Stitch Fix, Inc. Q4 FY2023 Earnings Call

Good afternoon and thank you for standing by. Welcome to the Fourth Quarter and Full Year Fiscal 2023 Stitch Fix Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, you will be invited to participate in a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the call over to Hayden Blair.

Good afternoon and thank you for joining us today for the Stitch Fix fourth quarter and full year 2023 earnings call. With me on the call are Matt Baer, Chief Executive Officer; and David Aufderhaar, Chief Financial Officer. We have posted complete fourth quarter and full year 2023 financial results in a press release on the Quarterly Results section of our website investors.stitchfix.com. A link to the webcast of today's conference call can also be found on our site. We would like to remind everyone that we will be making forward-looking statements on this call, which involve risks and uncertainties. Actual results could differ materially from those contemplated by our forward-looking statements. Reported results should not be considered as an indication of future performance. Please review our filings with the SEC for a discussion of the factors that could cause the results to differ, in particular, our press release issued and filed today, as well as the Risk Factors sections of our quarterly report on Form 10-Q for our third quarter previously filed with the SEC and the annual report on Form 10-K for our fiscal year 2023, which we expect to be filed later this week. Also, note that the forward-looking statements on this call are based on information available to us as of today's date. We disclaim any obligation to update any forward-looking statements, except as required by law. During this call, we will discuss certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are provided in the press release on our Investor Relations website. These non-GAAP measures are not intended to be a substitute for our GAAP results. Finally, this call in its entirety is being webcast on our Investor Relations website and a replay of this call will be available on the website shortly. And now let me turn the call over to our CEO, Matt Baer.

