Stitch Fix Inc (SFIX) 2018 Q2 法說會逐字稿

Good day, everyone, and welcome to the Stitch Fix Second Quarter 2018 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to today's speakers. Please go ahead.

Thank you for joining us on the call today to discuss the results for our second quarter of fiscal 2018. Joining me on today's call are Katrina Lake, Founder and CEO of Stitch Fix; Paul Yee, our CFO; and Mike Smith, our COO.

We have posted complete Q2 financial results in our shareholder letter on the Investor Relations 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 also like to remind everyone that we will be making forward-looking statements on this call, which involve risks and uncertainties. Actual results could materially differ from those contemplated by our forward-looking statements. Reported results should not be considered as an indication of future performance. Please review our filings with the SEC for a discussion of the factors that could cause our results to differ. 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 obligations to update any forward-looking statements except as required by law.

Also during this call, we will discuss certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are provided in the shareholder letter on our Investor Relations website. These non-GAAP measures are not intended to be a substitute for our GAAP results.

Finally, this call in its entirety is being webcast on our IR website, and a replay of this call will be available on the website shortly.

I'd now like to turn the call over to Katrina.

Thanks, David, and thank you all for joining us today.

After the market closed today, we issued our quarterly shareholder letter with more details on our results, which I encourage you all to read. I'll take a moment and highlight a few points from the letter.

We are pleased with the results of our second quarter. We grew our active client count to 2.5 million as of January 27, 2018, an increase of 588,000 and 31% year-over-year. We grew our net revenue to $295.9 million, representing 24% year-over-year growth. We drove strong growth across both our Women's and Men's categories and are excited to tell you about 2 new initiatives later on this call that create a more frictionless and personalized client experience, which should benefit our clients and our business.

Q2 2018 also marks the fourth consecutive quarter that we grew revenue at approximately 25% year-over-year. In Q2 2018, we delivered $3.6 million in GAAP net income and $18.2 million in adjusted EBITDA. These results demonstrate our focus on delivering disciplined growth while continuing to make measured investments in our business for our future. Paul will discuss our second quarter financial results in more detail later on this call.

I'd now like to take a few moments to provide color on a few initiatives from Q2. Firstly, we continue to apply data science and algorithms to drive improvements across our business. In the past, we've discussed how we're using data science to optimize pick paths in our distribution centers, to pair clients and stylists and even to design apparel. To highlight one newer area where we've been especially excited by the results, I'll spend a moment on algorithmic repurchasing.

For core styles such as denim, cardigans and workwear, we tend to reorder styles that are working. Beginning in late fiscal 2017, our Women's buyers began using algorithmic rebuying tools that we built to inform inventory repurchase decisions. The algorithm helps buyers determine optimal rebuy styles and purchase quantities to meet the varying demand of specific client segments. For example, we algorithmically repurchase inventory based on seasonal demand fluctuations and style preferences of specific age demographics. Through the use of this tool, we've driven increases in client satisfaction across style and fit and believe it also contributed to higher average order value. Implementing this technology allows us to improve the probability that our clients find and keep things they love and also to risk reduce our inventory.

Secondly, I'm very excited to discuss Style Pass and Extras. These are 2 recently launched initiatives that represent significant steps in our strategy to continue innovating and improving our client experience. These offerings are intended to drive a more frictionless and flexible client experience and grow both our mind share and wallet share with our clients.

Most importantly, we believe that these new capabilities reflect a step change in enabling our clients to better personalize their experiences with us. Style Pass offer unlimited styling for an annual membership fee. It allows our clients to get fixes more frequently without paying a styling fee every time they order a fix. One of our primary goals in launching Style Pass was to reduce the friction from the client experience, making it easier to be top of mind for all of our clients' apparel needs. Prior to its launch, we conducted a pilot that demonstrated that participation in the program increased client satisfaction, engagement and average revenue per client. We started rolling out Style Pass in December of 2017 to select clients across categories and price points offering a $49 annual membership fee for unlimited styling with the fee acting as credit towards any items the client purchases. While it's still early, we're optimistic about the results of Style Pass since launch and about post-launch enrollment rates.

