInline XBRL Taxonomy Extension Label Linkbase Document\t\t\t\t\tX\n\t101.PRE\tInline XBRL Taxonomy Extension Presentation Linkbase Document\t\t\t\t\tX\n\t104\tCover Page Interactive Data File (the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).\t\t\t\t\t\n*\tThe certification attached as Exhibit 32.1 accompanying this Quarterly Report on Form 10-Q is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Stitch Fix Inc. under the Securities Act of 1933 as amended or the Securities Exchange Act of 1934 as amended whether made before or after the date of this Quarterly Report on Form 10-Q irrespective of any general incorporation language contained in such filing.\t\t\t\t\t\t\n"}{"bs": "q10k_tbl_1", "is": "q10k_tbl_2", "cf": "q10k_tbl_4"}None
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2020
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-38291
STITCH FIX, INC.
(Exact name of registrant as specified in its charter)
Delaware
27-5026540
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
1 Montgomery Street, Suite 1500
San Francisco,California94104
(Address of principal executive offices and zip code)
(415) 882-7765
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol
Name of Each Exchange on Which Registered
Class A common stock, par value $0.00002 per share
SFIX
Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☒
As of December 3, 2020, the number of outstanding shares of the registrant’s Class A common stock, par value $0.00002 per share, was 62,902,394, and the number of outstanding shares of the registrant’s Class B common stock, par value $0.00002 per share, was 41,959,188.
In this Quarterly Report on Form 10-Q, “we,” “our,” “us,” “Stitch Fix,” and “the Company” refer to Stitch Fix, Inc. The Stitch Fix logo and other trade names, trademarks or service marks of Stitch Fix are the property of Stitch Fix, Inc. This Quarterly Report on Form 10-Q contains references to our trademarks and to trademarks belonging to other entities. Trade names, trademarks and service marks of other companies appearing in this Quarterly Report on Form 10-Q are the property of their respective holders. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
2
PART I. FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
Stitch Fix, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share and per share amounts)
October 31, 2020
August 1, 2020
Assets
Current assets:
Cash and cash equivalents
$
200,346
$
143,455
Short-term investments
187,979
143,037
Inventory, net
156,786
124,816
Prepaid expenses and other current assets
52,322
55,002
Total current assets
597,433
466,310
Long-term investments
41,592
95,097
Property and equipment, net
71,275
70,369
Operating lease right-of-use assets
135,561
132,615
Other long-term assets
34,363
5,038
Total assets
$
880,224
$
769,429
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$
129,547
$
85,177
Operating lease liabilities
25,531
24,333
Accrued liabilities
110,800
77,590
Gift card liability
8,319
8,590
Deferred revenue
14,963
13,059
Other current liabilities
5,902
3,406
Total current liabilities
295,062
212,155
Operating lease liabilities, net of current portion
140,298
140,175
Other long-term liabilities
16,277
16,062
Total liabilities
451,637
368,392
Commitments and contingencies (Note 6)
Stockholders’ equity:
Class A common stock, $0.00002 par value – 2,000,000,000 shares authorized as of October 31, 2020, and August 1, 2020; 60,979,702 and 58,440,930 shares issued and outstanding as of October 31, 2020, and August 1, 2020, respectively
1
1
Class B common stock, $0.00002 par value – 100,000,000 shares authorized as of October 31, 2020, and August 1, 2020; 43,742,039 and 45,314,577 shares issued and outstanding as of October 31, 2020, and August 1, 2020, respectively
1
1
Additional paid-in capital
367,760
348,750
Accumulated other comprehensive income (loss)
1,727
2,728
Retained earnings
59,098
49,557
Total stockholders’ equity
428,587
401,037
Total liabilities and stockholders’ equity
$
880,224
$
769,429
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
Stitch Fix, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
(In thousands, except share and per share amounts)
For the Three Months Ended
October 31, 2020
November 2, 2019
Revenue, net
$
490,423
$
444,815
Cost of goods sold
270,972
243,513
Gross profit
219,451
201,302
Selling, general, and administrative expenses
238,984
201,142
Operating income (loss)
(19,533)
160
Interest (income) expense
(1,161)
(1,653)
Other (income) expense, net
205
834
Income (loss) before income taxes
(18,577)
979
Provision (benefit) for income taxes
(28,118)
1,157
Net income (loss)
$
9,541
$
(178)
Other comprehensive income (loss):
Change in unrealized gain (loss) on available-for-sale securities, net of tax
(663)
(172)
Foreign currency translation
(338)
1,755
Total other comprehensive income (loss), net of tax
(1,001)
1,583
Comprehensive income (loss)
$
8,540
$
1,405
Net income (loss) attributable to common stockholders:
Basic
$
9,541
$
(178)
Diluted
$
