34 lines
302 KiB
JSON
34 lines
302 KiB
JSON
|
{
|
||
|
|
"chunks": [
|
||
|
|
"## UNITED STATES SECURITIES AND EXCHANGE COMMISSION\n\nWashington, D.C. 20549 ## FORM 10-Q\n\n(Mark One)\n\n\u2612 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934\n\nFor the quarterly period ended April 27, 2024\n\nOR\n\n\u2610 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934\n\nFor the transition period from to\n\nCommission file number: 001-38291 ## STITCH FIX, INC.\n\n(Exact name of registrant as specified in its charter)\n\nDelaware\n\n27-5026540\n\n(State or other jurisdiction of incorporation or organization)\n\n(I.R.S. Employer Identification\n\nNo.)\n\n1 Montgomery Street, Suite 1100\n\nSan Francisco, California 94104\n\n(Address of principal executive offices and zip code)\n\n(415) 882-7765\n\n(Registrant's telephone number, including area code)\n\nSecurities registered pursuant to Section 12(b) of the Act:\n\nTitle of Each Class\n\nTrading Symbol\n\nName of Each Exchange on Which Registered\n\nClass A common stock, par value $0.00002 per share\n\nSFIX\n\nNasdaq Global Select Market\n\nIndicate 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 \u2612 No \u2610\n\nIndicate 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 (\u00a7232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes \u2612 No \u2610\n\nIndicate 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.\n\nLarge accelerated filer\n\n\u2610\n\nAccelerated filer\n\n\u2612\n\nNon-accelerated filer \u2610\n\nSmaller reporting company\n\n\u2610\n\nEmerging growth company \u2610\n\nIf 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. \u2610\n\nIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes \u2610 No \u2612\n\nAs of May 29, 2024, the number of outstanding shares of the registrant's Class A common stock, par value $0.00002 per share, was 99,485,668, and the number of outstanding shares of the registrant's Class B common stock, par value $0.00002 per share, was 22,855,042.\n\n1 ## STITCH FIX, INC. ## TABLE OF CONTENTS\n\n| | Page No . |\n|-----------------------------------------------------------------------------------------------|-------------|\n| PART I. FINANCIAL INFORMATION | |\n| Item 1. Financial Statements (Unaudited): | 3 |\n| Condensed Consolidated Balance Sheets | 3 |\n| Condensed Consolidated Statements of Operations and Comprehensive Loss | 4 |\n| Condensed Consolidated Statements of Stockholders' Equity | 5 |\n| Condensed Consolidated Statements of Cash Flow | 7 |\n| Notes to the Condensed Consolidated Financial Statements | 8
|
||
|
|
"## Condensed Consolidated Balance Sheets ## (Unaudited)\n\n(In thousands, except share and per share amounts)\n\n| | April 27, 2024 | July 29, 2023 |\n|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------|-----------------|\n| Assets | | |\n| Current assets: | | |\n| Cash and cash equivalents | $ 196,507 | $ 239,437 |\n| Short-term investments | 47,998 | 18,161 |\n| Inventory, net | 114,467 | 130,548 |\n| Prepaid expenses and other current assets | 25,446 | 27,692 |\n| Current assets, discontinued operations | 864 | 9,623 |\n| Total current assets | 385,282 | 425,461 |\n| Property and equipment, net | 57,636 | 79,757 |\n| Operating lease right-of-use assets | 89,099 | 104,533
|
||
|
|
"## (Unaudited)\n\n(In thousands, except share amounts)\n\nFor the Three Months Ended April 27, 2024\n\n| | Common Stock | Common Stock | Additional Paid-In | Accumulated Other | Accumulated | Treasury Stock | Treasury Stock | Total Stockholders' Equity |\n|---------------------------------------------------------------------------------------------|----------------|----------------|----------------------|---------------------|---------------|------------------|------------------|------------------------------|\n| | Shares | Amount | Capital | Comprehensive Loss | Deficit | Shares | Amount | |\n| Balance as of January 27, 2024 | 122,473,688 | $ 2 | $ 653,170 | $ (432) | $ (409,427) | (2,302,141) | $ (30,042) | $ 213,271 |\n| Issuance of common stock upon settlement of restricted stock units, net of tax withholdings | 2,169,163 | - | (3,050) | - | - | - | - | (3,050) |\n| Stock-based compensation | - | - | 20,062 | - | - | - | - | 20,062 |\n| Net loss | - | - | - | - | (21,328) | - | - | (21,328) |\n| Other comprehensive loss, net of tax | - | - | - | (66) | - | - | - | (66) |\n| Balance as of April 27, 2024 | 124,642,851 | $ 2 | $ 670,182 | $ (498) | $ (430,755) | (2,302,141) | $ (30,042) | $ 208,889 |\n\n| | For the Three Months Ended April 29, 2023 | For the Three Months Ended April 29, 2023 | For the Three Months Ended April 29, 2023 | For the Three Months Ended April 29, 2023 | For the Three Months Ended April 29, 2023 | For the Three Months Ended April 29, 2023 | For the Three Months Ended April 29, 2023 | For the Three Months Ended April 29, 2023 |\n|---------------------------------------------------------------------------------------------|---------------------------------------------|---------------------------------------------|---------------------------------------------|---------------------------------------------|---------------------------------------------|---------------------------------------------|---------------------------------------------|---------------------------------------------|\n| | Common Stock | Common Stock | Additional Paid-In | Accumulated Other | Accumulated | Treasury Stock | Treasury Stock | Total Stockholders' Equity |\n| | Shares | Amount | Capital | Com
|
||
|
|
"Previously, we also had operations in the United Kingdom ('UK'). During the first quarter of fiscal 2024, we ceased operations of our UK business and met the requirements to report the UK business as a discontinued operation for all periods presented. ## 2. Summary of Significant Accounting Policies ## Basis of Presentation\n\nOur fiscal year is a 52-week or 53-week period ending on the Saturday closest to July 31. The fiscal year ending August 3, 2024 ('fiscal 2024') consists of 53 weeks, with the extra week occurring in the fourth fiscal quarter ending August 3, 2024. The fiscal year ended July 29, 2023 ('fiscal 2023') consisted of 52 weeks.\n\nThe accompanying 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 applicable rules and regulations of the U.S. Securities and Exchange Commission ('SEC') for interim financial information. 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 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 August 3, 2024, or for any other interim period or for any other future year. All intercompany balances and transactions have been eliminated in consolidation.\n\nThe accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended July 29, 2023 (the '2023 Annual Report'). ## Discontinued Operations\n\nDuring the first quarter of fiscal 2024, we ceased operations of our UK business and met the accounting requirements for reporting the UK business as a discontinued operation. Accordingly, the condensed consolidated financial statements reflect the results of the UK business as a discontinued operation for all periods presented. Unless otherwise noted, amounts and disclosures throughout these Notes to Condensed Consolidated Financial Statements relate to the Company's continuing operations. Refer to Note 12, 'Discontinued Operations' for further details. ## Use of Estimates\n\nThe preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements and the accompanying footnotes. Significant estimates and assumptions are used for inventory, stock-based compensation expense, income taxes, and revenue recognition. Actual results could differ from those estimates and such differences may be material to the condensed consolidated financial statements. ## Significant Accounting Policies\n\nUnless noted below, there have been no changes to the Company's significant accounting policies, as described in our fiscal 2023 Annual Report, that had a material impact on these condensed consolidated financial statements and related notes. ## Short-Term Investments\n\nOur short-term investments have been classified and accounted for as available-for-sale securities. The allowance for expected credit losses on our available-for-sale debt securities was immaterial at both April 27, 2024 and July 29, 2023.\n\nWe have elected to present accrued interest receivable separately from short-term investments in the condensed consolidated balance sheets. Accrued interest receivable, which was immaterial at both April 27, 2024 and July 29, 2023, is recorded in prepaid
|
||
|
|
"Recoverability of assets held and used is measured by comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated from the use of the asset and its eventual disposition. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount exceeds the fair value of the impaired assets. Assets to be disposed of are reported at the lower of their carrying amount or fair value less cost to sell.\n\nIn the second quarter of fiscal 2023, we recorded an impairment charge related to a portion of our corporate office space. Refer to 'Note 11 - Restructuring' for further details. In the fourth quarter of fiscal 2024, we reviewed our right-of-use lease asset associated with our San Francisco headquarters for impairment. Refer to 'Note 13 - Subsequent Events' for further details. ## Revenue Recognition\n\nWe generate revenue primarily from the sale of merchandise to clients in a Fix and when clients purchase merchandise directly from Freestyle. 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.\n\nRevenue is recognized when control of the promised goods is transferred to the client. For a Fix, control is transferred when the client accepts or rejects the offer to purchase merchandise. Upon acceptance by purchasing one or more items within the Fix at checkout, the total amount of the order, including the upfront styling fee, is recognized as revenue. If none of the items within the Fix are accepted at checkout, the upfront styling fee is recognized as revenue at that time. The Style Pass annual fee is recognized at the earlier of (i) the time at which a client accepts and applies the Style Pass fee to an offer to purchase merchandise or (ii) upon expiry of the annual period. Under Style Pass arrangements, if a client does not accept any items within the Fix, the annual fee will continue to be deferred until it is applied to a future purchase or upon expiry of the annual period. If a client would like to exchange an item, we recognize revenue at the time the exchanged item is shipped, which coincides with the transfer of control to the customer. For a Freestyle purchase, control is transferred and revenue is recognized upon shipment to the client.\n\nWe 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. Our refund reserve is included in accrued liabilities in the condensed consolidated balance sheets.\n\nWe have 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 Freestyle purchases, which are included in deferred revenue and are recognized as revenue upon shipment.\n\nWe expect deferred revenue for upfront styling fees, Freestyle orders, and Style Pass annual fees to be recognized within one year. On average, our gift card liability and other current liabilities are also recognized within one year.\n\nThe following table summarizes the balances of contractual liabilities included in deferred revenue, gift card liability, and other current liabilities as of the dates indicated:\n\n| (in thousands) | April 27, 2024 | July 29, 2023 |\n|---