We also recently launched an offering called Extras. It serves our initial Women's offering, Plus size and maternity clients and adds flexibility to our service by allowing clients to add essentials, such as underwear, socks, bras and other items that did not require a styling experience in addition to the 5 items in their fix. Extras products currently range in price from approximately $10 to $65 and include third-party market brands as well as exclusive brands. Clients are able to add as many of the incremental items of their choice to any fix they order. This capability allows us to better serve our clients by being able to serve even more of their wardrobe needs while driving incremental revenue and margin per order. While both of these initiatives are in their early days, we're very excited about the new technological and operational capabilities they offer for our business to further personalize the client experience.

And now I'll turn it over to Mike, who will walk you through highlights within our Women's and Men's categories for the quarter.

Thanks, Katrina, and hello to everyone joining us on today's call. I'll begin with a discussion of our Women's category, which had another solid quarter of growth.

In Q2, we expanded assortments from our newest brand partners and applied learnings from our initial Women's offering to our Plus size business. In the first quarter of 2018, we added several recognized brand partners to our portfolio of Women's brands, and in the second quarter, began rolling out an expanded assortment of these brands to meet client demand. These recently added brand partners included Calvin Klein, Levi's, Tahari and Tommy Hilfiger. Client feedback on these additions has already been very positive, and we believe it reinforces our role as matchmaker between great brands and the clients who love them.

Our focus on establishing innovative brand partnerships also extended to performance wear brands in recent quarters. We've partnered with several brands, including Beyond Yoga and Sweaty Betty, in addition to announcing our pilot partnership with Nike, which commences in spring 2018. We believe these partnerships will enable us to address more clients' apparel needs over time.

Turning to our Men's offering, we delivered another strong quarter of growth as we learn more about our male clients and leverage the data they share with us to serve them better. For example, we estimate that the size of our Men's TAM is roughly 2/3 of that of Women's. However, our initial Men's clients have already demonstrated that they're willing to spend approximately 80% of what our Women's clients spend. We believe this is a testament to the strength of our Men's offering.

As we shared in our first shareholder letter, over 85% of clients share feedback at Fix check out. This information allows us to be very targeted in the way we improve the client experience. As a recent example of how we use this data to enhance the client experience from the product side, in Q2, we identified a significant opportunity to better serve XXL clients and in particular XXL clients who's self identified as husky. We collected and analyzed size and fit feedback relating to how apparel fit through on the shoulders, chest, sleeve and body and incorporated that fit feedback into our fit specifications. These customized fits drove a success rate improvement among our husky clients of nearly 40%.

As our Women's and Men's offerings and client bases continue to grow, we are excited about our opportunity to leverage our growing data set to enhance our personalization capabilities, client experiences and overall performance.

I will now turn the call over to Paul, who will walk you through our financial performance and outlook.

Thanks, Mike. Our second quarter 2018 results reflect our continued commitment to sustainable, profitable growth and to investments that we believe will drive long-term shareholder value. As a reminder, Stitch Fix has a capital-light business model, and the majority of our investments such as new businesses, advertising and technology headcount flow through the P&L. Even with these investments, we're proud to deliver another quarter of top line growth and profitability on both an adjusted EBITDA and net income basis.

As Katrina noted at the start, Q2 net revenue grew 24% year-over-year to $295.9 million, the high end of our guidance range of 21% to 24% growth. Active clients grew to 2.5 million, an increase of 31% year-over-year. We're pleased with the acceleration in the year-over-year growth rate and the absolute increase in clients as compared to results in Q1.

Gross margin was 43.0% compared to 44.9% in Q2 of last year. This decline of 190 basis points was expected and primarily driven by our investments in inventory as well as expansion into new categories over the past 18 months. Today, we're seeing for Men's and Plus lower initial markups and higher shipping costs because we ship to those clients from fewer warehouses as well as higher clearance rates as we invest in inventory to ensure a personalized client experience. We expect these dilutive impacts to lessen over time as these categories scale.