9,541
$
(178)
Earnings (loss) per share attributable to common stockholders:
Basic
$
0.09
$
(0.00)
Diluted
$
0.09
$
(0.00)
Weighted-average shares used to compute earnings (loss) per share attributable to common stockholders:
Basic
104,134,850
101,557,546
Diluted
109,477,354
101,557,546
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
Stitch Fix, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(In thousands, except share amounts)
For the Three Months Ended October 31, 2020
Common Stock
Additional Paid-In Capital
Accumulated Other Comprehensive Income (Loss)
Retained Earnings
Total Stockholders’ Equity
Shares
Amount
Balance as of August 1, 2020
103,755,507
2
348,750
2,728
49,557
$
401,037
Issuance of common stock upon exercise of stock options
525,316
—
5,106
—
—
5,106
Issuance of common stock upon settlement of restricted stock units, net of tax withholdings
440,918
—
(7,002)
—
—
(7,002)
Stock-based compensation
—
—
20,906
—
—
20,906
Net income (loss)
—
—
—
—
9,541
9,541
Other comprehensive income (loss), net of tax
—
—
—
(1,001)
—
(1,001)
Balance as of October 31, 2020
104,721,741
$
2
$
367,760
$
1,727
$
59,098
$
428,587
For the Three Months Ended November 2, 2019
Common Stock
Additional Paid-In Capital
Accumulated Other Comprehensive Income (Loss)
Retained Earnings
Total Stockholders’ Equity
Shares
Amount
Balance as of August 3, 2019
101,397,480
$
2
$
279,511
$
(187)
$
116,674
$
396,000
Issuance of common stock upon exercise of stock options
122,668
—
518
—
—
518
Issuance of restricted stock units, net of tax withholdings
188,498
—
(2,212)
—
—
(2,212)
Stock-based compensation
—
—
12,903
—
—
12,903
Net income (loss)
—
—
—
—
(178)
(178)
Other comprehensive income (loss), net of tax
—
—
—
1,583
—
1,583
Balance as of November 2, 2019
101,708,646
$
2
$
290,720
$
1,396
$
116,496
$
408,614
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
Stitch Fix, Inc.
Condensed Consolidated Statements of Cash Flow
(Unaudited)
(In thousands)
For the Three Months Ended
October 31, 2020
November 2, 2019
Cash Flows from Operating Activities
Net income (loss)
$
9,541
$
(178)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Deferred income taxes
—
(1,960)
Inventory reserves
(1,343)
1,801
Stock-based compensation expense
19,925
12,126
Depreciation, amortization, and accretion
6,961
4,652
Other
271
13
Change in operating assets and liabilities:
Inventory
(30,665)
(31,837)
Prepaid expenses and other assets
(28,299)
2,973
Operating lease right-of-use assets and liabilities
(225)
272
Accounts payable
44,609
21,721
Accrued liabilities
32,237
16,170
Deferred revenue
1,906
(25)
Gift card liability
(271)
(354)
Other liabilities
2,712
2,150
Net cash provided by (used in) operating activities
57,359
27,524
Cash Flows from Investing Activities
Purchases of property and equipment
(5,985)
(7,502)
Purchases of securities available-for-sale
(41,307)
(67,535)
Sales of securities available-for-sale
16,193
5,306
Maturities of securities available-for-sale
32,800
23,210
Net cash provided by (used in) investing activities
1,701
(46,521)
Cash Flows from Financing Activities
Proceeds from the exercise of stock options, net
5,106
518
Payments for tax withholding related to vesting of restricted stock units
(7,002)
(2,212)
Net cash provided by (used in) financing activities
(1,896)
(1,694)
Net increase (decrease) in cash and cash equivalents
57,164
(20,691)
Effect of exchange rate changes on cash
(273)
1,538
Cash and cash equivalents at beginning of period
143,455
170,932
Cash and cash equivalents at end of period
$
200,346
$
151,779
Supplemental Disclosure
Cash paid for income taxes
$
38
$
7
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Purchases of property and equipment included in accounts payable and accrued liabilities
$
4,880
$
731
Capitalized stock-based compensation
$
981
$
773
Leasehold improvements paid by landlord
$
—
$
7,406
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
Stitch Fix, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Description of Business
Stitch Fix, Inc. (“we,” “our,” “us” or “the Company”) delivers one-to-one personalization to our clients through the combination of data science and human judgment. Our stylists hand select items from a broad range of merchandise. Stylists pair their own judgment with our analysis of client and merchandise data to provide a personalized shipment of apparel, shoes, and accessories suited to each client’s needs. We call each of these unique shipments a Fix. After receiving a Fix, our clients purchase the items they want to keep and return the other items. We also provide a direct-buy offering that allows clients the flexibility of purchasing items outside of a Fix. Through direct buy, clients are offered previously purchased items in different colors, sizes, or prints, as well as a personalized set of algorithmically generated items based on their prior purchases or style preferences. We are incorporated in Delaware and have operations in the United States and the United Kingdom (“UK”).