|
||
|
|
"## 4. Accrued Liabilities\n\nAccrued liabilities consisted of the following:\n\n| (in thousands) | April 27, 2024 | July 29, 2023 |\n|-----------------------------------|------------------|-----------------|\n| Compensation and related benefits | $ 14,293 | $ 12,836 |\n| Advertising | 5,391 | 6,625 |\n| Sales taxes | 6,454 | 5,358 |\n| Shipping and freight | 8,365 | 8,628 |\n| Accrued accounts payable | 5,133 | 4,058 |\n| Inventory purchases | 14,474 | 22,684 |\n| Sales refund reserve | 7,629 | 6,509 |\n| Other | 3,270 | 3,195 |\n| Total accrued liabilities | $ 65,009 | $ 69,893 | ## 5. Credit Facility\n\nPrior to December 4, 2023, we were party to an amended and restated credit agreement, entered into June 2, 2021 and amended on July 29, 2022 (the 'Amended Credit Agreement') with Silicon Valley Bank, a division of First-Citizens Bank & Trust Company (successor by purchase to the Federal Deposit Insurance Corporation as Receiver for Silicon Valley Bridge Bank, N.A. (as successor of Silicon Valley Bank)), and other lenders, to provide a revolving line of credit of up to $100.0 million, including a letter of credit sub-facility in the aggregate amount of $30.0 million, and a swingline subfacility in the aggregate amount of $40.0 million.\n\nOn December 4, 2023, we entered into a first lien credit agreement with Citibank, N.A., as agent and lender, which provides for a $50.0 million revolving credit facility maturing on December 4, 2026 (the '2023 Credit Facility'). Upon entry into the 2023 Credit Facility, the Amended Credit Agreement was terminated. The 2023 Credit Facility includes a sub-facility that provides for the issuance of letters of credit in an amount of up to $30.0 million.",
|
||
|
|
"Availability of the 2023 Credit Facility will be based upon a borrowing base formula and periodic borrowing base certifications valuing certain of our accounts receivable, credit card receivables, and inventory as reduced by certain reserves, if any. Our borrowing availability as of April 27, 2024 was $50.0 million, and our borrowing capacity was $29.4 million as a result of outstanding letters of credit, and no outstanding borrowing.\n\nThe 2023 Credit Facility is subject to customary fees for loan facilities of this type, including a commitment fee equal to 0.30% based on the average daily undrawn portion of the 2023 Credit Facility, payable quarterly.\n\nThe interest rate applicable to the 2023 Credit Facility will be, at our option, either (a) the Adjusted Term SOFR rate for the applicable interest period (subject to a 0.00% floor), plus a margin of 2.00% or (b) the Base Rate plus a margin of 2.00%. The Base Rate is the highest of (a) the federal funds rate plus 0.50%, (b) the Wall Street Journal prime rate and (c) the Adjusted Term SOFR rate for a one-month interest period plus 1.00%.\n\nDebt under the 2023 Credit Facility is guaranteed by substantially all of our material domestic subsidiaries and is secured by substantially all of our and such subsidiaries' assets. The 2023 Credit Facility contains affirmative and negative covenants, indemnification provisions, and events of default. The 2023 Credit Facility also contains financial covenants that require us to maintain a minimum liquidity level and, if applicable, a minimum total consolidated fixed charge coverage ratio during the periods set forth in the 2023 Credit Facility. As of April 27, 2024, we were in compliance with all financial covenants. ## 6. Commitments and Contingencies ## Contingencies\n\nWe 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.\n\nOn August 26, 2022, a class action lawsuit alleging violations of federal securities laws was filed by certain of our stockholders in the U.S. District Court for the Northern District of California, naming as defendants us and certain of our officers and directors. An amended complaint was filed on August 15, 2023. The lawsuit alleges 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 Freestyle offering between December 2020 and June 2022. The plaintiffs seek unspecified monetary damages and other relief. The Company filed a motion to dismiss on November 1, 2023. The plaintiffs filed an Opposition to Motion to Dismiss on December 22, 2023, and the Company filed a Reply in Support of Motion to Dismiss on February 6, 2024. A hearing on the Motion to Dismiss was held on April 18, 2024 and the Company is awaiting a decision. .On March 17, 2023, a derivative action was filed against certain former directors in the Court of Chancery for the State of Delaware, based on the same factual allegations underlying the securities class action. It seeks damages and restitution to be paid to the Company by the individual defendants, governance changes, and attorney's fees and costs. The case is stayed pending resolution of the motion to dismiss in the securities class action. On May 24, 2024 another derivative action was filed, also in the Court of Chancery for the State of Delaware. It alleges claims based on the same allegations underlying the securities class
|
||
|
|
"Accordingly, in the first quarter of fiscal 2024, we reclassified historical foreign currency translation losses, which were previously recognized in AOCI, from stockholders' equity to loss from discontinued operations, net of income taxes in the condensed consolidated statements of operations and comprehensive loss. Refer to Note 2, 'Summary of Significant Accounting Policies' and Note 12, 'Discontinued Operations' for further details. (2) ## 8. Stock-Based Compensation ## Stock Plans ## 2011 Equity Incentive Plan\n\nIn 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 non-employees under terms and provisions established by the Board of Directors.\n\nThe 2011 Plan allowed for the grant of incentive stock options or nonqualified stock options, as well as restricted stock units ('RSU'), restricted stock awards ('RSA'), and stock appreciation rights. Only incentive and nonqualified stock options were granted under the 2011 Plan. Employee stock option awards generally vested 25% on the first anniversary of the grant date with the remaining shares subject to the option vesting ratably over the next three years subject to the employee's continued service with the Company. 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\n\nIn November 2017, our Board of Directors and stockholders adopted our 2017 Incentive Plan (the '2017 Plan'). The remaining shares available for issuance under our 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 our subsidiary, and for the grant of nonqualified stock options, stock appreciation rights, RSAs, RSU 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. Employee stock option awards generally begin to vest six months after the grant date with the remaining shares subject to the option vesting ratably over the next thirty months. Options generally expire after 10 years. RSU awards made to employees generally vest ratably on a quarterly basis subject to the employee's continued service with the Company. As of April 27, 2024, the number of shares authorized for issuance under the 2017 Plan was 44,038,883 shares of Class A common stock, and the number of shares available for grant was 3,167,209.",
|
||
|
|
"## 2019 Inducement Plan\n\nIn 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 RSU awards to individuals who satisfy the standards for inducement grants under the relevant Nasdaq Stock Market rules. As of April 27, 2024, the number of shares authorized for issuance under the 2019 Plan was 10,750,000 shares of Class A common stock and the number of shares available for grant was 630,725. ## Stock Options\n\nStock option activity under the 2011 Plan, 2017 Plan, and 2019 Plan was as follows:\n\n| | Options Outstanding | Options Outstanding | Options Outstanding | Options Outstanding | Options Outstanding |\n|---------------------------|-----------------------|----------------------------------|---------------------------------------------------------|-----------------------|------------------------------------------|\n| | Number of Options | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Life (in years) | | Aggregate Intrinsic Value (in thousands) |\n| Balance at July 29, 2023 | 8,106,110 | $ 7.06 | 8.78 | $ | 4,770 |\n| Granted | 4,191,676 | 3.37 | | | |\n| Exercised | - | - | | | |\n| Cancelled | (1,275,986) | 7.97 | | | |\n| Balance at April 27, 2024 | 11,021,800 | $ 5.55 | 1.74 | $ | 2 | ## Restricted Stock Units\n\nRSU award activity under the 2017 Plan and 2019 Plan was as follows:\n\n| | Unvested RSUs | Unvested RSUs |\n|----------------------------|----------------------|-----------------------------------------|\n| | Class A Common Stock | Weighted- Average Grant Date Fair Value |\n| Unvested at July 29, 2023 | 11,455,577 | $ 10.47 |\n| Granted | 13,526,752 | 3.21 |\n| Vested | (6,718,464) | 6.73 |\n| Forfeited | (6,045,683) | 7.43 |\n| Unvested at April 27, 2024 | 12,218,182 | $ 6.00 | ## Performance-Based Stock Awards\n\nIn fiscal 2023, the Company incurred stock-based compensation expense under compensation arrangements with certain of its employees under which the Company settled bonuses for a fixed dollar amount by issuing a variable number of restricted stock units. The awards had both service and performance conditions. During the first quarter of fiscal 2024, the Company issued 848,489 RSUs based on the Company's trailing seven-day average share price, following the Company's public release of fiscal 2023 financial results. Stock-based compensation expense for these awards was recorded in fiscal 2023. ## Stock-Based Compensation Expense\n\nStock-based compensation expense for options and RSUs granted to employees was $18.9 million and $59.9 million for the three and nine months ended April 27, 2024, and $22.0 mill
|
||
|
|