For example, in Q2, our Men's initial markup margin, or IMU, was 190 basis points higher than the Men's IMU in Q2 fiscal 2017. Also impacting our Q2 gross margin was shrink. We're actively tackling this issue and launched several initiatives this quarter to positively impact the trend.

Turning to expenses. We continue to make strategic investments in advertising and technology talent. Regarding advertising, as we shared on our last call, we tend to be quieter in Q2, given our relative lack of holiday seasonality and given much more aggressive spending by other retailers. Advertising expense in the quarter was $19.8 million or 6.7% of net revenue. By comparison, we spent 9.5% of net revenue on advertising in Q1. On a year-over-year basis, the Q2 spend still represented an investment in the increase from last year's Q2 spend of $10.2 million or 4.3% of net revenue.

Other SG&A, or SG&A, excluding the $19.8 million in advertising expenses, was 31.1% of net revenue compared to 31.3% in Q2 '17. Note that the Q2 '17 figure also excludes the $21.3 million impact of compensation expense related to certain stock sales by current and former employees that occurred in prior periods. Our other SG&A expense continues to be driven by our investments in headcount, particularly in engineering and data science. With these investments, we'll be able to introduce more flexibility into our platform and ultimately serve our clients better. Our recent Style Pass and Extras launches are examples of the capabilities we're building with our expanded technology team.

Helping to partially offset this fixed headcount investment are efficiencies we continue to garner with our variable labor costs, specifically our styling and warehouse teams. Q2 labor costs were 70 basis points lower as a percent of net revenue year-over-year. Driving this improvement were enhanced algorithms and tools we provide our teams to fulfill fixes more quickly and effectively.

Our tax expense in Q2 includes a $4.7 million expense related to the remeasurement of our net deferred tax assets as a result of the tax reform law passed in December. Our non-GAAP net income measure excludes the impact of this item.

Q2 net income was $3.6 million compared to $0.2 million in Q2 of fiscal '17. On a non-GAAP basis, Q2 net income was $6.8 million compared to $13.8 million in Q2 of fiscal '17. Adjusted EBITDA in the quarter was $18.2 million or 6.2% of net revenue. These results exceeded the high end of our guidance range of $11.5 million to $15.5 million, driven by 3 primary factors: higher revenue; the timing shift of marketing and other operating expenses from Q2 to Q3; and finally, a $2.6 million reduction to our sales and use tax liability. By comparison, adjusted EBITDA in Q2 of fiscal 2017 was $24.1 million or 10.1% of net revenue.

Moving on to our outlook. For the third fiscal quarter, we expect net revenue in the range of $300 million to $310 million, representing growth of 22% to 26% year-over-year. This range includes our expected impact of Style Pass and Extras. We expect adjusted EBITDA in the range of $5 million to $10 million for an adjusted EBITDA margin of 1.7% to 3.2%. Our adjusted EBITDA range reflects several dynamics at play.

First, as noted before, we had timing shifts of advertising and other operating expenses from Q2 to Q3. Second, we decided to make several important opportunistic investments we feel are the right thing for our business longer term. These include incremental advertising spend based on favorable efficiencies we're seeing and also based on our plans to test different ways to better integrate data science into our marketing efforts. In addition, to retain and recruit the best talent in the industry, we would be making strategic incremental investments in stock-based compensation for nonexecutive team members.

For the full fiscal year, we're raising the lower end of our net revenue range. We now expect net revenue of $1.19 billion to $1.22 billion, representing growth of 22% to 25% year-over-year. In terms of adjusted EBITDA, we're narrowing our range to $45 million to $55 million or an adjusted EBITDA margin of 3.8% to 4.5%.

With that, we're now ready for your questions. Operator, I'll turn it over to you.

(Operator Instructions) Your first question will come from Douglas Anmuth with JPMorgan.

I had 2 that I wanted to ask. First, just on Style Pass, was hoping, Kat, you could give a little bit more color there in terms of what you're seeing. I know it's extremely early. But we're curious, first of all, is it available to everyone at this point? Or is it still specifically being targeted to only certain members or people that you want to reengage with? And then secondly on marketing, I realized 2Q's not the biggest quarter, but could you talk a little bit more about what you're seeing in terms of the efficiencies that are making you want to spend more in 3Q as well?

Yes. Thank you very much, Doug. So firstly, on Style Pass, it's a little bit too early to tell in terms of what we expect. What we were really excited about when we piloted the program was we saw improvements in client satisfaction and engagement of how often they were engaging with the service. And overall, we saw higher revenue, average revenue per client in that test group. And so those are some attributes of the program that we really love and are really excited about. It is not rolled out to everybody. We won't hear the specifics around kind of who becomes eligible for the program, but we're able to identify those that would benefit most and target the program accordingly. But we're very excited about kind of what we're seeing so far. On the marketing side, yes, marketing is not a big area of spend for us in the second quarter. However, there are some pretty meaningful differences between this quarter and last quarter. This quarter was we had all of our channels -- or all of our important channels in-house, and that actually helped us to be able to keep marketing channels on in a way that was productive and very efficient for this quarter that kind of allows us to continue to generate momentum as we go into quarters where we spend more. And we also did a lot of learning in that last quarter. And so a couple of the -- I think 2 of the more important things I would highlight are we're able to use data science to be able to do some incrementality testing. And that has helped us to really better identify sometimes, for example, if we're running ads on Facebook, that demand might materialize on another channel, but it was influenced by Facebook, for example. And so it helps us to have a more granular sense of the efficacy across channels. And I guess to pick on Facebook a little bit, I think that's an area where we saw a lot of great improvements and efficiencies in Men's, for example. And so historically, Facebook was more challenging on our Men's business than our Women's business. And really in the last quarter, we really unlocked some great learnings and great efficiency there. And so we're able to deploy more dollars there in a way that we wouldn't have been able to deploy as efficiently like 6 or 12 months ago. And so while it was a lower-spend quarter, it was a very important quarter in terms of learning and definitely gives us a lot of momentum as we look into the rest of the year.

From RBC Capital Markets, we have Mark Mahaney.

Maybe 2 questions -- or 3 questions, please. Paul, could you talk a little bit more about the shuffling of cost from Q2 to Q3? I'm sorry, if you covered it on the call, but just go through that again, please. And then in terms of the higher average order value that you've seen, so could you pare that back a little bit? I think you talked about that in the algorithmic repurchasing part of the shareholder letter. And is that higher price points? Is that just more frequency or is that more items purchased per fix? And then the last one, just a little bit more on the Extras, and I think that's very early stage for you. But any learnings so far about how material that could be, kind of, 2 or 3 years down the road?

I'll take the first question then maybe I'll turn it over to Kat to talk about the rebuy algorithm and then the questions on the other initiatives. So in terms of the Q2 results, we did see some upside due to the timing of cost. Costs sometimes shifts between quarters as we manage the business, we see the opportunity to spend at the right time. And so what we found is we didn't spend as much as we had planned earlier on advertising and to a lesser extent on some operating expenses like consulting fees. And I would say roughly 40% of our upside in Q2 is just simply shifting into Q3, and that's reflected in the guidance we gave for the quarter.