COVID-19 Update
We are closely monitoring the effects of the novel coronavirus (“COVID-19”) outbreak, which was declared a global pandemic in March 2020, and its impact on our business, the full extent of which will depend on factors such as the length of time the pandemic continues; how federal, state and local governments are responding; the impact of the crisis on the economy and consumer behavior; and the effect on our clients, employees, vendors, and other partners. As a result of the COVID-19 pandemic, in the third quarter of fiscal 2020 we temporarily closed three of our fulfillment centers, operated at significantly reduced capacity for much of the third quarter as a result of such temporary closures, and reduced our marketing in light of this reduced capacity. During the fourth quarter of fiscal 2020, our fulfillment centers returned to higher capacity levels and continued at those levels during the first quarter of fiscal 2021.
We believe our financial resources will allow us to manage the impact of COVID-19 on our business and operations. We believe our existing cash, cash equivalents, and short-term investment balances, and the borrowing available under our senior revolving credit facility, if needed, will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months.
We also do not anticipate any impairments with respect to long-lived assets or short-term and long-term investments that would have a material impact on our financial statements.
Coronavirus Aid, Relief, and Economic Security Act
On March 27, 2020, the U.S. enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which among other things, permits net operating loss (“NOL”) carryovers and carrybacks to offset 100% of taxable income for tax years beginning before 2021 and allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. We provided for an estimated effect of the CARES Act in our financial statements for the period ended October 31, 2020.
2. Summary of Significant Accounting Policies
Basis of Presentation
Our fiscal year is a 52-week or 53-week period ending on the Saturday closest to July 31. The fiscal years ending July 31, 2021 (“2021”), and August 1, 2020 (“2020”), consist of 52 weeks.
The unaudited condensed consolidated financial statements include the accounts of Stitch Fix, Inc. and our wholly owned subsidiaries, and have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and the requirements of the U.S. Securities and Exchange Commission (the “SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted. These financial statements have been prepared on the same basis as our annual consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for the fair statement of our financial information. These interim results are not necessarily indicative of the results to be expected for the fiscal year ending July 31, 2021, or for any other interim period or for any other future year. All intercompany balances and transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the fiscal year ended August 1, 2020, included in the Company’s Annual Report on Form 10-K filed with the SEC on September 25, 2020 (the “2020 Annual Report”).
7
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in our condensed consolidated financial statements and accompanying footnotes.
Significant estimates and assumptions are used for inventory, stock-based compensation expense, income taxes, leases, and revenue recognition. Actual results could differ from those estimates and such differences may be material to the condensed consolidated financial statements.
We have considered the impact of the COVID-19 pandemic on significant estimates and judgments used in applying accounting policies. While there is a greater degree of uncertainty in applying these judgments in light of this crisis, we believe reasonable estimates have been used in preparing the unaudited condensed consolidated financial statements.
Short-Term and Long-Term Investments
The Company’s short-term and long-term investments have been classified and accounted for as available-for-sale securities. We determine the appropriate classification of our investments at the time of purchase and reevaluate the classification at each balance sheet date. Available-for-sale securities with maturities of 12 months or less are classified as short-term and available-for-sale securities with maturities greater than 12 months are classified as long-term. The Company’s available-for-sale securities are carried at fair value, with unrealized gains and losses, net of taxes, reported within accumulated other comprehensive income (loss) (“AOCI”) in stockholders’ equity. The cost of securities sold is based upon the specific identification method.
In the first quarter of fiscal 2021, we adopted Accounting Standards Update (“ASU”) No. 2016-13, or “CECL,” which changed the way we evaluate available-for-sale securities for impairment. We no longer evaluate available-for-sale debt securities under the “other than temporary” impairment model, but now use an expected credit loss model. For debt securities with an amortized cost basis in excess of estimated fair value, we determine what amount of that deficit, if any, is caused by expected credit losses. The portion of the deficit attributable to expected credit losses is recognized in other (income) expense, net on our condensed consolidated statements of income. During the three months ended October 31, 2020, we did not record any expected credit losses on our available-for-sale debt securities.
We have elected to present accrued interest receivable separately from short-term and long-term investments on our condensed consolidated balance sheets. Accrued interest receivable was $0.7 million as of October 31, 2020, and was recorded in prepaid expenses and other current assets. We have also elected to exclude accrued interest receivable from the estimation of expected credit loss on our available-for-sale securities and reverse accrued interest receivable through interest income (expense) when amounts are determined to be uncollectible. We did not write off any accrued interest receivable during the three months ended October 31, 2020.