"## 10. Net Loss Per Share from Continuing Operations Attributable to Common Stockholders and Common Stock\n\nBasic and diluted loss per share from continuing operations attributable to common stockholders is presented in conformity with the two-class method required for participating securities: Class A and Class B common stock. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting, conversion, and transfer rights. Each share of Class A common stock is entitled to one vote per share and each share of Class B common stock is entitled to ten votes per share. Each share of Class B common stock is convertible at any time at the option of the stockholder into one share of Class A common stock.\n\nBasic net loss per share from continuing operations attributable to common stockholders is computed by dividing the net loss from continuing operations attributable to common stockholders by the weighted-average number of common shares outstanding during the period.\n\nFor the calculation of diluted loss per share from continuing operations, net loss from continuing operations attributable to common stockholders for basic loss per share is adjusted by the effect of dilutive securities. Diluted net loss per share from continuing operations attributable to common stockholders is computed by dividing the net loss from continuing operations attributable to common stockholders by the weighted-average number of common shares outstanding, including all potentially dilutive common shares. In periods of loss, there are no potentially dilutive common shares to add to the weightedaverage number of common shares outstanding. The undistributed losses are allocated based on the contractual participation rights of the Class A and Class B common shares as if the losses for the year have been distributed. As the liquidation and dividend rights are identical, the undistributed loss is allocated on a proportionate basis.\n\nThe table below presents a reconciliation of the numerator and denominator used in the calculation of basic and diluted loss per share from continuing operations attributable to Class A and Class B common stockholders:\n\n| | For the Three Months Ended | For the Three Months Ended | For the Nine Months Ended | For the Nine Months Ended |\n|----------------------------------------------------------------------------------------------------|------------------------------|------------------------------|-----------------------------|-----------------------------|\n| (in thousands, except share and per share amounts) | April 27, 2024 | April 29, 2023 | April 27, 2024 | April 29, 2023 |\n| Numerator: | | | | |\n| Net loss from continuing operations attributable to Class A and Class B common stockholders | $ (22,017) | $ (18,421) | $ (83,144) | $ (130,017) |\n| Denominator: | | | | |\n| Weighted-average shares of common stock - basic | 121,268,047 | 115,445,285 | 118,986,077 | 113,911,089 |\n| Weighted-average shares of common stock - diluted | 121,268,047 | 115,445,285 | 118,986,077 | 113,911,089 |\n| Loss per share from continuing operations attributable to Class A and Cl
|
||
|
|
"## 12. Discontinued Operations\n\nIn June 2023, we announced that we would enter a consultation period, in accordance with UK law, to explore exiting the market in the UK. During the first quarter of fiscal 2024, we ceased operations of our UK business and the accounting requirements for reporting the UK business as a discontinued operation were met. As a result, the UK business is presented in the accompanying condensed financial statements as a discontinued operation for all periods presented.\n\nCash from our UK business is recorded as continuing operations on the condensed consolidated balance sheets, as any cash remaining after the settlement of outstanding liabilities related to the UK business is expected to be repatriated into the U.S.\n\nThe following table summarizes the major classes of assets and liabilities of discontinued operations, which are summarized separately in the condensed consolidated balance sheets:\n\n| (in thousands) | April 27, 2024 | July 29, 2023 |\n|----------------------------------------------|------------------|-----------------|\n| Inventory, net | $ - | $ 6,628 |\n| Prepaid expenses and other current assets | 864 | 2,995 |\n| Current assets, discontinued operations | 864 | 9,623 |\n| Operating lease right-of-use assets | - | 1,565 |\n| Other long-term assets | 294 | 481 |\n| Long-term assets, discontinued operations | 294 | 2,046 |\n| Total assets, discontinued operations | $ 1,158 | $ 11,669 |\n| Accounts payable | $ - | $ 2,586 |\n| Operating lease liabilities | - | 1,132 |\n| Accrued liabilities | 138 | 8,903 |\n| Other current liabilities | - | 161 |\n| Current liabilities, discontinued operations | 138 | 12,782 |\n| Total liabilities, discontinued operations | $ 138 | $ 12,782 |\n\nThe key components of loss from discontinued operations were as follows:\n\n| | For the Three Months Ended | For the Three Months Ended | For the Nine Months Ended | For the Nine Months Ended |\n|-----------------------------------------------------------------|------------------------------|------------------------------|-----------------------------|-----------------------------|\n| (in thousands) | April 27, 2024 | April 29, 2023 | April 27, 2024 | April 29, 2023 |\n| Revenue, net | $ - | $ 11,495 | $ 9,382 | $ 34,843 |\n| Cost of goods sold | (482) | 7,268 | 6,792 | 20,803 |\n| Gross profit | 482 | 4,227 | 2,590 | 14,040 |\n| Selling, general, and administrative expenses | (110) | 8,456 | 11,525 | 28,290 |\n| Operating income (loss) | 592 | (4,229) | (8,935) | (14,250) |\n| Interest income | - | 176 | 187 | 274 |\n| Other income (expense), net (1)
|
||
|
|
"## 13. Subsequent Event\n\nIn the fourth quarter of fiscal 2024, we reviewed our right-of-use lease asset associated with our San Francisco headquarters for impairment due to our intended change in use of the space. Based on the preliminary analysis completed to date, we expect to record a non-cash impairment charge in the range of $15 million to $20 million during the three months ending August 3, 2024 to reduce the carrying value of the operating lease right-of-use asset to its estimated fair market value. ## ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations\n\nYou should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes thereto included in Part I, Item 1 of this report and with our audited consolidated financial statements and related notes and our Annual Report on Form 10-K (the '2023 Annual Report') for the year ended July 29, 2023, filed with the Securities and Exchange Commission on September 20, 2023. We use a 52- or 53-week fiscal year, with our fiscal year ending on the Saturday that is closest to July 31 of that year. The fiscal year ending August 3, 2024 ('fiscal 2024') consists of 53 weeks, and the fiscal year ended July 29, 2023 ('fiscal 2023') consisted of 52 weeks. Throughout this Quarterly Report on Form 10-Q (this 'Quarterly Report'), all references to quarters and years are to our fiscal quarters and fiscal years unless otherwise noted. ## Special Note Regarding Forward-Looking Statements\n\nThis Quarterly Report contains forward-looking statements that involve risks, uncertainties, and assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained in this Quarterly Report that are not purely historical, including without limitation statements in the following discussion and analysis of financial condition and results of operations regarding our projected financial position and results, business strategy, plans, and objectives of our management for future operations, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the 'Securities Act'), Section 21E of the Securities Exchange Act of 1934, as amended (the 'Exchange Act'), and the Private Securities Litigation Reform Act of 1995. Forward-looking statements are often identified by the use of words such as, but not limited to, 'anticipate,' 'believe,' 'can,' 'continue,' 'could,' 'estimate,' 'expect,' 'intend,' 'may,' 'might,' 'plan,' 'project,' 'seek,' 'should,' 'target,' 'will,' 'would,' and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management, which are in turn based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties, and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled 'Risk Factors' included under Part II, Item 1A below. Furthermore, such forward-looking statements speak only as of the date of this Quarterly Report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. ## Business Overview\n\nSince our founding in 2011, we have helped millions of women, men, and kids discover and buy what they love through personalized shipments of apparel, shoes, and accessories. Currently, clients can engage with us in
|
||
|
|
"## Macroeconomic Environment\n\nOur business and operating results are subject to national and global economic conditions and their impact on consumer discretionary spending. As the macroeconomic environment is experiencing inflation, rising interest rates, recessionary concerns, tightening labor markets, and general uncertainty regarding the overall future political and economic environment, we cannot predict whether or when such circumstances may improve or worsen or what impact such circumstances could have on our business. ## Inventory Management\n\nWe leverage our data science to buy and manage our inventory, including merchandise assortment and fulfillment center optimization. Because our merchandise assortment directly correlates to client success, we may at times optimize our inventory to prioritize long-term client success over short-term gross margin impact. To ensure sufficient availability of merchandise, we generally enter into purchase orders well in advance and frequently before apparel trends are confirmed by client purchases. As a result, we are vulnerable to demand and pricing shifts and availability of merchandise at the time of purchase. We incur inventory write-offs and changes in inventory reserves that impact our gross margins. Moreover, our inventory investments will fluctuate with the needs of our business. ## Client Acquisition and Engagement\n\nTo grow our business, we must continue to acquire clients and successfully engage and retain them. Our marketing strategy aims to preserve liquidity and achieve profitability, while simultaneously attracting long-term customers to fuel a return to growth. We utilize both digital and offline channels to attract new visitors to our website or mobile app and subsequently convert them into clients. Our marketing costs are largely composed of advertising, client referrals, and public relations expenses. At any given time, our advertising efforts may include social media marketing, keyword search campaigns, affiliate programs, partnerships, campaigns with celebrities and influencers, display advertising, television, radio, video, content, direct mail, email, mobile 'push' communications, SMS, and search engine optimization. Our marketing expenses have varied from period to period and we expect this trend to continue. Marketing expense is recorded in selling, general, and administrative expenses in the condensed consolidated statements of operations and comprehensive loss. The largest component of our marketing expense is advertising, which was $28.6 million and $82.5 million for the three and nine months ended April 27, 2024, and $26.8 million and $86.6 million for the three and nine months ended and April 29, 2023, respectively. We expect advertising expense to approximate 9% to 10% of revenue in the fourth quarter ended August 3, 2024, respectively; however, we will continue to be methodical about our approach when we are making advertising decisions, and may adjust our spending up or down based on performance. ## Operations and Infrastructure\n\nWe intend to leverage our data science and deep understanding of our clients' needs to make targeted investments in technology and product, and we plan to prioritize investments with near-term positive returns. In the second quarter of fiscal 2023, we decided to close our Salt Lake City fulfillment center in order to optimize network capacity. In June 2023, we announced the intended closures of our fulfillment centers in Bethlehem, Pennsylvania and Dallas, Texas. The Bethlehem, Pennsylvania location ceased operations during the three months ended October 28, 2023 and the Dallas, Texas location ceased operations in the three months ended April 27, 2024. Refer to Note 11, 'Restructuring' within the Notes to the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report for further details. ## Merchandise Mix\n\nWe offer apparel, shoes, and accessories acro