And so to answer -- and I'll take your other 2 questions. The first one I think is the higher AOV that we mentioned in the algorithmic repurchasing section of our shareholder letter, if that's correct. And then your second question was on Extras. In terms of on the algorithmic repurchasing, I think I want to caution you against kind of extrapolating that data into being overall higher revenue quarter-over-quarter. What we're referring to here is a test basically that we would do of, we say, we can use our algorithmic repurchasing tools in this cell but not in the other cell, and what we see is that using these repurchasing tools, improve the probability that we're going to have things in inventory available for clients that we know that they are going to love. And so that using this tool results in better outcomes than not using this tool. And so it's a little bit specific to this specific initiative. And I caution you against kind of using it overall on the business. But it's definitely one of these things that it's a test that we can do and then we roll it out and it definitely benefits us all but, again, like I think it's really specific to that test. On the question around Extras, it's really kind of too early to tell. We just launched that 2 weeks ago. And I think what I would say is in the short term, what we have there today is a set of -- it's socks, it's tights, it's undergarments and so it's -- the more curated selection of items that are available. And these aren't necessarily huge market opportunity items. But what it does is -- there's a couple of things it does. I think one, it covers categories that clients would like the convenience of having it in their fixes. It also prevents clients from having to look elsewhere for those item types which they would have had to do 6 months or 12 months ago. And so those 2 are certainly benefits to the business. And I think the bigger thing that we're excited about is more around the capability. And so historically, Stitch Fix has really been 100% recommendation based where everything -- every single dollar of revenue is attributed towards a recommendation that we're generating, and that's still going to be the work horse of this business. But the capability of allowing client choice in the experience is a very new one for us. And so as you think about kind of the operational capability from a warehouse perspective and also from a technology perspective, 3 years from now, I don't think that it -- the opportunity won't just be how many pairs of socks can we sell. I think there are, over a longer period of time, a lot of ways that we can take advantage of this capability. And so short term, I don't know that we -- short term, all of what we expect is wrapped up in our guidance, and it's all kind of within our expectations. But I think longer term it's a really exciting capability that will allow us to personalize the experience of Stitch Fix in more ways than we can today.

Next, we'll hear from Ross Sandler with Barclays.

Just 2 questions on the gross margin. Can you just give us an update on gross margin difference like absolute level between the core Women's category and the newer categories like Plus or Men's, where is that today? And where do you expect that to be a year from now? And then you called out clearance last quarter, and looks like some of that pushed into this quarter as you had talked about. So I guess just steady state, how we should think about clearance -- the clearance rate going forward after we get past this 1Q to 2Q dynamic?

Thanks, Ross. As we shared in prior quarters, the newer business, namely Men's and Plus size, do have a dilutive impact on gross margins driven by lower initial markups, higher shipping cost due to lower footprint and inventory investments we're making to ensure that we're launching this businesses off the right foot. And so that gap still remains today. We're not going to break up the margins between the businesses. I did note in my remarks that we're starting to see some benefits of the scale. So 1 example the Men's initial markup, which is the measure of the scale and the size of the buys, is up year-over-year by 190 basis points. So we're absolutely working towards continuing to get the scale from that benefit. I think probably in the next year, we'll add a third warehouse for the Men's distribution out of the 5. So I think over time, you'll see that gap close. And certainly, we'll benefit from the business scaling to a bigger size.

In terms of clearance, we did talk about last quarter the fact that we shifted some clearance activity from Q1 to Q2, that did materialize. So when you do look at the overall gross margins from Q1 to Q2, it decreased 70 basis points. And that was driven entirely by clearance. And so that was in line with our expectations and something that we expected when we sort of entered the quarter. In terms of steady state, I think probably on a bigger and bigger strategic level, we're going to continue investing in new categories as well as inventory overall, and that will transpire into higher clearance year-over-year holding everything else constant. What's going to help us mitigate some of that investment, however, is the continued use of data science in terms of our styling tools and some of the repurchasing tools that Katrina mentioned earlier. That all will help us reduce our clearance upstream by buying the right amount of product and getting into the clearance -- getting into the clients, rather, more effectively. So overall, I think steady state will be that we'll reduce clients longer term but in the shorter term, we think the investments in inventory will allow us to ensure we give the right client experience earlier on with Stitch Fix.

And from Goldman Sachs, we'll hear from Chris Merwin.