Leases
Currently, we only have operating leases, which include lease arrangements for our corporate offices, fulfillment centers, and, to a lesser extent, equipment. Operating leases with a term greater than one year are recorded on the consolidated balance sheets as operating lease right-of-use assets and operating lease liabilities at the commencement date. These balances are initially recorded at the present value of future minimum lease payments calculated using our incremental borrowing rate and expected lease term. Certain adjustments to our operating lease right-of-use assets may be required for items such as initial direct costs paid or incentives received.
Foreign Currency
The functional currency of our international subsidiary is the local currency. For that subsidiary, we translate assets and liabilities to U.S. dollars using period-end exchange rates, and average monthly exchange rates for revenues, costs, and expenses. We record translation gains and losses in AOCI as a component of stockholders’ equity. Net foreign exchange transaction gains and losses resulting from the conversion of the transaction currency to functional currency are recorded in other income, net in the condensed consolidated statements of operations and comprehensive income.
Revenue Recognition
We generate revenue primarily from the sale of merchandise in a Fix and, to a lesser extent, from direct purchases. Clients create an online account on our website or mobile app, complete a style profile, and order a Fix or merchandise to be delivered on a specified date.
We deduct discounts, sales tax, and estimated refunds to arrive at net revenue. Sales tax collected from clients is not considered revenue and is included in accrued liabilities until remitted to the taxing authorities. All shipping and handling costs are accounted for as fulfillment costs in cost of goods sold and as selling, general, and administrative expense (“SG&A”), respectively, and are therefore not evaluated as a separate performance obligation. Discounts are recorded as a reduction to
8
revenue when the order is accepted. We record a refund reserve based on our historical refund patterns. Our refund reserve, which is included in accrued liabilities in the condensed consolidated balance sheets, was $8.7 million and $5.0 million as of October 31, 2020, and August 1, 2020, respectively.
The Company has five types of contractual liabilities: (i) cash collections of upfront styling fees, which are included in deferred revenue and are recognized as revenue upon the earlier of application to a merchandise purchase or expiry of the offer, (ii) cash collections of Style Pass annual fees, which are included in deferred revenue and are recognized upon the earlier of application to a merchandise purchase or expiry of the Style Pass annual period, (iii) unredeemed gift cards, which are included in gift card liability and recognized as revenue upon usage or inclusion in gift card breakage estimates, (iv) referral credits, which are included in other current liabilities and are recognized as revenue when used, and (v) cash collections of direct purchases, which are included in deferred revenue and are recognized as revenue upon shipment.
We sell gift cards to clients and establish a liability based upon the face value of such gift cards. We reduce the liability and recognize revenue upon usage of the gift card. If a gift card is not used, we will recognize estimated gift card breakage revenue proportionately to customer usage of gift cards over the expected gift card usage period, subject to requirements to remit balances to governmental agencies. All commissions paid to third parties upon issuance of gift cards are recognized in SG&A as incurred, as on average, gift cards are used within a one-year period. Similarly, referral credits that are considered incremental costs of obtaining a contract with a customer are recognized in SG&A when issued, as on average, referral credits are used within a one-year period.
The Company expects deferred revenue for upfront styling fees, direct orders, and Style Pass annual fees to be recognized within one year. On average, gift card liability and other current liabilities are also recognized within one year.
The following table summarizes the balances of contractual liabilities included in other current liabilities, deferred revenue and gift card liability for the periods presented:
(in thousands)
October 31, 2020
August 1, 2020
Deferred revenue
Upfront styling fees
$
10,681
$
9,119
Style Pass annual fees
2,699
2,711
Direct order
1,583
$
1,229
Total deferred revenue
$
14,963
$
13,059
Gift card liability
$
8,319
$
8,590
Other current liabilities
Referral credits
$
5,454
$
2,577
The following table summarizes revenue recognized during the three months ended October 31, 2020, that was previously included in deferred revenue, gift card liability, and other current liabilities at August 1, 2020:
(in thousands)
Revenue Recognized From Amounts Previously Included in Deferred Balances at August 1, 2020
Upfront styling fees
9,110
Style Pass annual fees
1,361
Direct order
884
Gift card liability
1,572
Referral credits
1,498
Concentration of Credit Risks
We are subject to concentrations of credit risk principally from cash and cash equivalents and investment securities. The majority of our cash is held by two financial institutions within the United States. Our cash balances held by these institutions may exceed federally insured limits. The associated risk of concentration for cash is mitigated by banking with credit-worthy institutions. The associated risk of concentration for cash equivalents and investments is mitigated by maintaining a diversified portfolio of highly rated instruments.
No client accounted for greater than 10% of total revenue, net for the three months ended October 31, 2020, and November 2, 2019, respectively.