|
||
|
|
"## Selling, General, and Administrative Expenses\n\nSelling, general, and administrative expenses ('SG&A') consist primarily of compensation and benefits costs, including stock-based compensation expense, for our employees including our stylists, fulfillment center operations, data analytics, merchandising, engineering, marketing, client experience, and corporate personnel. SG&A also includes marketing and advertising costs, third-party logistics costs, facility costs for our fulfillment centers and offices, professional service fees, information technology costs, and depreciation and amortization expense. As a result of our restructuring and cost reduction actions throughout fiscal years 2024, 2023, and 2022, we expect SG&A in fiscal 2024 to continue to decrease as compared to fiscal 2023. Our classification of certain components within SG&A may vary from other companies in our industry and may not be comparable. ## Interest Income\n\nInterest income is generated from our cash equivalents and investments in available-for-sale securities. ## Provision for Income Taxes\n\nOur provision for income taxes from continuing operations consists of an estimate of federal and state income taxes based on enacted federal, and state tax rates, as adjusted for allowable credits, deductions, uncertain tax positions, and changes in the valuation of our net federal and state deferred tax assets. ## Results of Operations\n\nThe following table summarizes our financial results from continuing operations:\n\n| | For the Three Months Ended | For the Three Months Ended | % | For the Nine Months Ended | For the Nine Months Ended | % |\n|-----------------------------------------------|------------------------------|------------------------------|---------|-----------------------------|-----------------------------|----------|\n| (in thousands) | April 27, 2024 | April 29, 2023 | Change | April 27, 2024 | April 29, 2023 | Change |\n| Revenue, net | $ 322,731 | $ 383,419 | (15.8)% | $ 1,017,918 | $ 1,227,782 | (17.1)% |\n| Cost of goods sold | 175,753 | 219,744 | (20.0)% | 568,357 | 713,041 | (20.3)% |\n| Gross profit | 146,978 | 163,675 | (10.2)% | 449,561 | 514,741 | (12.7)% |\n| Selling, general, and administrative expenses | 171,818 | 184,195 | (6.7)% | 541,100 | 647,079 | (16.4)% |\n| Operating loss | (24,840) | (20,520) | 21.1 % | (91,539) | (132,338) | (30.8)% |\n| Interest income | 3,002 | 2,434 | 23.3 % | 7,923 | 3,814 | 107.7 % |\n| Other income (expense), net | (9) | (203) | (95.6)% | 980 | (1,043) | (194.0)% |\n| Loss before income taxes | (21,847) | (18,289) | 19.5 % | (82,636) | (129,567) | (36.2)% |\n| Provision for income taxes | 170 | 132 | 28.8 % | 508 | 450 | 12.9 % |\n| Net loss from continuing operations | $ (22,017) | $ (18,421) | 19.5 % | $ (83,144) | $ (130,017) |
|
||
|
|
"## Share Repurchases\n\nIn January 2022, our Board of Directors authorized a share repurchase program to repurchase up to $150.0 million of our outstanding Class A common stock, with no expiration date (the '2022 Repurchase Program'). We may repurchase shares from time to time through open market repurchases, privately negotiated transactions, or other means, including through Rule 10b5-1 trading plans. The actual timing, number and value of shares repurchased in the future will be determined by the Company in its\n\ndiscretion and will depend on a number of factors, including price, trading volume, market conditions, and other general business conditions. Repurchases will be funded from the Company's existing cash and cash equivalents or future cash flow. The repurchase program may be modified, suspended, or terminated at any time. During the three and nine months ended April 27, 2024 and April 29, 2023, the Company made no repurchases of Class A common stock. As of April 27, 2024, the Company had repurchased an aggregate 2,302,141 shares of Class A common stock for $30.0 million, and $120.0 million remained available under the 2022 Repurchase Program authorization. ## Cash Flows\n\nThe following table summarizes our cash flows for the periods indicated below:\n\n| | For the Nine Months Ended | For the Nine Months Ended |\n|---------------------------------------------------------------------------------|-----------------------------|-----------------------------|\n| (in thousands) | April 27, 2024 | April 29, 2023 |\n| Net cash provided by operating activities from continuing operations | $ 20,007 | $ 50,680 |\n| Net cash provided by (used in) investing activities from continuing operations | (39,549) | 36,300 |\n| Net cash used in financing activities from continuing operations | (11,817) | (10,383) |\n| Net increase (decrease) in cash and cash equivalents from continuing operations | $ (31,359) | $ 76,597 | ## Cash Provided by Operating Activities from Continuing Operations\n\nDuring the nine months ended April 27, 2024, cash provided by operating activities from continuing operations was $20.0 million, which consisted of a net loss from continuing operations of $83.1 million, adjusted by non-cash charges of $82.8 million and a $20.4 million change in net operating assets and liabilities. The non-cash charges were primarily driven by $59.9 million of stock-based compensation expense and $36.5 million of depreciation, amortization, and accretion, partially offset by $12.9 million of changes in inventory reserves. The change in net operating assets and liabilities was primarily due to a $29.0 million change in gross inventory balances due to a decline in inventory receipts to bring inventory balances in line with current demand.\n\nDuring the nine months ended April 29, 2023, cash provided by operating activities from continuing operations was $50.7 million, which consisted of a net loss from continuing operations of $130.0 million, adjusted by non-cash charges of $115.9 million and a change of $64.7 million in net operating assets and liabilities. The non-cash charges were primarily driven by $78.4 million of stock-based compensation expense, $31.3 million of depreciation and amortization, and $16.9 million in asset impairment charges. The change in our net operating assets and liabilities was primarily due to a change of $58.5 million in our inventory balance due to a decline in inventory receipts to bring inventory balances in line with current demand and a cash inflow of $26.6 million from income tax refunds, partially offset by a decrease of $29.7 million in accounts payable and
|
||
|
|
"## Critical Accounting Policies and Estimates\n\nOur unaudited condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and the related disclosures. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.\n\nThere have been no significant changes to our critical accounting policies and estimates disclosed in our fiscal 2023 Annual Report on Form 10-K. ## ITEM 3. Quantitative and Qualitative Disclosures About Market Risk\n\nThere have been no material changes in market risk from the information presented in Part II, Item 7A. \"Quantitative and Qualitative Disclosures About Market Risk\" in our Annual Report on Form 10-K for the year ended July 29, 2023. ## ITEM 4. Controls and Procedures ## Evaluation of Disclosure Controls and Procedures\n\nOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the 'Exchange Act')), as of the end of the period covered by this Quarterly Report on Form 10-Q (the 'Evaluation Date').\n\nBased on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the Evaluation Date. ## Changes in Internal Control Over Financial Reporting\n\nThere were no changes during the quarter ended April 27, 2024 in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ## Inherent Limitations on Effectiveness of Controls\n\nAn effective internal control system, no matter how well designed, has inherent limitations, including the possibility of human error or overriding of controls, and therefore can provide only reasonable assurance with respect to reliable financial reporting. Because of its inherent limitations, our internal control over financial reporting may not prevent or detect all misstatements, including the possibility of human error, the circumvention or overriding of controls, or fraud.",
|
||
|
|
"Effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. ## PART II. OTHER INFORMATION ## ITEM 1. LEGAL PROCEEDINGS\n\nThe information contained in Note 6, 'Commitments and Contingencies' under the heading 'Contingencies' within the Notes to the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference. ## ITEM 1A. RISK FACTORS ## RISK FACTOR SUMMARY\n\nOur business is subject to numerous risks. The following summary highlights some of the risks you should consider with respect to our business and prospects. This summary is not complete and the risks summarized below are not the only risks we face. You should review and consider carefully the risks and uncertainties described in more detail in the 'Risk Factors' below, which includes a more complete discussion of the risks summarized here. ## Risks Relating to Our Business - \u00b7 We may be unable to retain clients or maintain a high level of engagement with our clients and maintain or increase their spending with us, which could harm our business, financial condition, or operating results.\n- \u00b7 Our growth depends on attracting new clients.\n- \u00b7 We rely on paid marketing to help grow our business, but these efforts may not be successful or cost effective, and such expenses may vary from period to period.\n- \u00b7 If we are unable to manage our inventory effectively, our operating results could be adversely affected.\n- \u00b7 Operational constraints or our failure to adequately and effectively staff our fulfillment centers could adversely affect our client experience and operating results.\n- \u00b7 Shipping is a critical part of our business and any changes in our shipping arrangements or any interruptions in shipping could adversely affect our operating results.\n- \u00b7 Our business, including our costs and supply chain, is subject to risks associated with the sourcing and pricing of merchandise and raw materials.\n- \u00b7 We may not be able to return to revenue growth and we may not be profitable in the future.\n- \u00b7 If we fail to effectively manage our business, our financial condition and operating results could be harmed.\n- \u00b7 If we fail to attract and retain key personnel, effectively manage succession, or hire, develop, and motivate our employees, our business, financial condition, and operating results could be adversely affected.\n- \u00b7 If we are unable to develop and introduce new offerings or expand into new markets in a timely and cost-effective manner, our business, financial condition, and operating results could be negatively impacted.\n- \u00b7 We have a short operating history in an evolving industry and, as a result, our past results may not be indicative of future operating performance.\n- \u00b7 Our business depends on a strong brand and we may not be able to maintain our brand and reputation.\n- \u00b7 If we fail to effectively manage our stylists, our business, financial condition and operating results could be adversely affected.\n- \u00b7 If we are unable to acquire new merchandise vendors or retain existing merchandise vendors, our operating results may be harmed.\n- \u00b7 We may incur significant losses from fraud.\n- \u00b7 We are subject to payment-related risks. ## Risks Relating to our Industry, the Market, and the Economy - \u00b7 We rely on consumer discretionary spending and may be adversely affected by economic downturns and other macroeconomic conditions or trends.\n- \u00b7 Our industry is highly competitive and if we do not compete effectively our operating results could be adversely affected. - \u00b7 Our operating results have been, and could be in the future, adversely affected by natural disasters, public health crises, political crises, or other catastrophic events. ## Cybersecurity, Legal, and Regulatory Risks - \u00