Just a couple of questions from me. The first is on expanding price points. I think in the shareholder letter, you talked a little bit about broadening of the price points in the Men's category and that leading to some higher success rates. You feel like you have all the price points you need in Women's. Were there any kind of brands you can further bring in to expand that further? I'm just curious are you thinking about that? And then secondly on marketing, can you remind us the mix of between brand and performance and as you kind of continue to get better and better at attribution and data science as it relates to your marketing efforts, should we expect that mix to change and that will work maybe more towards performance over time?

Great. Thank you, Chris. I'll probably have Mike take the question on price points in the Men's and Women's business, and then I'll take it back for marketing.

Yes, Chris. This is Mike. And yes, I think we still have room to grow, expanding our assortment across price points in both Men's and Women's. I know you asked specifically about our opportunity in Women's. And I think both from a brand perspective and a price point perspective, we can do a better job of matching where the clients are and what their expectations are. We fortunately get a lot of data, and they tell us kind of where they want their price points to be and also what brands they like. And we're fastly expanding what our offering is for clients. And I think what we talked about in the script was talking about brands that are -- people are asking for, and we have this great opportunity to continue to expand along a lot of different brands.

Great. And I'll take the question on marketing. The mix between brand and performance, today the -- I mean, almost everything that we do would be categorized as performance. And so even on the TV front, for example, the TV spots that we're running, our direct response, we can attribute those within kind of a 5-second window directly to sign-ups that we're seeing in response to that. And so I think it's definitely an opportunity as we think about the longer term of the company and the kind of the longer-term horizon as the types of marketing that we want to do in building a brand that people know and love and that really has this kind of hearts and minds type of place with consumers. And it's an area that we're excited about. And I think we -- you'll see over the course of, I don't know, a year or so, that you'll probably see us experiment with more types of marketing. But today, the vast majority of the marketing spend that you see would be more of what people would consider performance marketing. Did you have -- did I answer your question totally, Chris? Is there anything else on there?

No. That was perfect.

(Operator Instructions) Next, we'll hear from Erinn Murphy with Piper Jaffray.

Here's my first question, it's for Kat. One of the observations we've had in the last month is you guys kind of launched a promotion that really focused on lapsed customers where they had a full month to complete a fix, and you waived the style fee. I'm just curious, I guess how are you classifying the lapsed customer at this phase? And any kind of frequency at which you're doing this and how the, I guess, ROI when you actually do waive that fee, do you see them come back to the platform. That's my first question.

Yes. So that's a great question. There's the idea of clients who -- we share in our S-1 for example, that over 660,000 clients will not use Stitch Fix for a period of 4 months or longer and reengage, and that is a big part of our business and that re-engagement is really important. And so we see some of that re-engagement happen naturally. A lot of apparel spend is lumpy. You'll see people buy things every 6 months or see things -- people buy a bunch of things at once and then not buy for a while. And so we want to be able to respect people's spending patterns and respect people's wallet size but also be available whenever people are on the market to buy clothes. And so we do a lot of these programs through e-mail, through direct mail. We do all of them in an ROI-positive way, and we can test these very granularly. And so to be able to be top of mind for somebody when they are thinking, "Oh, I have a trip coming up," and, "Oh, maybe I should get Stitch Fix to help me for that," that's a very valuable marketing tool. So in terms of the question around the styling fee, we don't -- these are programs that we don't offer these to every single client. There are clients, for example, who might lapse who are looking for products that may be more of a value price point, which is not a price point that we serve today. And that would be a client that would be unprofitable to try to reengage. And so we are very granular at the client level of really having these re-engagement efforts targeted against the clients that will benefit from it and where our business will benefit from it. And so that's a program that I think is a very personalized one but one that's very effective as we think about making sure that we're top of mind whenever our clients are looking to buy clothes.

That's super helpful. And then I guess 2 more for me, one for Paul. Can you just talk a little bit, sorry if I missed it, how shrink progressed throughout the second quarter versus the first. I mean you did talk about working to tackling that problem. I'm just curious what initiatives you kind of kicked started in the second quarter. And then just broadly, maybe for Mike or Kat, just on the Nike pilot, can you just talk a little bit more is it apparel? Is it footwear? Men's? Women's? And then does one have an option on the platform to opt in if they want specific athletic? Or does it just kind of fill within a standard type item fix?