9
Recently Issued Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes. This update amends and simplifies the accounting for income taxes by eliminating certain exceptions in existing guidance related to performing intraperiod tax allocation, calculating interim period taxes, and recognizing deferred taxes for investments. The update also provides new guidance to reduce complexity in certain areas. This standard is effective beginning in our first fiscal quarter of 2022 with early adoption permitted. We are currently evaluating the impact that this standard will have on our consolidated financial statements.
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard requires entities to use a financial instrument impairment model based on expected losses, known as the current expected credit loss model, rather than incurred losses. Under the new guidance, an entity recognizes an allowance for estimated credit losses upon recognition of the financial instrument. The new guidance also changes the impairment model for available-for-sale debt securities, requiring the use of an allowance to record estimated credit losses and subsequent recoveries. We adopted this standard in the first quarter of fiscal year 2021. The adoption of this standard did not have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. The amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. We adopted this standard in the first quarter of fiscal year 2021. The adoption of this standard did not have a material impact on our consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which requires lessees to record most leases on their balance sheets but recognize the expenses on their income statements in a manner similar to Accounting Standards Codification (“ASC”) 840. ASU 2016-02 states that a lessee would recognize a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term. Presentation of leases within the consolidated statements of operations and comprehensive income and consolidated statements of cash flow is generally consistent with ASC 840. However, this standard resulted in a substantial increase in our long-term assets and liabilities on our consolidated balance sheet.
We adopted this standard in the first quarter of fiscal 2020, on a modified retrospective basis through a cumulative-effect adjustment of zero to opening retained earnings. We also elected the package of practical expedients to leases that commenced before the effective date whereby we elected to not reassess the following:
(i) whether any expired or existing contracts contain leases;
(ii) the lease classification for any expired or existing leases; and
(iii) initial direct costs for any existing leases.
Upon adoption of ASU 2016-02, we did not record right-of-use assets or lease liabilities for leases with an initial term of 12 months or less. Payments on those leases are recognized on a straight-line basis through the consolidated statements of operations and comprehensive income over the lease term. We also elected to combine lease and non-lease components on new or modified leases after adoption. Upon adoption in the first quarter of fiscal 2020, we recorded $133.0 million in right-of-use assets, net of $25.7 million previously recorded as deferred rent on our consolidated balance sheets. We also recorded $22.0 million in current operating lease liabilities and $136.7 million in operating lease liabilities, net of current portion.
In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). Under ASU 2018-07, the accounting for awards issued to nonemployees will be similar to the accounting for employee awards. This includes allowing for the measurement of awards at the grant date and recognition of awards with performance conditions when those conditions are probable, both of which are earlier than under current guidance for nonemployee awards. We adopted this standard in the first quarter of fiscal year 2020. The standard did not have a material impact on our consolidated financial statements.
3. Fair Value Measurements
We disclose and recognize the fair value of our assets and liabilities using a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The guidance establishes three levels of the fair value hierarchy as follows:
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Level 1: Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;
Level 2: Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and
Level 3: Unobservable inputs that are significant to the measurement of thefair value of the assets or liabilities that are supported by little or no market data.
Our financial instruments consist of cash and cash equivalents, short-term and long-term investments, accounts payable, and accrued liabilities. At October 31, 2020, and August 1, 2020, the carrying values of cash and cash equivalents, accounts payable, and accrued liabilities approximated fair value due to their short-term maturities.