|
||
|
|
"## We rely on paid marketing to help grow our business, but these efforts may not be successful or cost effective, and such expenses may vary from period to period. Promoting awareness of our service is important to our ability to grow our business, drive client engagement, and attract new clients. At any given time, our marketing and advertising efforts may include, client referrals, social media marketing, keyword search campaigns, affiliate programs, partnerships, campaigns with celebrities and influencers, display advertising, television, radio, video, content, direct mail, email, mobile 'push' communications, SMS, and search engine optimization. External factors beyond our control, including general economic conditions and decreased discretionary consumer spending, have impacted and may in the future impact the success of our marketing initiatives or how much we decide to spend on marketing in a given period. We also adjust our marketing activity from period to period or within a period as we launch new initiatives or offerings, such as Freestyle, run tests, or make decisions on marketing investments in response to anticipated rates of return, such as when we identify favorable cost per acquisition trends. For example, in the first and second fiscal quarters of fiscal year 2022, we spent less on marketing because we were experiencing weaker-than-expected conversion of new clients and decided to pull back to focus on evolving the Freestyle offering and refining the client onboarding experience. This led to fewer clients being acquired, which negatively impacted our net revenue for the remainder of fiscal year 2022. We have seen increased costs in certain digital marketing channels and our marketing initiatives may become increasingly expensive; generating a meaningful return on those initiatives may be difficult. Even if we successfully increase revenue as a result of our paid marketing efforts, it may not offset the additional marketing expenses we incur .\n\nWe currently obtain a significant number of visits to our websites via organic search engine results. Search engines frequently change the algorithms that determine the ranking and display of results of a user's search, which could reduce the number of organic visits to our websites, in turn reducing new client acquisition and adversely affecting our operating results. Social networks are important as a source of new clients and as a means by which to connect with current clients, and their importance may be increasing. We may be unable to effectively maintain a presence within these networks, which could lead to lower than anticipated brand affinity and awareness, and in turn could adversely affect our operating results.\n\nFurther, mobile operating system and web browser providers, such as Apple and Google, have implemented product changes to limit the ability of advertisers to collect and use data to target and measure advertising. For example, Apple made a change in iOS 14 that required apps to get a user's opt-in permission before tracking a user or sharing the user's data across apps or websites owned by companies other than the app's owner. Google has updated its timetable for restricting the use of third-party cookies in its Chrome browser, consistent with similar actions taken by the owners of other browsers, such as Apple in its Safari browser, and Mozilla in its Firefox browser. In early 2024, Google will begin banning third party cookies with the goal of phasing them out by the end of 2024. These changes have reduced and will continue to reduce our ability to efficiently target and measure advertising, in particular through online social networks, making our advertising less cost effective and successful. We expect to continue to be impacted by these changes.\n\nWith respect to our email marketing efforts, if we are unable to successfully deliver emails to our clients or if clients do not engage with our emails, whether out of choice, because those emails are marked as low priority
|
||
|
|
"## Operational constraints at our fulfillment centers or our failure to adequately and effectively staff our fulfillment centers could adversely affect our client experience and operating results.\n\nWe currently receive and distribute merchandise at three fulfillment centers in the United States. Prior to the closures of our Dallas, Texas and Bethlehem, Pennsylvania fulfillment centers, we operated five fulfillment centers in the United States. While we believe three fulfillment centers is the appropriate number to provide the greatest breadth and depth of inventory to our clients and stylists and will allow us to service the same number of existing clients with lower inventory levels, this decreased fulfillment system could cause operational constraints or decreased capacity that could significantly affect our client experience or revenue. Additionally, we may experience operational issues as we continue to transition to our new fulfillment center model which could affect our client experience and financial results.\n\nSevere weather events, including earthquakes, hurricanes, tornadoes, floods, fires, storms, and other adverse weather events and climate conditions could also cause operational constraints or temporarily reduce our ability to ship merchandise to clients. For instance, the severe winter weather and temperatures experienced in Texas and other parts of the country in February 2021 caused us to temporarily close two of our fulfillment centers and affected the shipping of merchandise in and out of our fulfillment centers. Future weather events, which we expect to become more frequent and more severe with the increasing effects of climate change, could have a significant impact on our operations and results of operations. Additionally, the impact of such weather events affecting one or more fulfillment center may be exacerbated due to the fact that we will have fewer fulfillment centers to continue operations during such a closure and therefore each individual fulfillment center will represent a larger portion of our overall business. Further, during the third quarter of our 2020 fiscal year, in response to the COVID-19 pandemic, we temporarily closed three of our fulfillment centers and implemented changes that resulted in operational constraints, which in turn temporarily reduced our ability to ship merchandise to clients and earn revenue. In fiscal year 2021, we experienced smaller, intermittent interruptions in connection with an increase of COVID-19 cases in our fulfillment centers. Any future surges of COVID-19 or future pandemics may negatively affect capacity at our fulfillment centers.\n\nWe have in the past experienced difficulty hiring employees in our fulfillment centers, which we attributed to COVID-19 concerns and to increased competition and rising wages for eCommerce fulfillment center workers. To address this, we increased wages in our fulfillment centers and implemented other policies in order to be more competitive in hiring employees. These wage increases impacted our operating results. We may in the future have difficulty hiring employees in fulfillment centers due to increased competition or otherwise and we may have to increase wages for our fulfillment center employees, which would impact our operating results. These hiring difficulties have caused capacity constraints in our fulfillment centers in the past and could in the future cause capacity constraints. Capacity constraints in our fulfillment centers could affect the amount and types of inventory we have available to offer to clients, which will affect our results of operations. Any capacity constraints due to hiring difficulties may be exacerbated due to the fact that we will have fewer fulfillment centers. If we are unable to adequately staff our fulfillment centers to meet demand, or if the cost of such staffing is higher than projected due to competition, mandated wage increases, regulatory changes, or other factors, our operating re
|
||
|
|
"Furthermore, if we fail to comply with wage and hour laws for our nonexempt employees, many of whom work in our fulfillment centers, we could be subject to legal risk, including claims for back wages, unpaid overtime pay, and missed meal and rest periods, which could be on a class or representative basis. Any such issues may result in delays in shipping times, reduced packing quality, or costly litigation, and our reputation and operating results may be harmed. ## Shipping is a critical part of our business and any changes in our shipping arrangements or any interruptions in shipping could adversely affect our operating results.\n\nWe currently rely on three major vendors for our shipping. If we are not able to negotiate acceptable pricing and other terms with these entities, shipping prices increase at unexpected levels, or our shipping vendors experience performance problems or other difficulties, it could negatively impact our operating results and our clients' experience. In addition, our ability to receive inbound inventory efficiently, ship merchandise to clients, and receive returned merchandise from clients may be negatively affected by inclement weather, fire, flood, power loss, earthquakes, public health crises such as the COVID-19 pandemic, labor disputes, shortages, or strikes, acts of war or terrorism, periods of high e-commerce volume, such as holiday seasons, and similar factors. Due to our business model and the fact that we recognize revenue from Fixes when a client checks out items, rather than when Fixes are shipped, we may be impacted by shipping delays to a greater extent than our competitors. Additionally, delays in shipping may cause an auto-ship client's subsequent Fixes to be scheduled for a later date, as their next Fix is not scheduled until their checkout is complete. In the second quarter of our 2021 fiscal year, we experienced carrier and client shipping delays due to the COVID-19 pandemic and the increased strain on our shipping partners during the holiday season. These delays affected our ability to recognize revenue within the quarter, and we may in the future experience these delays and the resulting impact to our financial results, including potentially during future holiday seasons. In the past, strikes at major international shipping ports have impacted our supply of inventory from our vendors and severe weather events have resulted in long delivery delays and Fix cancellations. Additionally, some of our merchandise may be damaged or lost during transit with our shipping vendors. If a greater portion of our merchandise is not delivered in a timely fashion or is damaged or lost during transit, it could adversely affect our operating results or could cause our clients to become dissatisfied and cease using our services, which would adversely affect our business. ## Our business, including our costs and supply chain, is subject to risks associated with the sourcing and pricing of merchandise and raw materials.\n\nWe currently source nearly all of the merchandise that we offer from third-party vendors, many of whom use manufacturers in the same geographic region, and as a result we may be subject to price increases or fluctuations, inflationary pressures, tariffs, demand disruptions, increased shipping or freight costs, or shipping delays in connection with our merchandise. Increased shipping or freights costs or shipping and freight delays could be caused or exacerbated by labor disputes, shortages, or strikes, inclement weather, fire, flood, power loss, earthquakes, public health crises such as the COVID-19 pandemic, acts of war or terrorism, and periods of high e-commerce volume. Our operating results are and have been negatively impacted by increases in the cost of our merchandise, and we have no guarantees that costs will not rise further or at increasing rates. In addition, if we expand into new categories and product types, we expect that we may not have strong purchasing power in these new areas, wh
|
||
|
|
"Additionally, the loss of one or more of our key personnel or the inability to promptly identify a suitable successor to a key role could have an adverse effect on our business,\n\nWe have experienced increased employee turnover as a result of the general market conditions and a competitive talent market within the U.S., as well as Company-specific factors, such as share price decline, business performance, and leadership\n\nchanges, and we expect to continue to experience increased employee turnover in the future. We announced a restructuring plan in June 2022 that reduced our workforce by 15% of salaried positions and represents 4% of our roles in total, and announced a further reduction in force on January 5, 2023, affecting 6% of the Company's then-current employee workforce, including approximately 20% of employees in salaried positions. In June 2023, we announced the closure of two fulfillment centers and our intention to enter a consultation period to explore exiting the market in the U.K. and on August 24, 2023, we ended the consultation period and made the decision to exit our UK business and wind down operations. And in January 2024, we implemented an organization realignment that resulted in the further elimination of styling leadership and corporate positions. These reductions in workforce and change in our operations may cause additional attrition and affect employee morale. Additionally, as we are operating our business with fewer employees, we face additional risk that we might not be able to execute on our strategic plans and product roadmap, which may have an adverse effect on our business, financial condition, and operating results.\n\nWe also face significant competition for personnel, particularly in our technology and product organizations. To attract top talent, we have had to offer, and believe we will need to continue to offer, competitive compensation and benefits packages before we can validate the productivity of those employees. We also have in the past had difficulty hiring employees in fulfillment centers due to increased competition for distribution workers and rising wages and have increased our employee compensation levels in response to competition, as necessary.\n\nWe cannot be sure that we will be able to attract, retain, and motivate a sufficient number of qualified personnel in the future, or that the compensation costs of doing so will not adversely affect our operating results. Additionally, we may not be able to hire and train new employees quickly enough to meet our needs. If we fail to retain employees and effectively manage our hiring needs, our efficiency, ability to meet forecasts, employee morale, productivity, and the success of our strategic plans and product roadmap could suffer, which may have an adverse effect on our business, financial condition, and operating results. ## If we are unable to develop and introduce new offerings or expand into new markets in a timely and cost-effective manner, our business, financial condition, and operating results could be negatively impacted.\n\nOur initial merchandise offering was Women's apparel, but since our inception we expanded our merchandise offerings to include Petite, Maternity, Men's, Plus, Premium Brands, and Kids. In June 2019, we introduced our direct-buy functionality (now called 'Freestyle') with Buy It Again allowing clients in the United States to buy previously purchased items in new colors, prints, and sizes. We expanded direct buy with Complete Your Looks, which allows clients to discover and shop personalized outfits with new items that complement their prior purchases, Trending For You, which allows clients to shop personalized looks based on their style profiles, and Categories, a new way for clients to easily discover pieces within a range of categories based on occasion, brand, or item type. And, in August 2021, we opened up Freestyle to new-to-Stitch Fix clients who had never received a Fix from us previously. We continue to exp
|
||
|
|
"## We are subject to payment-related risks.\n\nWe accept payments online via credit and debit cards and online payment systems such as PayPal, which subjects us to certain regulations and fraud. We may in the future offer new payment options to clients that would be subject to additional regulations and risks. We pay interchange and other fees in connection with credit card payments, which may increase over time and adversely affect our operating results. While we use a third party to process payments, we are subject to payment card association operating rules and certification requirements, including the Payment Card Industry Data Security Standard and rules governing electronic funds transfers. If we fail to comply with applicable rules and regulations, we may be subject to fines or higher transaction fees and may lose our ability to accept online payments or other payment card transactions. If any of these events were to occur, our business, financial condition, and operating results could be adversely affected. ## Risks Relating to our Industry, the Market, and the Economy ## We rely on consumer discretionary spending and may be adversely affected by economic downturns and other macroeconomic conditions or trends.\n\nOur business and operating results are subject to national and global economic conditions and their impact on consumer discretionary spending. Some of the factors that may negatively influence consumer spending include high levels of unemployment; higher consumer debt levels; reductions in net worth and declines in asset values; macroeconomic uncertainty; recessionary concerns; home foreclosures and reductions in home values; fluctuating interest rates, increased inflationary pressures and credit availability; rising fuel and other energy costs; rising commodity prices; and general uncertainty regarding the overall future political and economic environment. We have experienced many of these factors, including current inflationary pressures, and have experienced negative impacts on client demand and discretionary spending as a result. Consumer purchases of discretionary items, including the merchandise that we offer, generally decline during recessionary periods or periods of economic uncertainty, when disposable income is reduced or when there is a reduction in consumer confidence. Furthermore, economic conditions in certain regions may also be affected by natural disasters, such as hurricanes, tropical storms, earthquakes, and wildfires; public health crises; and other major unforeseen events.\n\nAdverse economic changes could reduce consumer confidence, and could thereby negatively affect our operating results. In challenging and uncertain economic environments, we cannot predict whether or when such circumstances may improve or worsen, or what impact such circumstances could have on our business.",
|
||
|
|
"Additionally, the ongoing volatile and uncertain\n\nmacroeconomic environment that we have been experiencing since the onset of the COVID-19 pandemic has likely reduced, and may continue to reduce, our ability to forecast our future operating results. ## Our industry is highly competitive and if we do not compete effectively our operating results could be adversely affected.\n\nThe retail apparel industry is highly competitive. We compete with eCommerce companies that market the same or similar merchandise and services that we offer; local, national, and global department stores; specialty retailers; discount chains; independent retail stores; and the online offerings of these traditional retail competitors. Additionally, we experience competition for consumer discretionary spending from other product and experiential categories. We believe our ability to compete depends on many factors within and beyond our control, including: - \u00b7 effectively differentiating our service and value proposition from those of our competitors;\n- \u00b7 attracting new clients and engaging with and retaining existing clients;\n- \u00b7 our direct relationships with our clients and their willingness to share personal information with us;\n- \u00b7 further developing our data science capabilities;\n- \u00b7 maintaining favorable brand recognition and effectively marketing our services to clients;\n- \u00b7 delivering merchandise that each client perceives as personalized to them;\n- \u00b7 the amount, diversity, and quality of brands and merchandise that we or our competitors offer;\n- \u00b7 our ability to expand and maintain appealing Owned Private Label Brands and exclusive-to-Stitch Fix merchandise;\n- \u00b7 the price at which we are able to offer our merchandise;\n- \u00b7 the speed and cost at which we can deliver merchandise to our clients and the ease with which they can use our services to return merchandise; and\n- \u00b7 anticipating and quickly responding to changing apparel trends and consumer shopping preferences.\n\nMany of our current competitors have, and potential competitors may have, longer operating histories; larger fulfillment infrastructures; greater technical capabilities; faster shipping times; lower-cost shipping; larger databases; more purchasing power; higher profiles; greater financial, marketing, institutional, and other resources; and larger customer bases than we do. Mergers and acquisitions by these companies may lead to even larger competitors with more resources. These factors may allow our competitors to derive greater revenue and profits from their existing customer bases; acquire customers at lower costs; or respond more quickly than we can to new or emerging technologies, changes in apparel trends and consumer shopping behavior, and changes in supply conditions. These competitors may engage in more extensive research and development efforts, enter or expand their presence in the personalized retail market, undertake more far-reaching marketing campaigns, and adopt more aggressive pricing policies, which may allow them to build larger customer bases or generate revenue from their existing customer bases more effectively than we do. If we fail to execute on any of the above better than our competitors, our operating results may be adversely affected. ## Our operating results have been, and could be in the future, adversely affected by natural disasters, public health crises, political crises, or other catastrophic events.\n\nNatural disasters, such as earthquakes, hurricanes, tornadoes, floods, fires, snow or ice storms, and other adverse weather events and climate conditions, which we expect to become more frequent and more severe with the increasing effects of climate change; unforeseen public health crises, such as the COVID-19 pandemic or other pandemics and epidemics; political crises, such as terrorist attacks, war, and other political instability, including the ongoing international conflicts; or other catastrophic events, whether occurring
|
||
|
|
"Interruptions may also be caused by a variety of incidents, including human error, our failure to update or improve our proprietary systems, cyber attacks, fire, flood, earthquake, power loss, or telecommunications failures. These risks are exacerbated by our move to a more remote workforce. Any failure or interruption of our website, mobile application, internal business applications, or our technology infrastructure (including any such issues with our third-party vendors and service providers) could harm our ability to serve our clients, which would adversely affect our business and operating results. ## Compromises of our data security or that of our third-party service providers could cause us to incur unexpected expenses and may materially harm our reputation and operating results.\n\nIn the ordinary course of our business, we and our vendors and service providers collect, process, and store certain personal information and other data relating to individuals, such as our clients and employees, which may include client payment card information. We rely substantially on commercially available systems, software, tools, and monitoring to provide security for our processing, transmission, and storage of personal information and other confidential information. There can be no assurance, however, that we or our vendors will not suffer a data compromise, that hackers or other unauthorized parties will not gain access to personal information or other sensitive data, including payment card data or confidential business information, or that any such data compromise or unauthorized access will be discovered in a timely fashion. The techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not identified until they are launched against a target, and we and our vendors may be unable to anticipate these techniques or to implement adequate preventative measures. As we have moved to a more remote and hybrid work force, and as our vendors and other business partners have also moved to permanent or hybrid remote work as well, we and our partners may be more vulnerable to cyber attacks. In addition, our employees, contractors, vendors, or other third parties with whom we do business may attempt to circumvent security measures in order to misappropriate such personal information, confidential information, or other data, or may inadvertently release or compromise such data. Compromise of our data security or the data security of third parties with whom we do business, failure to prevent or mitigate the loss of personal or business information, and delays in detecting or providing prompt notice of any such compromise or loss could disrupt our operations, damage our reputation, and subject us to litigation, government action, or other additional costs and liabilities that could adversely affect our business, financial condition, and operating results. ## Some of our software and systems contain open source software, which may pose particular risks to our proprietary applications.\n\nWe use open source software in the applications we have developed to operate our business and will use open source software in the future. We may face claims from third parties demanding the release or license of the open source software or derivative works that we developed from such software (which could include our proprietary source code) or otherwise seeking to enforce the terms of the applicable open source license. These claims could result in litigation and could require us to purchase a costly license, publicly release the affected portions of our source code, or cease offering the implicated solutions unless and until we can re-engineer them to avoid infringement. In addition, our use of open source software may present additional security risks because the source code for open source software is publicly available, which may make it easier for hackers and other third parties to determine how
|
||
|
|
"## Our use of personal information, other personal data, and sensitive information subjects us to privacy laws and other obligations (such as cybersecurity and data protection in contracts), and our compliance with or failure to comply with such obligations could harm our business.\n\nWe collect and maintain significant amounts of personal information and other data relating to our clients and employees. Numerous laws, rules, and regulations in the United States and internationally, including the European Union's ('EU') General Data Protection Regulation (the 'GDPR'), California's Consumer Privacy Act (the 'CCPA') and the UK's Data Protection Act (the 'UK GDPR'), govern privacy and the collection, use, and protection of personal information. These laws, rules, and regulations evolve frequently and may be inconsistent from one jurisdiction to another or may be interpreted to conflict with our practices. Any failure or perceived failure by us or any third parties with which we do business to comply with these laws, rules, and regulations, or with other obligations to which we may be or become subject, may result in actions against us by governmental entities, private claims and litigation, fines, penalties, or other liabilities. Any such action would be expensive to defend, damage our reputation, and adversely affect our business and operating results. For example, the GDPR imposes more stringent data protection requirements and provides greater penalties for noncompliance than previous data protection laws. Further, the UK withdrew from the EU on January 31, 2020, subject to a transition period that ended on December 31, 2020 ('Brexit'). The UK GDPR, which regulates data protection in the UK since Brexit, has remained consistent with the EU GDPR in effect since 2018, but it may evolve and it is uncertain whether our operations in, and data transfers to and from, the UK can comply with any future changes in the law.\n\nAlthough there are currently various mechanisms that may be used to transfer personal data from the UK to the United States in compliance with law, such as the UK's standard contractual clauses, the UK's International Data Transfer Agreement/Addendum, and the UK Extension to the EU-U.S. Data Privacy Framework (which allows for transfers for relevant U.S.-based organizations who self-certify compliance and participate in the Framework), these mechanisms are subject to legal challenges, and there is no assurance that we can satisfy or rely on these measures to lawfully transfer personal data to the United States. If there is no lawful manner for us to transfer personal data from the UK (or other applicable jurisdictions) to the United States, or if the requirements for a legally-compliant transfer are too onerous, we could face significant adverse consequences, including the interruption or degradation of our operations, the need to relocate part of or all of our business or data processing activities to other jurisdictions (such as Europe) at significant expense, increased exposure to regulatory actions, substantial fines and penalties, the inability to transfer data and work with partners, vendors and other third parties, and injunctions against our processing or transferring of personal data necessary to operate our business. Additionally, companies that transfer personal data out of the UK to other jurisdictions, particularly to the United States, are subject to increased scrutiny from regulators, individual litigants, and activist groups. Some European regulators have ordered certain companies to suspend or permanently cease certain transfers out of Europe for allegedly violating the GDPR's cross-border data transfer limitations. Furthermore, the CCPA, as amended by the California Privacy Rights Act of 2020 ('CPRA') (collectively, 'CCPA'), applies to personal information of consumers, business representatives, and employees who are California residents, and requires businesses to provide specific disclosures in priva
|
||
|
|
"## We could be required to collect additional sales taxes or be subject to other tax liabilities that may increase the costs our clients would have to pay for our offering and adversely affect our operating results.\n\nIn general, we have not historically collected state or local sales, use, or other similar taxes in any jurisdictions in which we do not have a tax nexus, in reliance on court decisions and/or applicable exemptions that restrict or preclude the imposition of obligations to collect such taxes with respect to the online sales of our products. In addition, we have not historically collected state or local sales, use, or other similar taxes in certain jurisdictions in which we do have a physical presence, in reliance on applicable exemptions. On June 21, 2018, the U.S. Supreme Court decided, in South Dakota v. Wayfair, Inc. , that state and local jurisdictions may, at least in certain circumstances, enforce a sales and use tax collection obligation on remote vendors that have no physical presence in such jurisdiction. All states have now enacted legislation to require sales and use tax collection by remote vendors and by online marketplaces. The details and effective dates of these collection requirements vary from state to state. While we now collect, remit, and report sales tax in all states that impose a sales tax, it is still possible that one or more jurisdictions may assert that we have liability from previous periods for which we did not collect sales, use, or other similar taxes, and if such an assertion or assertions were successful it could result in substantial tax liabilities, including for past sales taxes and penalties and interest, which could materially adversely affect our business, financial condition, and operating results. ## Federal income tax reform could have unforeseen effects on our financial condition and results of operations.\n\nNew income or other tax laws or regulations could be enacted at any time, which could adversely affect our business operations and financial performance. Further, existing tax laws and regulations could be interpreted, modified, or applied adversely to us. For example, the Tax Cuts and Jobs Act (the 'Tax Act') and CARES Act enacted many significant changes to the U.S. tax laws. Future guidance from the IRS and other tax authorities with respect to the Tax Act and CARES Act may affect us, and certain aspects of the Tax Act and CARES Act could be repealed or modified in future legislation. Further regulatory or legislative developments may also arise. We are currently unable to predict whether such changes will occur and, if so, the ultimate impact on our business. To the extent that such changes have a negative impact on us, our suppliers or our customers, including as a result of related uncertainty, these changes may materially and adversely impact our business, financial condition, results of operations and cash flows. ## We may be subject to additional tax liabilities, which could adversely affect our operating results.\n\nWe are subject to income- and non-income-based taxes in the United States under federal, state, and local jurisdictions. The governing tax laws and applicable tax rates vary by jurisdiction and are subject to interpretation. Various tax authorities may disagree with tax positions we take and if any such tax authorities were to successfully challenge one or more of our tax positions, the results could have a material effect on our operating results. Further, the ultimate amount of tax payable in a given financial statement period may be materially impacted by sudden or unforeseen changes in tax laws, changes in the mix and\n\nlevel of earnings by taxing jurisdictions, or changes to existing accounting rules or regulations. The determination of our overall provision for income and other taxes is inherently uncertain as it requires significant judgment around complex transactions and calculations. As a result, fluctuations in our ultimate tax obligations may differ materially from amounts recorded in our fina
|
||
|
|
"## We cannot guarantee that our share repurchase program will be fully consummated or that it will enhance long-term stockholder value. Share repurchases could also increase the volatility of the trading price of our stock and could diminish our cash reserves.\n\nIn January 2022, our Board of Directors authorized a share repurchase program to repurchase up to $150.0 million of our outstanding Class A common stock, with no expiration date. During fiscal 2023 and the three and nine months ended April 27, 2024, we did not repurchase any shares of our common stock, and we had $120.0 million remaining in share repurchase capacity as of April 27, 2024. Although our Board of Directors has authorized this repurchase program, the program does not obligate us to repurchase any specific dollar amount or to acquire any specific number of shares. The actual timing and amount of repurchases remain subject to a variety of factors, including stock price, trading volume, market conditions and other general business considerations. In addition, the terms of our first lien credit agreement with Citibank, N.A., as agent and lender ('the 2023 Credit Facility'), impose limitations on our ability to repurchase shares. The share repurchase program may be modified, suspended, or terminated at any time, and we cannot guarantee that the program will be fully consummated or that it will enhance long-term stockholder value. The program could affect the trading price of our stock and increase volatility, and any announcement of a termination of this program may result in a decrease in the trading price of our stock. In addition, this program could diminish our cash and cash equivalents and marketable securities. ## Future sales of shares by existing stockholders could cause our stock price to decline.\n\nIf our existing stockholders sell, or indicate an intention to sell, substantial amounts of our Class A common stock in the public market, then the trading price of our Class A common stock could decline. In addition, shares underlying any outstanding options and restricted stock units will become eligible for sale if exercised or settled, as applicable, and to the extent permitted by the provisions of various vesting agreements and Rule 144 of the Securities Act. All the shares of Class A and Class B common stock subject to stock options and restricted stock units outstanding and reserved for issuance under our 2011 Equity Incentive Plan, as amended, our 2017 Incentive Plan, and our 2019 Inducement Plan (collectively, our 'Incentive Plans') have been registered on Form S-8 under the Securities Act and such shares are eligible for sale in the public markets, subject to Rule 144 limitations applicable to affiliates. If these additional shares are sold, or if it is perceived that they will be sold in the public market, the trading price of our Class A common stock could decline. ## The dual class structure of our common stock concentrates voting control with our directors, executive officers, and their affiliates, and may depress the trading price of our Class A common stock.\n\nOur Class B common stock has ten votes per share and our Class A common stock has one vote per share. As a result, the holders of our Class B common stock, including certain of our directors, executive officers, and their affiliates, are able to exercise considerable influence over matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as a merger or other sale of our company or our assets, even if their stock holdings represent less than 50% of the outstanding shares of our capital stock. As of May 29, 2024, 26,355,097 of our 122,340,710 shares outstanding were held by our directors, executive officers, and their affiliates, and 22,483,932 of such shares held by our directors, executive officers, and their affiliates were shares of Class B common stock. This concentration of ownership will limit the ability o
|
||
|
|
"Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our amended and restated certificate of incorporation further provides that the federal district courts of the United States are the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our amended and restated certificate of incorporation. This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions.\n\nThese exclusive forum provisions may limit a stockholder's ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers and other employees. If a court were to find either exclusive-forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could seriously harm our business. ## General Risk Factors ## Future securities sales and issuances could result in significant dilution to our stockholders and impair the market price of our Class A common stock.\n\nWe may issue additional equity securities in the future. We also issue awards for Class A common stock to our existing and new employees and others under our Incentive Plans. The number of shares subject to such awards is typically based on target dollar values, and therefore the number of shares increases as our stock price decreases. Future issuances of shares of our Class A common stock or the conversion of a substantial number of shares of our Class B common stock, or the perception that these sales or conversions may occur, could depress the market price of our Class A common stock and result in dilution to existing holders of our Class A common stock. Also, to the extent outstanding options to purchase shares of our Class A common stock or Class B common stock are exercised or options or other stock-based awards are issued or become vested, there will be further dilution. The amount of dilution could be substantial depending upon the size of the issuances or exercises and our stock price. Furthermore, we may issue additional equity securities that could have rights senior to those of our Class A common stock. As a result, holders of our Class A common stock bear the risk that future issuances of debt or equity securities may reduce the value of our Class A common stock and further dilute their ownership interest.",
|
||
|
|
"## If we are unable to maintain effective internal control over financial reporting, investors may lose confidence in the accuracy of our reported financial information and this may lead to a decline in our stock price.\n\nWe are required to comply with Section 404 of the Sarbanes-Oxley Act of 2002 (the 'Sarbanes-Oxley Act'). Specifically, the Sarbanes-Oxley Act requires management to assess the effectiveness of our internal controls over financial reporting and to report any material weaknesses in such internal control. We have experienced material weaknesses and significant deficiencies in our internal controls previously. Management has concluded that our internal control over financial reporting was effective as of July 29, 2023. However, our testing, or the subsequent testing by our independent public accounting firm, may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses. If we or our accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, it could harm our operating results, adversely affect our reputation, or result in inaccurate financial reporting. Furthermore, should any such deficiencies arise we could be subject to lawsuits, sanctions or investigations by regulatory authorities, including SEC enforcement actions and we could be required to restate our financial results, any of which would require additional financial and management resources.\n\nEven if we do not detect deficiencies, our internal control over financial reporting will not prevent or detect all errors and fraud, and individuals, including employees and contractors, could circumvent such controls. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.\n\nIn addition, we may encounter difficulties in the timely and accurate reporting of our financial results, which would impact our ability to provide our investors with information in a timely manner. Should we encounter such difficulties, our investors could lose confidence in the reliability of our reported financial information and trading price of our Class A common stock. could be negatively impacted. ## We may not be able to generate sufficient capital to support and grow our business, and outside capital might not be available or may be available only by diluting existing stockholders.\n\nWe require sufficient cash and liquidity to run our business, finance our operations, and pay for capital expenditures. We may not be able to generate sufficient cash to fund our working capital and capital expenditures needs. We also may require additional funds to support growth or respond to business challenges. We are party to a credit agreement with Citibank, N.A. but a deterioration in our capital structure or the quality of our earnings could result in noncompliance with our debt covenants, which would limit our ability to utilize our credit facility.\n\nWe also may want or need to engage in equity or debt financings to secure additional funds. The capital market environment, including market disruptions, limited liquidity, or interest rate fluctuations, may increase the cost of financing or restrict access to a potential source of liquidity. Additionally, if we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our Class A common stock.\n\nOur 2023 Credit Facility also 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 subj
|
||
|
|
]
|
||
|
|
}
|