Erinn, this is Paul. I'll talk about the shrink question and turn it over to Mike to talk about Nike. And so like many parts of our operation, we treat shrink as an opportunity to optimize, and we certainly have opportunities to continue to improve on that front. Q2 shrink increased 60 basis points year-over-year. By comparison, we've increased 70 basis points year-over-year in Q1 so the trend is generally in the same ballpark. We're taking actions on a lot of fronts. In Q2 we initiated some engineering work to support automatic credit card verifications and to more easily reverse failed charge attempts. And then in a more strategic level we're partnering with third parties to develop systems just to use -- build the capabilities, confirm that clients we bring on the platform are the right match for us in Stitch Fix. So we're looking at this like every other cost in the system, and we'll continue updating you these quarters to come as we make progress.

So Erinn, this is Mike. Yes, the Nike partnership starts officially in April of 2018. So we're just getting started with them. The conversations have been great. I mean we're starting in Women's, we're starting in apparel. I think we can expand to other -- like broader into their assortment and across both genders. But initially, it's starting in Women's apparel. The way people would ask for it is -- mostly through request notes -- their stylist request notes and it would be part of the 5-item fix. But I'd say another big thing as we think about Nike and other brands is just the value that we provide to brands and the conversations that I've talked about before that we have with brands today versus a year or 2 years ago. I mean, we still are very valuable to a brand. We provide full price for a brand, we provide growth to a brand, we have high brand integrity, we care about brands. And more specifically the data that we can provide to brands, which is something Nike and other brands are excited about, allow them to be better brands and have better product that meets the needs of our clients. So yes, we're excited about our partnership with Nike. But we're excited about all the brands that are coming to us to kind of talk about the way that they can work with us based on our data set.

(Operator Instructions) We'll hear from Ryan Domyancic with William Blair.

So to continue down that path of adding brands to the platform, what happens on the customers' side when you include large brands into the fix? Do they come in at a higher price point? And are there stronger keep rates for this bigger, more well-known brands than your house brands or boutique brands?

Yes, I'll take that. I mean, we see great success with our brands. I wouldn't say with these bigger brands that there are higher success rates. I mean, I think we're seeing that we do a really good job with matching brands, like big brands or market brands like boutique brands or our own exclusive brands with a client. And so as a result of matching and the algorithms and the way the stylist works, we're able to get the product to the clients that want that product. So we're excited about the partnership that we have with brands but I wouldn't say that it's a lot different than what we're seeing across the rest of the portfolio.

I'll also add that it just depends a lot on category by category. And in some categories like shoes, for example, we rely almost entirely on branded products versus other categories. We have less reliance there. And I think we've also seen that there's a benefit to the client of seeing brands that they know and love in their fix alongside the brands they're discovering. And so in some cases, I think it could be a key to greater success rate benefit but I think in a lot of cases it's also a trust benefit of the way that they perceive the service.

Okay. That's very helpful. And then just a quick question on Style Pass. I know we touched on it both in the prepared remarks and the Q&A. But with those early tests, any comments about how frequency increased and by how much it increased relative to a typical customer?

Yes. I think in the test -- what we can share is that we saw that overall average revenue per client increased. And I think the intuition would be that you would see people getting more fixes because there's less friction. And so I think there -- I think that intuition is likely going to play out. But I think it's a little bit too early to tell. And I think what we're most excited about frankly is just that people have much higher satisfaction, people think of the service more favorably and net-net, they spend more with us. And so underneath there's probably going to be some puts and takes but I think the net result we see is very positive.

And at this time, I would like to turn the conference back over to management for any additional or concluding remarks.

Great. Well, thank you very much for joining us today. We look forward to seeing analysts and investors on the road at conferences, and we'll keep you posted on our quarterly calls and press releases. Thank you.

Ladies and gentlemen, that does conclude today's presentation. We do thank everyone for your participation, and you may now disconnect.