The following table sets forth the amortized cost, gross unrealized gains, gross unrealized losses and fair values of our short-term and long-term investments accounted for as available-for-sale securities as of October 31, 2020, and August 1, 2020:
October 31, 2020
August 1, 2020
(in thousands)
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
Financial Assets:
Investments:
U.S. Treasury securities
$
87,125
$
314
$
(2)
$
87,437
$
67,335
$
516
$
(1)
$
67,850
Certificates of deposit
6,150
—
—
6,150
6,150
—
—
6,150
Commercial paper
31,368
—
—
31,368
35,331
—
—
35,331
Asset-backed securities
35,979
244
(7)
36,216
44,854
410
(4)
45,260
Corporate bonds
67,968
433
(1)
68,400
82,821
723
(1)
83,543
Total
$
228,590
$
991
$
(10)
$
229,571
$
236,491
$
1,649
$
(6)
$
238,134
The following table shows fair value and gross unrealized losses, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position, at October 31, 2020:
Less Than 12 Months
More Than 12 Months
Total
(in thousands)
Fair Value
Unrealized Losses
Fair Value
Unrealized Losses
Fair Value
Unrealized Losses
Financial Assets:
Investments:
U.S. Treasury securities
$
11,125
$
(2)
—
—
$
11,125
$
(2)
Commercial paper
8,659
(7)
—
—
8,659
(7)
Corporate bonds
3,419
(1)
—
—
3,419
(1)
Total
$
23,203
$
(10)
$
—
$
—
$
23,203
$
(10)
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The following table sets forth the fair value of available-for-sale securities by contractual maturity as of October 31, 2020, and August 1, 2020:
October 31, 2020
August 1, 2020
(in thousands)
One Year or Less
Over One Year Through Five Years
Over Five Years
Total
One Year or Less
Over One Year Through Five Years
Over Five Years
Total
Financial Assets:
Investments:
U.S. Treasury securities
$
87,437
$
—
$
—
$
87,437
$
38,794
$
29,056
$
—
$
67,850
Certificates of deposit
6,150
—
—
6,150
6,150
—
—
6,150
Commercial paper
31,368
—
—
31,368
35,331
—
—
35,331
Asset-backed securities
6,127
30,089
—
36,216
6,657
38,603
—
45,260
Corporate bonds
56,897
11,503
—
68,400
56,105
27,438
—
83,543
Total
$
187,979
$
41,592
$
—
$
229,571
$
143,037
$
95,097
$
—
$
238,134
The following table sets forth our cash equivalents, and short-term and long-term investments accounted for as available-for-sale securities that were measured at fair value on a recurring basis based on the fair value hierarchy as of October 31, 2020, and August 1, 2020:
October 31, 2020
August 1, 2020
(in thousands)
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Financial Assets:
Cash equivalents:
Money market funds
$
7,938
$
—
$
—
$
7,938
$
2,394
$
—
$
—
$
2,394
U.S Treasury securities
3,730
—
—
3,730
—
—
—
—
Investments:
U.S. Treasury securities
87,437
—
—
87,437
67,850
—
—
67,850
Certificates of deposit
—
6,150
—
6,150
—
6,150
—
6,150
Commercial paper
—
31,368
—
31,368
—
35,331
—
35,331
Asset-backed securities
—
36,216
—
36,216
—
45,260
—
45,260
Corporate bonds
—
68,400
—
68,400
—
83,543
—
83,543
Total
$
99,105
$
142,134
$
—
$
241,239
$
70,244
$
170,284
$
—
$
240,528
There were no transfers of financial assets or liabilities into or out of Level 1, Level 2, or Level 3 for the three months ended October 31, 2020, and November 2, 2019.
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4. Accrued Liabilities
Accrued liabilities consisted of the following:
(in thousands)
October 31, 2020
August 1, 2020
Compensation and related benefits
$
17,723
$
11,987
Advertising
20,601
14,979
Sales taxes
11,637
7,134
Shipping and freight
15,264
8,624
Accrued accounts payable
7,721
5,892
Inventory purchases
20,474
15,427
Other
17,380
13,547
Total accrued liabilities
$
110,800
$
77,590
California Styling Organization
On June 1, 2020, we announced a restructuring plan to eliminate substantially all of our Styling team based in California. As a result of this restructuring, we recognized aggregate charges of $4.8 million for termination benefits within selling, general, and administrative expenses during 2020. Other costs such as relocation assistance will be expensed as incurred.
The following table provides the components of and changes in the Company’s restructuring and related charges, included in Compensation and related benefits in the table above:
(in thousands)
Severance and Other Termination Benefits
Balance at August 1, 2020
$
3,156
Cash payments
(2,758)
Balance at October 31, 2020
$
398
5. Credit Agreement
In June 2020, we entered into a credit agreement (the “Credit Agreement”) with Silicon Valley Bank and other lenders, to provide a revolving line of credit of up to $90.0 million, including a letter of credit sub-facility in the aggregate amount of $20.0 million, and a swingline sub-facility in the aggregate amount of $50.0 million. We also have the option to request an incremental facility of up to an additional $60.0 million from one or more of the lenders under the Credit Agreement.
Under the terms of the Credit Agreement, revolving loans may be either Eurodollar Loans or ABR Loans. Outstanding Eurodollar Loans incur interest at the Eurodollar Rate, which is defined in the Credit Agreement as LIBOR (or any successor thereto), plus a margin of either 2.25% or 2.50%, depending on usage. Outstanding ABR Loans incur interest at the highest of (a) the Prime Rate, as published by the Wall Street Journal, (b) the federal funds rate in effect for such day plus 0.50%, and (c) the Eurodollar Rate plus 1.00%, in each case plus a margin of either 1.25% or 1.50%, depending on usage. We will be charged a commitment fee of either 0.25% or 0.30% per year, depending on usage, for committed but unused amounts. The Credit Agreement will terminate on June 2, 2021, unless the termination date is extended at the election of the lenders. We capitalized $0.7 million of issuance costs in connection with the Credit Agreement.