Thanks, Hayden, and good afternoon. I want to thank everyone at Stitch Fix for such a warm welcome and for your passion and commitment to helping our clients discover and express their style. I also want to thank Katrina and the Board of Directors for entrusting me to lead the Company and for sharing their perspective with me. I've spent the last 90 days getting to know our business and our brands, working closely with our executive leadership team to understand the issues and opportunities, and meeting our corporate, stylist, customer experience and warehouse teams to learn about how we serve clients today. I've also met with a number of clients, attended several client research sessions and read a lot of client feedback to help me understand our opportunities from their vantage point. Consistent personalized client service is at the core of what we do, so it was important to me to become grounded in what we're doing well, how we can do better and where we can do more. These first few months have reaffirmed my conviction about the bright future ahead for Stitch Fix, and at the same time, I fully appreciate the focus, time and resources required to realize our ambitions for the brand and the business. Today, I'll say a few words about why I joined Stitch Fix, share my initial observations about where we are today, and how that will inform our future strategy, then David will take you through our Q4 and FY'23 results. When I first became aware of Stitch Fix, I recognized right away that it was a unique business model, and as a digital leader, I was impressed. Stitch Fix presented a compelling, differentiated and innovative experience powered by advanced technology, offering personalization, convenience and service at scale. When the opportunity to join Stitch Fix presented itself, it appealed to me because I saw powerful ideas that hadn't yet realized their full potential, and I believe that my background, experience and drive could get that done. I've always had a passion for retail and an appreciation for the importance of customer service. My first job was at my family's furniture business, which taught me the fundamentals of retail. I took those early lessons to a few retail start-ups where I learned the value of a compelling curated assortment strategy, and then ran digital businesses in some of the most complex and competitive marketplaces for the world's largest retailer and the country's largest department store. What has excited me the most throughout my career is identifying opportunities to provide better experiences for customers. The kinds of experiences that solve their problems but fill their desire for value and exceed their expectations. I've always been drawn to digital and tech-forward businesses because I believe customers want and deserve a better way to shop. And with more options available than ever before, at a time when people feel more time-constrained than ever before, I think customers need that better way to shop more than ever before. In most instances, shopping offline is cumbersome and shopping online can be overwhelming. The brick-and-mortar apparel shopping experience is time-consuming and at times frustrating. And although the online experience has gotten better, it is still too focused on session-level conversion and lacks the inspiration and personalization that make great style, great fit and great value attainable. Part of the magic of Stitch Fix is that we can deliver all of that in a way that is truly convenient, not only in terms of ease of shopping, but also in terms of anticipating our clients' needs. Of course, we believe the richness of our data also makes it possible for us to leverage our assortment to deliver fresh and compelling style and drive better margins. Stitch Fix is a brand that really means something to people who rely on us to help them find their style and experience a better way to shop. We exist to make getting dressed easier and our model has always combined the power of data science with the personalization of a human connection. As I spent time with our stylist and customer service teams, I've heard them talk about the interactions they have with our clients, and it's clear that these connections are powerful. One of our stylists shared a message from a client that really speaks to the role Stitch Fix can play in our clients' lives. She wrote, 'brought to tears by how special the Stitch Fix made me feel. I have two babies and started working as a teacher last week. I pour from my cup all day and all I can think is that I deserve this.' To me that note reinforces how important and integral this Stitch Fix stylist-client relationship is to who we are and what we represent. I read another client note that reinforces the value of making shopping for clothes easier and more convenient. 'Selection is tailored to my taste and it is very easy to find new items that I like, it saves time from going to a store and searching through so much stock that isn't my style.' Now those are just two of many examples of terrific client experiences, and of course, there are also examples of experiences where we missed the mark, and within both sets are key learnings that will guide us. As a long-time student and operator in the retail space, I am both energized by the challenges and motivated by the opportunities I see for Stitch Fix. As I begin to shape our long-term vision and define our future corporate strategy, some of my early observations informed my thinking. First, personalization algorithms, artificial intelligence, machine learning and data science are fundamental elements of our model. It is clear that these capabilities are changing the way companies create and deepen relationships with customers. And while they have certainly become popular buzzwords among retailers who are investing heavily to catch up, they have been part of the DNA of Stitch Fix since its inception and something we will build upon going forward. Second, the relationships between our clients and their stylists are amazing, unlike anything I've seen before. These connections are built on service and trust. They foster loyalty to the brand and represent long-term value to the business. And I believe these relationships are especially relevant as staffing levels in so many retail stores continue to decline. I expect us to deepen and enrich these relationships in the future. Third, I think the assortment and service we offer today creates a better experience because it solves for many of the frustrations we know people feel about both physical and digital shopping. Because of this, I believe we can and will introduce more people to the Stitch Fix way and I believe we can drive market share gains. You'll hear much more from me about our long-term strategy in the near future. In the meantime, we are focused on enhancing the client experience to deliver personalization, strengthening profitability and investing carefully to drive growth. Looking ahead, I am confident that being data-led, customer-centric and technology-driven will continue to be key contributors to ensuring that every client engagement, interaction and solution is personalized. Stitch Fix has already created a model based on a combination of data science and human connection. And as we continue to evolve the application of both AI and human touch, we plan to further advance this key point of differentiation. This will help us constantly look at things through the lens of our clients and think about the experience we provide to someone trying Stitch Fix for the first time or returning for the tenth. Doing this will ensure we are consistently investing in new capabilities to bring stylists and clients closer together, creating new ways of interacting with clients and continuing to advance our operational capabilities to be optimized for scale. The leadership team and I are aligned and focused on delivering long-term profitable growth. With that, I will turn the call over to David who will take you through our Q4 and full year financial results as well as our future outlook.

Thanks, Matt. This is a pivotal time for Stitch Fix, and we're fortunate to have someone with match retail, digital, and operational expertise leading us into the future. He is asking a lot of great questions and has a fresh perspective that's challenging our thinking in a really positive way. Let me begin with setting some context around FY'23. We made the decision to focus on the core Stitch Fix experience which meant changing our inventory product and marketing strategies. To allow time for those strategies to take hold, we focused on near-term profitability and cash flow. This meant restructuring our organization, consolidating our warehouse footprint, and making the decision to exit the UK market. Decisions like this are never easy, but we believe these actions were the right ones. Throughout the course of the year, we improved our inventory position, realized over $150 million of annualized cost savings, and achieved our goal of returning to positive adjusted EBITDA and free cash flow. FY'23 net revenue was $1.64 billion, a decline of 21% year-over-year. We ended the year with approximately 3.3 million active clients, a decrease of 13% year-over-year. Despite the revenue decline, we believe we effectively unlocked the leverage potential for our business moving forward. We made great progress through cost savings and restructuring initiatives and ended the year with adjusted EBITDA of approximately $17 million, an improvement of more than $35 million versus the prior year. We also generated nearly $39 million of free cash flow. For Q4, our performance was better than we expected and reflects the work we have done to improve gross margin and right size our cost structure. We also made progress on a number of key initiatives in the quarter. After a careful review of our operations in the UK, we made the decision to wind down that business. We notified the affected employees in August, and we expect the full closure of our UK operations to be completed this calendar year. Additionally, the plan to consolidate from five US warehouse locations to three is on track to be completed this fiscal year. We believe the consolidation will have immediate cost savings, and having inventory in fewer warehouses will make it easier for stylists to build more relevant assortments for clients, and we will realize inventory efficiencies as we scale. We continue to expect the combined annualized cost savings related to the closure of the UK operation and the US warehouse consolidation to be approximately $50 million. Q4 net revenue was $376 million, down 22% year-over-year, but above the high end of our prior guidance due to higher order volume. Revenue per active client declined 9% year-over-year in Q4 to $497 million. Q4 gross margin expanded 330 basis points year-over-year to 43.3%, thanks to the hard work our merchandising teams did to improve the composition of our inventory over the last year. We ended Q4 with net inventory down 30% year-over-year and down 10% quarter-over-quarter to $137 million as we continue our efforts to align our inventory position with demand and increase the assortment composition of our successful private brands. Advertising was 7% of net revenue in Q4, down slightly over Q3 and down more than 350 basis points year-over-year as we right-size our marketing spend based on specific payback methodologies. Q4 adjusted EBITDA was $10.4 million, above our range due to better-than-expected revenues and the gross margin and operating leverage I mentioned earlier. We generated $18 million of free cash flow in Q4 and ended the quarter with $258 million in cash, cash equivalents and investments and no bank debt. Turning to our outlook. We remain focused on improving the client experience, retaining and attracting clients, maximizing the effectiveness of our marketing, increasing leverage in our cost structure, and driving positive free cash flow. Before we get into the numbers, there are two key callouts in our guidance. First, I want to remind everyone that FY'24 is a 53-week fiscal year. We will also be providing this guidance in the context of US-only operations as we anticipate reporting our UK results as discontinued operations beginning in Q1. Our guidance provided in the press release details the reconciliation between FY'23 and FY'24 for both these items. For the full year, we expect total US revenue to be between $1.3 billion and $1.37 billion. We expect total US adjusted EBITDA to be between $5 million and $30 million, primarily reflecting an improved gross margin and ongoing cost savings initiatives. This guidance also assumes we will be free cash flow positive for the full year, though we may see some variability between quarters due to the timing of working capital requirements related to our inventory purchases. Moving on to Q1, we expect total US revenue to be between $355 million and $365 million, and we expect Q1 US adjusted EBITDA will be between $2 million and $7 million. We also expect revenues from the UK which we anticipate will be reported as discontinued operations in Q1 to contribute approximately an additional $7 million in Q1. We expect both Q1 and full-year gross margin to be approximately 43% to 44%, as we continue to drive improvement in our inventory position with a higher mix of private brands and continued efficiencies in transportation costs. We also expect advertising to be approximately 7% to 8% of revenue, but we'll continue to be opportunistic if we see the right return on our investment. We do expect inventory balances to rise in Q1 due to the timing of receipts ahead of fall-winter, but expect our inventory turns to improve as the year progresses. We began FY'24 with an eye to rebuilding, leveraging the cost savings work already accomplished in FY'23. Our unit economics remain strong and we will continue to identify opportunities to improve both fixed and variable costs in order to increase our contribution margin and fixed leverage potential. We expect this continued focus on leverage and profitability, along with the acquisition and engagement of high lifetime value clients will help us maintain profitability today and provide a solid foundation for our future growth strategy. Now, let me turn the call back to Matt.

Thanks, David. As I said at the top of the call, my first 90 days as CEO have reaffirmed my conviction about the bright future of Stitch Fix. The insight and vision on which this Company was founded are just as powerful and just as relevant today. We are evaluating and assessing every aspect of our brand, our business and our operating model. We are carefully examining what we do and how we do it, optimizing where we can right now while also looking ahead to the longer-term opportunities. Stitch Fix was founded on the belief that the technology-meets-humanity model could create an individually tailored shopping experience that would make it easy and enjoyable for people to define their style and buy clothing. The Company's commitment and investment in that belief has never wavered. While we have a lot of hard work to do, our clients deserve the best from us, and I am confident in our ability to deliver that. I am determined to unlock every opportunity for us to realize the full potential of Stitch Fix and drive long-term profitable growth. Thank you for your interest in our Company, and now operator, we'll take the first question.

Thank you. Please standby for our next question. Our first question comes from the line of Youssef Squali of Truist. Please go ahead, Youssef.

Hello. Can you hear me?

Yes, we can hear you.

Excellent. Thank you, guys, for taking the questions. I have two. So first, Matt, you talked a little bit about how you've been on the job now for 90 days. You've had a chance to talk to a lot of people internally, externally, etc. Maybe can you just summarize for us some of the key learnings that you had during this period? What are kind of the two or three key challenges that are kind of top of mind for you based on those learnings? And then Dave, for the fiscal '24 guide, can you talk about the assumptions you're making in terms of active client count and maybe just how you see pricing kind of progressing throughout the year? Thank you.

Thank you, Youssef. I appreciate the questions. It’s been 12 weeks, and I’ve dedicated a lot of time to onboarding and learning as much as possible by engaging with our internal stakeholders, external advisors, and our clients to truly understand the business from their perspective. One significant insight I've gained is the strong connection our most loyal clients have with our service, which presents a great opportunity for future growth. It's unusual for an e-commerce or retail business to achieve such high engagement levels. In the last quarter, we reported a 22% decline in our business and nearly a 50% reduction in our marketing spend, which is a rare situation that highlights how effectively we connect with our clients organically, encouraging them to return despite macro challenges. Another important takeaway is the vigor of our private brand business. Moving forward, having an assortment that is exclusive yet highly desirable to our clients is crucial. Our top 25 brands contribute around 50% of our total revenue, with more than half being private brands. These brands are performing about 5% to 10% better on margin than the national brands, and our clients have significantly higher retention rates for them. I view our challenges as opportunities for improvement. By continuously listening to our clients, we can refine our experience and business model, identify operational efficiencies, and enhance our profitability. As I continue my onboarding process, I look forward to consolidating these insights and outlining our long-term strategy in the future.

And then Youssef on the FY'24 guide, a couple of call-outs. First, on active clients. We aren't sharing any specifics on full-year active clients, but it definitely remains a primary focus for the teams to drive towards growth. We do expect Q1 active clients to be negative. You saw for Q4 FY'23, we're down about 5% quarter-over-quarter and we expect Q1 to be slightly better than that quarter-over-quarter. On the revenue side, a couple of callouts. The active client loss in FY'23 and the Q1 loss I just described are definitely a big contributor to the revenue headwind in FY'24. We also expect the headwind that we've recently seen in existing client order frequency to remain in FY'24 with clients still being cautious in the macro environment that we're in. You touched on pricing. Pricing we expect to continue to remain stable with what we've seen in the past few quarters.

Great. Thank you both.

Thanks, Youssef.

Thank you. Please standby for our next question. Our next question comes from the line of Simeon Siegel of BMO Capital Markets.

Thanks. Hey, everyone. Good afternoon. Welcome, Matt. So nice progress on the gross margins. Could you just maybe quantify the moving pieces a little bit more just given there is nuance out there? And maybe how you're thinking about those moving pieces into the Q1 and full-year guide you gave? And then can you guys say what you are expecting the 53rd week to represent for revs and EBITDA? Thank you.

Thank you, Simeon, for your question. This is Matt. I will address the gross margin at a high level, and David can provide more details and answer your question about the 53rd week. I want to acknowledge our merchants and everyone else in the organization for their hard work over the past year to maintain a healthy inventory composition. I believe that having better inventory is more important than simply having more inventory, and our merchant team has truly embraced this approach, as demonstrated by our 30% year-over-year inventory reduction. This also helps us to focus on higher-margin products. We've been reinforcing our investment in private brands, which are seeing about a 5% to 10% increase in initial markup overall. While there's still more work to be done to enhance our inventory health, I'm encouraged by the early signs of success we've seen so far.

And then, Simeon, on gross margin and just to give you a little bit more color around that. For FY'24, we are showing between 100 basis point and 200 basis point improvement, and that really ties back to what Matt was describing that focus on improving our inventory health, as well as sort of the transportation efficiencies that we continue to drive. A couple of other callouts just as you go further down the P&L. There's also an annualized impact of the cost savings initiatives that we had in FY'23 and then there is also a good portion of the $50 million of annualized savings with the UK and the warehouse closures that we would realize in FY'24 as well. And then on the 53rd week, we do have specifics in the press release as well. So you can see the impact there as well as the impact of the UK, but it's about a point to a point and a half.

Great. Thanks a lot, guys. Best luck for the year ahead.

Thank you.

Thank you.

Thank you. Our next question comes from the line of Trevor Young of Barclays.

Great. Thanks. Just back to the full-year guide for kind of core US. What are you baking in terms of underlying assumptions in terms of like the macro environment, impact from student loan repayments starting back up, and continued competitive pressure given higher levels of discounting at peers are at retail? Just any color on kind of what's your kind of broader macro outlook is? And then just more of a housekeeping one. Appreciate the color on UK revs being able to back that out, but any directional commentary on what average revenue was for those customers so we can kind of contemplate that in our models as well.

Hi, Trevor. Thank you for your questions. This is Matt. I will provide an overview of our perspective on the macro environment and how we are positioned competitively concerning discounting. David will offer further insights, particularly regarding your question about the UK. When it comes to the macro environment, there are significant reasons to be cautious about the US consumer. They are under pressure from rising energy prices, the highest interest rates in years, the resumption of student loan payments next month, and a continued depletion of consumer savings. These aspects are out of our control. Therefore, my team and I focus on what we can manage: having the right product assortment, intelligent pricing, acquiring clients with high lifetime value potential, ensuring our brand resonates with our target market, and building lasting relationships with our clients. Our service has the unique advantage of being delivered directly to customers' homes, which allows us to remain relevant even when the macro environment presents challenges. During difficult times, as consumers limit discretionary spending or refrain from shopping in-store or online, we continue delivering to our loyal customers. Our priority is to capture share of their wallets upfront, and we benefit from direct relationships with each client. If a client's budget is tight, they can communicate this with their stylist, allowing us to adjust the assortment to fit their current needs. Regardless of the macro environment, we stay committed to serving our clients individually. Regarding discounting, we hold a competitive edge as we increase our private brand offerings, which our clients have embraced. This means we aren’t as exposed to price pressures from consumers. Furthermore, already having our products in customers' homes gives us an advantage in terms of minimizing active price-checking, allowing us to operate more as a full-price retailer. Of course, there are times when we do not meet our desired sell-through targets for acquired inventory. We are investing in enhancing our pricing intelligence to establish the right markdown strategy that drives appropriate sell-through and retention rates as our inventory ages. We continue to test and learn, improving our use of the Freestyle channel to help move inventory that is not meeting its sell-through goals. Overall, I feel confident about our ability to compete effectively in a challenging macro environment and against retailers that are discounting more aggressively than we are.

And then, Trevor, on your specific question around the UK. Yeah, there is definitely a reconciliation in the press release as well to give you the top line as well as gross profit and SG&A to help you sort of back those numbers out of the models. From an active client standpoint, the UK represented about approximately 180,000 clients and so you can back into our pack with that to be able to back that out of the models.

Okay, great. Thanks, Matt. Thanks, David.

Thank you.

Thanks.

Thank you. Please standby for our next question. Our next question comes from the line of Blake Anderson of Jefferies.

Hi, guys. Thanks for taking my question. I had two. Wanted to first ask on just if you could provide any more color on the trajectory of the year in terms of sales and margins. It seems like Q2 through Q4 EBITDA seems like it's around break even after Q1 so just wondering kind of the puts and takes on profitability for the back half of the year, the last three quarters versus the first quarter. And then second question was just curious if you could talk at all about kind of your return rates. How many of your customers on the fixed business are keeping boxes? How many items are they keeping? Wondering if you could share any color on how those KPIs are trending. Thank you.

In response to your first question, regarding EBITDA for the year, the guidance for Q1 was between $2 million and $7 million, and for the full year, it was between $5 million and $30 million. This indicates that we expect to be profitable in the latter half of the year. Our focus on profitability has been a priority, and we take pride in the progress we've made. Therefore, we anticipate being EBITDA positive for the year, as well as free cash flow positive.

On the second question, I can jump in there and David feel free as well. But in terms of the key metrics that we track from AUR, AOV and keep rate, overall we're seeing relatively stable metrics across the board, and then going forward we'll be working to put processes in place and strategy in place to improve those metrics over time.

Got it. That answers it. Thank you.

Thank you. Our next question comes from the line of Tom Nikic of Wedbush Securities.

Hey, everyone. Thank you for taking my question, and Matt, welcome to the team. I'd like to ask about the significant revenue decline you experienced last year, and the expectation for another double-digit decline this year. Overall, this marks a notable decrease compared to a couple of years ago. It seems like the goal is to reset the revenue base to a healthier, sustainable level before pursuing growth opportunities. When you consider how to transition from negative to hopefully positive revenue, what role does customer growth play? Is it about increasing share of wallet? How should we think about that? Thanks.

Hey, Tom, I appreciate the question. It's Matt. I'll answer that question and then David if there's anything you'd like to add, please, feel free. So in terms of where we see the business going forward and where our focus remains, we're working really hard to ensure that we have a healthy foundation for our business that we have a healthy inventory position for our business, that we have healthy client franchise for our business and that we have a healthy financial and P&L ultimately for our business. And we also have a strong perspective that as we continue to invest in and deliver experiences that resonate best with our clients, and as we continue also to ensure that as we really judiciously rationalize our marketing spend, we're going to be able over time to both improve the experience and do a better job acquiring high lifetime value customers that will ultimately lead to future revenue growth and we'll be able to do that on a profitable basis. What I can also tell you confidently is that the service that we provide is a phenomenal one. The ability to get product delivered to your home that matches your style preferences, that aligns with your value orientation, that actually fits is surprisingly rare experience, and it's one that we have an exceptional experience and we excel in competitively. And I believe that, that service resonates with an incredibly wide audience and untapped future markets which over time will be able to expand our target market audiences and deliver growth. Right now, we're focused on the healthy foundations for our business and in the future, we'll be focused on driving that long-term profitable growth.

Understood. Thank you very much.

Thank you. Our next question comes from the line of Dylan Carden of William Blair.

Thank you. I'm just curious maybe even follow up to that last answer. How are you thinking about the relationship now between marketing and sales? You're kind of keeping the ratio relatively stable next year. Is that driven by the sales outlook or is that driving the sales outlook? And kind of what's the strategy as it relates to retention and sort of new customer engagement? Thanks.

Thank you for the question, Dylan. It's Matt. I'll address your inquiry and David can add more if needed. Our current focus in marketing is to ensure that we allocate our spending wisely to maximize customer acquisition, targeting those with high lifetime value. In my experience, pursuing client growth solely based on superficial metrics can lead to challenging situations that are hard to resolve later. It's crucial for me to emphasize to the team that our priority should be the overall health of our client base. We need to ensure that we are attracting the right customers who show signs of potential high lifetime value. I’m encouraged by the marketing team's approach, which is guided by several key principles. Firstly, they have a clear understanding of their target audience. Secondly, they are successful in communicating our brand's uniqueness and the value we offer to potential clients. Thirdly, they are effectively managing the budget between brand awareness initiatives and direct acquisition strategies. Additionally, we must pay careful attention to our retention and reactivation efforts, where the team has recently seen significant success. Moving forward, our goal is not only to reactivate customers but also to enhance retention and prevent dormancy. By focusing on these critical areas, we believe we can significantly improve our client experience and effectively engage with customers who promise high lifetime value, ultimately enhancing the health of our client portfolio over time.

Thanks. And I guess sort of a follow-up on that. I mean is I don't know if you're going to answer this per se. But as you think about sort of the active customers you're left with now at the end of this year and to your point about kind of unwinding past marketing spend or unwinding past growth. Do you feel you kind of mentioned the stability of some of those key metrics? Do you feel like this $3 million some is a more engaged core group? Or you're still kind of weeding out some less efficient customer base in the model?

Yeah, Dylan, I'll touch on that. I think to Matt's point sort of this holistic approach to marketing touches on a couple of areas. First is in gross adds and I think that was a lot of what I was describing as well. But I think what you're alluding to is on the dormancy side, we've talked about this in the past where we are still cycling through some of the Freestyle first clients that we've talked about in the past, although it's definitely less of an impact than it's been in the past. And we're also still seeing some of that elevated first fix dormancy that we've talked about in prior calls, but we're also seeing improvements in some of that first fix engagement as well. And so it's still a big area of focus for us.

Thank you. Please standby for our next question. Our next question comes from the line of Mark Altschwager of Baird.

Hi, guys. Thanks for taking my question.

We'll go to our next question. The next question comes from the line of Edward Yruma of Piper Sandler.

Hey, guys, thanks for taking the question. Matt, thanks for all the forthrightness. I guess just stepping back maybe as a follow-up to the last question. When you look at churn obviously, maybe introduce some customers that were lower value or just not as focused on the service. But if you talk to your customer base and look at some of these longer-term customers that have churned or gone dormant, I guess one of the top two or three things that cause them to churn or go dormant? And how do you expect to address that long-term? Thank you.

Thank you for the question, Ed. This is Matt. I’ll provide an answer and David can add more context if needed. I've spent a significant amount of time with our clients and have participated in several client focus groups, including two more tomorrow. One of the key things I've learned is why clients are excited about our service and, to address your question, for those who have chosen to leave us, it’s important to understand the reasons behind that and how we can enhance our service to reduce client dormancy. The main reasons for churn will not be surprising and actually give me optimism about our service's overall value. Firstly, many clients experience life-changing events that impact their need for our service, which is beyond our control. This also explains the success we’re seeing with our recent re-engagement campaigns. There are moments in people's lives when our service is extremely valuable to them, but they may find themselves in situations where it’s less useful, presenting us with a chance to re-engage them when their circumstances shift again. Secondly, I’m proud of our team’s efforts to improve the quality of our offerings. Customers consistently rate the quality of our assortment very highly, which is reflected in our strong business growth. Our merchants are dedicated to ensuring our assortment aligns well with our core customer segments. The experience we provide is at its best when we have a wide range and depth of options that meet all of our customers' needs, and that remains a key focus for us.

Hi. Thank you for taking the question. I have a quick question about the numbers first. You mentioned that the UK had around 180,000 active clients. When I take that into account with the first-quarter numbers, it seems to indicate a quarter-over-quarter decline of 5.5% in the first quarter, which is worse than the 5.1% decline in the fourth quarter. This suggests to me that since you anticipated an improvement in the first quarter, you expect to increase the number of active clients in the US. Is that correct?

No, I don't think that's correct, Kunal. We definitely expect, when looking at it quarter-over-quarter, that the number of active clients will show a better outcome in terms of losses compared to what you observed in Q4.

So in Q4, you lost 179,000 clients. Now if 180,000 clients are going to go out of the system in 1Q because UK would be a discontinued op?

Yes. The 3% decline we mentioned was based on US-only data.

The down 3%. Okay.

Yeah. When I mentioned the quarter-over-quarter decline in Q1, it was based solely on the US.

Okay, great. I think this has been asked before, so I apologize. It takes me a bit to understand things. But for the negative 15% to negative 20% revenue guidance for the full year, how should we think about it in terms of where you'll likely end up with active clients versus where you will end up with last twelve months revenue per active client?

Yeah. Kunal, I think we touched on this earlier that we aren't giving specifics around active clients from a full-year guide standpoint and the guidance that we've given assumes pretty stable pricing throughout the year as well.

The stable pricing. Okay. Thank you.

Yeah.

Thank you. And as there are no further questions in queue, this does conclude today's conference call. Thank you for participating. You may now disconnect.