The Credit Agreement is secured by substantially all of our current and future property, rights, and assets, including, but not limited to, cash, goods, equipment, contractual rights, financial assets, and intangible assets. The Credit Agreement contains covenants limiting our ability to, among other things, dispose of assets, undergo a change in control, merge or consolidate, make acquisitions, incur debt, incur liens, pay dividends, repurchase stock, and make investments, in each case subject to certain exceptions. The Credit Agreement also contains financial covenants requiring us to maintain minimum free cash flow and an adjusted current ratio above specified levels, measured in each case at the end of each fiscal quarter. The Credit Agreement contains events of default that include, among others, non-payment of principal, interest, or fees, breach of covenants, inaccuracy of representations and warranties, cross defaults to certain other indebtedness, bankruptcy and insolvency events, and material judgments.
As of October 31, 2020, we did not have any borrowings outstanding under the Credit Agreement and we were in compliance with all financial covenants.
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6. Commitments and Contingencies
Commitments
In November 2020, we entered into an agreement to lease approximately 700,000 square feet of space to be used as a fulfillment center in Salt Lake City, Utah. We expect to classify this lease as an operating lease, with a commencement date of late fiscal 2021 or early fiscal 2022. The lease expires in 2030 and we expect to record fixed operating lease costs of approximately $33.1 million over the life of the lease.
Contingencies
We record a loss contingency when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We also disclose material contingencies when we believe a loss is not probable but reasonably possible. Accounting for contingencies requires us to use judgment related to both the likelihood of a loss and the estimate of the amount or range of loss. Although we cannot predict with assurance the outcome of any litigation or tax matters, we do not believe there are currently any such actions that, if resolved unfavorably, would have a material impact on our operating results, financial position, and cash flows.
On October 11, 2018, October 26, 2018, November 16, 2018, and December 10, 2018, four putative class action lawsuits alleging violations of the federal securities laws were filed in the U.S. District Court for the Northern District of California, naming as defendants us and certain of our officers. The four lawsuits each make the same allegations of violations of the Securities Exchange Act of 1934, as amended, by us and our officers for allegedly making materially false and misleading statements regarding our active client growth and strategy with respect to television advertising between June 2018 and October 2018. The plaintiffs seek unspecified monetary damages and other relief. The four lawsuits have been consolidated and a lead plaintiff has been appointed. On September 18, 2019, the lead plaintiff in the consolidated class action lawsuits (the “Class Action”) filed a consolidated complaint for violation of the federal securities laws. On October 28, 2019, we and other defendants filed a motion to dismiss the consolidated complaint. The lead plaintiff filed an opposition to the motion to dismiss on December 9, 2019, and we and the other defendants filed our reply in support of our motion to dismiss on December 30, 2019. The court granted our motion to dismiss on September 30, 2020 but allowed the lead plaintiff to file an amended complaint. On November 6, 2020, the lead plaintiff filed his amended complaint. We filed a motion to dismiss the amended complaint on December 7, 2020.
On December 12, 2018, a derivative action was filed against our directors in the same court, alleging the same violations of securities laws as alleged in the Class Action and breach of fiduciary duties. The derivative action has been stayed pending the outcome of the motion to dismiss in the Class Action pursuant to the parties’ stipulation. On December 12, 2019, a second derivative action was filed against our directors in the same court, alleging the same violations of securities laws and breach of fiduciary duties as the other derivative action. The second derivative action has also been stayed pending the outcome of the motion to dismiss in the Class Action pursuant to the parties’ stipulation. The two derivative actions have been related to each other and to the Class Action, and all the related cases are now proceeding before a single judge in the U.S. District Court for the Northern District of California.
On August 10, 2020, a representative action under California’s Private Attorneys General Act was filed against us in the Superior Court for the State of California, County of San Diego. The complaint alleged various violations of California’s wage and hour laws relating to our current and former non-exempt stylist employees and seeks attorney’s fees and penalties. In November 2020, the Superior Court approved the settlement that we reached with the plaintiffs to resolve this matter.
There have been no other material changes to our commitments and contingencies disclosed in our 2020 Annual Report.
Indemnifications
In the ordinary course of business, we may provide indemnifications of varying scope and terms to vendors, directors, officers and other parties with respect to certain matters. We have not incurred any material costs as a result of such indemnifications and have not accrued any liabilities related to such obligations in our condensed consolidated financial statements.
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7. Accumulated Other Comprehensive Income (Loss)
The tables below present the changes in AOCI by component and, if applicable, the reclassifications out of AOCI:
Changes in Accumulated Other Comprehensive Income (Loss)
(in thousands)
Available-for-sale Securities
Foreign Currency Translation
Total
Balance at August 1, 2020
$
1,213
$
1,515
$
2,728
Other comprehensive income (loss) before reclassifications(1)
(548)
(338)
(886)
Amounts reclassified from AOCI
(115)
—
(115)
Net change in AOCI
(663)
(338)
(1,001)
Balance at October 31, 2020
$
550
$
1,177
$
1,727
Changes in Accumulated Other Comprehensive Income (Loss)
(in thousands)
Available-for-sale Securities
Foreign Currency Translation
Total
Balance at August 3, 2019
$
391
$
(578)
$
(187)
Other comprehensive income (loss) before reclassifications(1)
(172)
1,755
1,583
Net change in AOCI
(172)
1,755
1,583
Balance at November 2, 2019
$
219
$
1,177
$
1,396
(1)The associated income tax effects for gains / losses on available-for-sale securities were $430 and $409 for the three months ended October 31, 2020, and November 2, 2019, respectively.
8. Stock-Based Compensation
2011 Equity Incentive Plan
In 2011, we adopted the 2011 Equity Incentive Plan (the “2011 Plan”). The 2011 Plan provided for the grant of stock-based awards to employees, directors, and nonemployees under terms and provisions established by the board of directors.
The 2011 Plan allowed for the grant of incentive stock options or nonqualified stock options as well as restricted stock units, restricted stock, and stock appreciation rights. Only incentive and nonqualified stock options were granted under the 2011 Plan. Employee stock option grants generally vest 25% on the first anniversary of the grant date with the remaining options vesting ratably over the next three years. Options generally expire after 10 years. Effective upon our initial public offering in 2017, the 2011 Plan was replaced by the 2017 Incentive Plan.
2017 Incentive Plan
In November 2017, our board of directors and stockholders adopted our 2017 Incentive Plan (the “2017 Plan”). The remaining shares available for issuance under the 2011 Plan became reserved for issuance under the 2017 Plan. Our 2017 Plan provides for the grant of Class A incentive stock options to employees, including employees of any parent or subsidiary, and for the grant of nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards, and other forms of stock awards to employees, directors, and consultants, including employees and consultants of our subsidiaries. The number of shares authorized for issuance under the 2017 Plan was 27,395,455 as of October 31, 2020.
2019 Inducement Plan
In October 2019, our board of directors adopted our 2019 Inducement Plan (the “2019 Plan”). Our 2019 Plan provides for the grant of Class A nonqualified stock options and restricted stock unit awards to individuals who satisfy the standards for inducement grants under the relevant Nasdaq Stock Market rules. The number of shares authorized for issuance under the 2019 Plan was 4,750,000 as of October 31, 2020.
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Stock option activity under the 2011 Plan, 2017 Plan, and 2019 Plan is as follows:
Options Outstanding
Number of Options
Weighted- Average Exercise Price
Weighted- Average Remaining Contractual Life (in Years)
Aggregate Intrinsic Value (in thousands)
Balance – August 1, 2020
6,817,196
$
17.10
7.41
$
40,252
Granted
795
$
36.01
Exercised
(525,316)
$
9.54
Cancelled
(614,429)
$
23.04
Balance – October 31, 2020
5,678,246
$
17.16
7.25
$
98,125
The aggregate intrinsic value is the difference between the current fair value of the underlying common stock and the exercise price for in-the-money stock options.
The following table summarizes the restricted stock unit (“RSU”) award activity under the 2017 Plan and 2019 Plan:
Unvested RSUs
Class A Common Stock
Weighted- Average Grant Date Fair Value
Unvested at August 1, 2020
9,123,341
$
20.11
Granted
3,601,020
$
24.87
Vested
(440,918)
$
22.02
Forfeited
(639,041)
$
20.95
Unvested at October 31, 2020
11,644,402
$
21.47
Stock-Based Compensation Expense
Stock-based compensation expense for employees was $19.9 million for the three months ended October 31, 2020, respectively, and $12.1 million for the three months ended November 2, 2019, respectively. Stock-based compensation expense is included in selling, general, and administrative expenses in our condensed consolidated statements of operations and comprehensive income.
The weighted-average grant date fair value of options granted during the three months ended October 31, 2020, was $17.70 per share. The weighted-average grant date fair value of options granted during the three months ended November 2, 2019, was $11.30 per share. As of October 31, 2020, the total unrecognized compensation expense related to unvested options and RSUs, net of estimated forfeitures, was $249.2 million, which we expect to recognize over an estimated weighted average period of 2.7 years.
We record stock-based compensation of stock options granted to employees by estimating the fair value of stock-based awards using the Black-Scholes option pricing model and amortizing the fair value of the stock-based awards granted over the applicable vesting period of the awards on a straight-line basis. The fair value of stock options granted to employees was estimated at the grant date using the Black-Scholes option-pricing model with the following assumptions: