Stitch Fix (NASDAQ:SFIX) held its third-quarter earnings conference call on Wednesday. Below is the complete transcript from the call.
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View the webcast at https://events.q4inc.com/attendee/328200081
Summary
Stitch Fix reported a 4.7% increase in revenue to $340.3 million, marking the fifth consecutive quarter of year-over-year revenue growth.
Active clients grew by 21,000 to 2.3 million, with revenue per active client reaching a record high of $578.
Adjusted EBITDA was $13.2 million with a margin of 3.9%, exceeding expectations due to strong revenue and disciplined expense management.
The company continues to focus on strategic growth in activewear, footwear, and accessories, aiming to unlock approximately $1 billion in incremental revenue.
Stitch Fix is leveraging AI technology to enhance inventory management, pricing, and the client experience, aiming to deepen customer engagement.
The company plans to maintain strong financial discipline, with full-year revenue guidance between $1.346 and $1.351 billion and adjusted EBITDA between $49 and $52 million.
Household accounts have seen strong adoption, contributing to client base growth, and the company is focused on capturing additional wallet share.
Advertising expenses were 10.2% of revenue, in line with expectations, and the company plans to continue targeted marketing efforts to drive client acquisition and retention.
Management expressed confidence in the resilience of their business model and their ability to navigate macroeconomic challenges.
Full Transcript
OPERATOR
Thank you for joining us and welcome to Stitch Fix Third Quarter 2026 Earnings Results Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Cheryl Valenzuela, Head of Investor Relations. Please go ahead.
Cheryl Valenzuela (Head of Investor Relations)
Good afternoon investor and thank you for joining us today for the stitch fix third quarter fiscal 2026 earnings call. With me on the call are Matt Baer, Chief Executive Officer and David Aufterhaar, Chief Financial Officer. We have posted complete third quarter 2026 financial results in a press release on the Quarterly Results section of our website investors.stitchfix.com. 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 our quarterly report on Form 10Q for the second quarter of fiscal 2026 and subsequent periodic reports filed with the SEC.
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. Please also Note that fiscal 2024 was a 53 week year due to an extra week in the fourth quarter. As such, references to consecutive quarters of year over year revenue growth rates on this call are based on an adjusted 52 week basis, removing the impact of the extra week to provide a comparison that we believe more accurately reflects our performance.
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 Matt.
Matt Baer (Chief Executive Officer)
Thanks Cheryl and good afternoon everyone. Revenue in the quarter grew 4.7% to $340.3 million, marking our fifth consecutive quarter of year over year revenue growth. Active clients reached 2.3 million and increased 21,000 sequentially, a significant milestone in our transformation journey. Revenue per active client or RPAC reached $578 in Q3, now the highest level we have reported. We set just last quarter. These results demonstrate how we are strengthening our position as our client's retailer of choice for apparel, footwear and accessories.
As we scale, we maintain our focus on operating with financial discipline resulting in healthy profit margins. Gross margin in Q3 was 43.7% and contribution margin remained above 30% for the ninth consecutive quarter. Our adjusted EBITDA was $13.2 million and our adjusted EBITDA margin was 3.9%, both also better than expected. Our revenue outperformance in Q3 was driven by strength in our fixed channel. Fix average order value, or AOV increased year over year for the 11th straight quarter primarily due to higher items per fix as a result of expanded adoption of our larger fix offering.
Growth in average unit retail or AUR, also contributed meaningfully to the overall AOV upside, reflecting the benefits of our ongoing assortment improvements. Over the last several years we have significantly enhanced the breadth and depth of our assortment to more fully meet client needs and capture more wallet share. Our strategy has been anchored on optimizing our portfolio of market brands, investing in our own private brands and expanding into new categories to better offer head-to-toe outfitting.
We are seeing the results of this work. Both our women's and men's businesses saw top line gains in Q3. Within our women's business we saw robust demand for activewear and athleisure which grew a combined 50% year over year. We also had a successful seasonal transition with strength in sandals, skirts and sneakers. Some of the brands that posted the strongest growth were our private brands namely Montgomery, Post, 41, Hawthorne and Market and Spruce.
Men's grew double digits year over year for the fourth strong straight quarter with standout performance in warm weather categories such as shorts, short sleeve woven tops and casual shoes which each grew more than 30%. Some of the brands that posted the strongest growth were our private brand Aylesbury, as well as Travis Mathew, Vuori, and Bonobos. With regards to expanding into new categories, we previously shared our belief that growing our relevance in activewear and athleisure footwear and accessories can unlock approximately $1 billion in incremental revenue if we achieve our fair share with our existing client base and we are actively pursuing this opportunity by expanding our offerings in these key categories. As an example, we recently launched Women's Sunglasses, introducing brands like Le Specs, Air, and Quay and we are strengthening our footwear assortment with new brands like Frye, while seeing growth in established brands such as Adidas and New Balance. We are also building on our momentum in activewear and athleisure. We recently added Outdoor Voices, Malvin, Golf, Spiritual Gangster and Cotopaxi as well as deepened our penetration with client favorites like Varley, Rhone, and our private label brand We Wander.
We are also seeing strength in men's and kids swimwear with the addition of brands like Fair Harbor. The improvements to our assortment are bolstering our position in the market and translating into further market share gains. According to the latest Circana data, Stitch Fix again meaningfully outperformed the total U.S. apparel, footwear and accessories market in the most recent quarter. With our year over year revenue growth rate more than four times the growth of the total market.
We also remain focused on the quality and durability of our client base. A central focus of our transformation has been acquiring and retaining high lifetime value (LTV) clients who value our service and whom we are uniquely positioned to serve exceptionally well. As I noted earlier, we reached an important milestone in this work as we successfully grew our client base. We also hit our eighth consecutive quarter of year over year growth rate improvement in active clients and remain encouraged by this steady progress.
Starting with new clients, they grew for the third consecutive quarter up more than 10% year over year. In Q3, as our marketing becomes more targeted and precise, we are seeing that rigor show up in the quality of new client cohorts. New client LTVs increased year over year for the 11th consecutive quarter and were nearly double what they were three years ago, reinforcing our belief that we are building a healthier and more durable client base. That momentum is being reinforced by the sustained adoption of family accounts which is creating an additional organic pathway for client acquisition.
As more clients adopt the feature, family accounts have become an efficient way for us to add high intent clients while also expanding family wallet share. We are also focused on re engaging former clients. Our targeted campaigns are bringing clients back to Stitch Fix and as they return, we are focused on deepening engagement through a more personalized and flexible experience. At the same time, retention rates continue to strengthen with steady improvement over seven straight quarters.
Q3 surpassed the mark we set last quarter for our highest retention rate in four years. Engagement also remains healthy. Total active clients on recurring shipments continued to grow year over year. New clients on recurring shipments grew even faster. This is an important signal of the value clients are seeing in their fixes and the strength of the ongoing relationship we are building with them. Taken together, these trends reinforce that we are methodically building a stronger client base and our goal remains to return to year over year active client growth in fiscal 27.
We attribute both our progress in active clients as well as our revenue growth in large part to the advancements we've made to our client experience over the past two years. These improvements have been grounded in delivering on our core promise to offer the most client centric and personalized shopping experience. We're best positioned to do this because of the uniqueness of our model which starts with the power of our data. We know more about our clients before their first transaction with us than most retailers know over a lifetime relationship.
We have billions of data points on their fit, style and budget preferences as well as nuanced insights on our merchandise assortment. It is the interplay of that data, our innovative and AI driven technology platform, and the human connections that our stylists build with clients every day that enable us to deliver what we believe is a superior way to shop for apparel, footwear and accessories. Our AI powered style visualization platform, Stitch Fix Vision plays an important role in offering this better way to shop.
As a reminder, Vision provides clients with personalized imagery of their likeness in an array of shoppable outfits tailored to their style profiles and current trends. Since launching it in October, we've been pleased with our clients response. Notably, we continue to see over a 100% lift in freestyle spend over a 90 day period for clients who used Vision. Now we are integrating Vision further within the client experience and are beginning to give clients more control over how they discover and visualize styles and by enabling them to generate their own Vision images around a look of their choosing.
This is exactly the type of innovation we believe can deepen client engagement over time and reflects the broader strides we are taking to strengthen the Stitch Fix experience and the business overall. Beyond embedding AI into the client experience through features like Vision, we are applying AI across the enterprise. We are increasingly using these capabilities to optimize efficiency and sharpen our retail advantage in areas including inventory management, intelligent pricing and creative marketing execution.
In private brand product development, we're using AI to fundamentally transform the process and we can now design a full assortment for an individual private brand in about one week. Compared to the traditional multi month design cycle to close Q3 was another clear step forward for Stitch Fix. We delivered revenue and adjusted EBITDA above our outlook, achieved sequential active client growth and continued to execute with the discipline that has been central to our transformation.
This is increasingly showing up in our bottom line as we drive towards net income, profitability. Importantly this performance reflects the deliberate choices we have made over the last several years to strengthen the foundation of the business, enhance how we serve clients, sharpen our focus on higher quality growth, and fully deliver the client centric, highly personalized shopping experience that sets Stitch Fix apart. Technology and innovation has been at the core of Stitch Fix business since day one and as we look ahead we will continue to capitalize on this leadership.
This will enable us to build on our progress even in a more challenging retail environment. Our model is resilient, differentiated and uniquely equipped to navigate macroeconomic uncertainty and a more dynamic consumer backdrop. We are confident in our ability to capture further market share and wallet share and to keep building steadily toward long term, sustainable, profitable growth. I want to thank the entire Stitch Fix team. The results we are seeing are a direct reflection of your focus, dedication and commitment to our clients.
Thank you for the work you do every day. With that, I'll turn it over to David to discuss our financial results and outlook.
David Aufterhaar (Chief Financial Officer)
Thanks Matt and good afternoon everyone. As Matt highlighted, our strategic initiatives are driving clear momentum across our top line and client metrics. From a financial perspective, I'm equally pleased with how those gains translated to our bottom line. Our third quarter results demonstrate our ongoing commitment to operational efficiency which allowed us to exceed our adjusted EBITDA outlook and generate positive cash flow. We are maintaining strong financial discipline to ensure our transformation scales profitably. Now let's turn to the Numbers. Revenue was $340.3 million, up 4.7% year over year, exceeding our outlook. Fix AOV grew 6.4% better than expected and was the primary reason for the outperformance. This was driven by more items per fix and higher aur, reflecting strong demand for larger fixes and our improved assortment.
We ended Q3 with 2.3 million active clients, up 21,000 or nearly 1% sequentially, both women's and men's active clients were up sequentially and men's active clients were up year over year. For the second consecutive quarter, net revenue per active client OR RPAC was $578, up 6.6% year over year, marking the ninth consecutive quarter of year over year growth. We view the continued growth in ARPAC as an important indicator of improving engagement and spend among our clients. It reflects the impact of the work we are doing across assortment, personalization, fixed flexibility and the overall client experience and reinforces the opportunity we see to grow share of wallet over time. As we build the active client base, we continue to deliver strong margins.
Gross margin was 43.7% again above the midpoint of our FY26 range of 43 to 44% while contribution margins remain robust and north of 30% for the ninth straight quarter, advertising was 10.2% of revenue in Q3 in line with our expectations. Q3 adjusted EBITDA came in at $13.2 million or 3.9% margin. We exceeded our guidance due to stronger than expected revenue and disciplined expense management. We ended Q3 with $229.4 million in cash and investments and no debt and we generated $6.5 million of free cash flow in the quarter. Our strong balance sheet and stable cash flows give us the flexibility to sustain our investments in the growth of the business while also returning capital to shareholders when we believe it represents an attractive use of cash.
During the quarter, we bought back 4.5 million shares for $15.1 million under our previously authorized share repurchase program, which leaves $104.9 million in that program. Our decision to repurchase shares reflects our confidence in the progress we are making, the durability of our financial position and our commitment to strategic capital allocation. Inventory at the end of Q3 was $132.2 million, up 15.6% year over year, reflecting investments in our client experience and increased demand for larger fixes. Turning to our outlook for Q4 and FY26 for Q4 we expect total revenue to be between 322 and $327 million. We expect Q4 adjusted EBITDA to be between 7 and $10 million.
As a result, for full year FY26 we are tightening our ranges and raising the midpoints for both revenue and adjusted EBITDA to reflect the resilience we're seeing in existing client engagement. Despite an increasingly challenged consumer environment, we now expect total revenue to be between 1.346 and $1.351 billion. We now expect total adjusted EBITDA for the year to be between 49 and $52 million and we continue to expect to be free cash flow positive for the full year. We still expect full year gross margin to be between 43 to 44% and full year advertising costs to be between 9 to 10% of revenue. As we close out FY26, we are encouraged by the meaningful progress we are making across the business.
Active client trends are improving, AOV growth remains healthy and we expect continued market share gains. Our financial model continues to demonstrate strong margins, disciplined expense management, positive free cash flow and progress towards net income profitability that performance gives us the flexibility to keep investing in the areas we believe can drive durable growth, such as strengthening the client experience, thoughtfully rebuilding our active client base, and advancing the innovation that differentiates Stitch Fix.
We are confident in the path ahead, encouraged by the traction we are building, and committed to delivering further progress in the quarters to come. With that operator, we can open the line for Q and A.
OPERATOR
Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press Star one. Again, we ask that you pick up your handset when asking a question to allow for optimum sound quality and if you are muted locally, please remember to ununmute your device. Please stand by while we compile the Q and a roster. Your first question comes from the line of JSole from UBS.
Your line is open. Please go ahead.
JSole
Great. Hope you can hear me. So very interesting on the AOV trends. Can you double click on those a little bit? I mean you mentioned what's driving it, but it seems like it really outperformed in the quarter. You know, tell us maybe some of the strategies that are really the key to getting, you know, the more units per fixed and some of the other drivers of AOV that you mentioned. Thank you.
Matt Baer (Chief Executive Officer)
Hey Jay, it's Matt here, so appreciate the recognition. We're really proud of the work that we've done to reimagine the client experience and through those efforts we've been able to drive 11 consecutive quarters of average order value gains. There's a few key contributing factors to that. One is the success that we've seen with larger fixes as we've enabled our clients to have fixes six, seven or eight items. We've seen many clients self-select into those larger fixes, helping us capture additional wallet share, better provide head-to-toe outfitting, and ensure that we're able to meet or exceed the needs for several additional use cases.
We also see the success and the average order value of those larger fixes nearly double that of a traditional fix. One of the other factors of the reimagination, the client experience, is the investments that we've made to improve our portfolio of assortment. That's true in both the market brands that we carry as well as the private brands that we develop within the market brands. We brought on several new brands which we've highlighted on prior calls as well as noted in today's prepared remarks, and that's helped us improve our AURs across the board which were up I believe for a Seventh consecutive quarter.
We've also been investing heavily into our private brands, delivering exceptional value and quality across the board. Our clients have continued to take notice there, which has helped us again capture higher average unit retails within our private brand portfolio, while not directly or not impacting average order value. Worth noting that our private brands are also delivering about 500 basis points higher than higher gross margin than the market brands.
JSole
Got it. And maybe Matt, if I can ask you about just the active client, the momentum you've gotten sequentially. I think active, the trend in active client growth improved for the eighth quarter in a row. I guess looking ahead to the fourth quarter, how are client acquisition and retention trends shaping up and what's your level of confidence in being able to maintain the positive sequential momentum?
David Aufterhaar (Chief Financial Officer)
Yeah, Jay, this is David. I can take that. Thanks for the question. First, to your point, we're really encouraged with the results we saw this quarter. It's just one more proof point that that methodical approach that we've been taking to grow active clients. As for Q4, just a reminder that Q1 and Q3 tend to be seasonally stronger quarters for active clients. So Q4 tends to be a seasonally less strong for client acquisition. And that's what we're seeing as we go into Q4.
And so because of that, we actually expect Q4 to be down slightly sequentially, somewhere between about a half a percent to a percent down sequentially. With that said, to your point, we still do expect year over year comps to continue to improve in Q4 as they have the last eight quarters. And because of that work, we continue to be really encouraged by the overall trends that Matt highlighted in the remarks earlier around new, re-engaged and client retention.
And that methodical approach is the one that we will continue to use to make sure that we're rebuilding a healthy and profitable client base. And that continues to be our focus in Q4. And our goal remains to return to that year over year client growth in FY27. And you know, these results and our guides sort of show clear progress towards that.
JSole
Got it. If I can squeeze in one more and I'll pass it on, you know, if you maybe just put your finger on exactly what it was to allow you to raise the adjusted EBITDA guide, you know, especially the lower end of the guide as much as you did, you know what's, what's happening that's allowing you to do that of all the different things that you mentioned.
David Aufterhaar (Chief Financial Officer)
Yeah, certainly, Jay, on the adjusted EBITDA side, I think we've talked about this quite a bit over the last few quarters. We continue to be very, very focused on expense discipline and leverage in the business. And it's something that we continue to focus on this quarter. It's something that we'll continue to focus on in coming quarters. A couple data points like SG&A spend in Q3 was down over 220 basis points from last year and it was down I think more than 800 basis points from two years ago.
And part of that is also SBC expense, which I know is below ebitda, but another area that we continue to focus on. And so I think we just continue to make sure that we are driving financial discipline while still certainly investing in growth. And that's really where we felt comfortable putting ebitda. Where it is from A guide.
Matt Baer (Chief Executive Officer)
Yeah, maybe one additional build on that, Jay. And it was noted in the prepared remarks, we continue to lean in and capitalize on infusing both AI and other initiatives to improve the efficiencies of our operations. We continue to drive leverage throughout our fulfillment network and supply chain. We continue to drive efficiencies and leverage throughout our styling network as well. And all of those improvements are helping us continue to improve our bottom line performance.
OPERATOR
Got it. Okay. Thank you so much. Your next question comes from the line of Owen Rickard from Northland Capital Markets. Please go ahead.
Owen Rickard
Thanks for taking my questions here. First for me, Household Accounts were called out as a growth initiative. How much penetration have you seen there? And what is the RPAC list associated with clients who do adopt that feature?
Matt Baer (Chief Executive Officer)
So hey Owen, it's Matt. So we've been extremely pleased with the adoption of Household Accounts since we rolled that out. That Household Account feature came through the client insights that we gathered a couple of years ago whereby our clients spoke loud and clear that we were offering a superior service that they absolutely loved. But how could we bring that not just for the primary account owner, but such that it could be used for the entire household?
So when we launched that feature, we saw some pretty quick organic adoption. That adoption accelerated and has sustained since we launched and it has made a material impact to the overall improvement in our active client count. And it's something that we're going to continue to lean into, creating awareness and consideration for the feature across the board. And it's something that is now part of our core messaging throughout both our on site experiences as well as through our CRM.
In terms of how we're thinking about it, our goal is to ensure that we're using Household accounts to capture additional wallet share from that entire family. That continues to be a focus for us to ensure that we are the retailer for any and all apparel, accessories and footwear needs for the entire household, such that they never have a reason to waste a day, you know, walking the cavernous store or scrolling endlessly online. They can just use the superior service offering unparalleled convenience to have all of their needs met.
Owen Rickard
Okay, got it. That makes sense. Super helpful. And then lastly for me, maybe, how are you thinking about the balance between fix and Freestyle as the primary growth drivers going forward? And maybe does the mix shift between the two have any meaningful margin implications?
Matt Baer (Chief Executive Officer)
So yeah, Owen, it's Matt again. In terms of fix and Freestyle, one of the important things for us is to show up for the client in the best way possible. However we can best meet their needs, whether that is through a fixed experience or a Freestyle experience. We've continued to lean into and invest in both of those channels and also what we've started to do over the last several quarters is actually break down the barriers between those channels such that a client, for example, could be initiating their shopping journey within Freestyle, but then while in Freestyle, actually use the item that they're shopping for to become the anchor for their next fix and work with their stylist to build an outfit around that item or to provide a few variations of that similar item. So when we're thinking about where that growth is coming from, at the end of the day we're a bit indifferent. What we're looking for is how can we ensure that we continue to drive engagement and capture that wallet share overall for us. David, if there's anything to add in terms of the relative profitability of both, I think, you know, at the end of the day they're pretty similar and we're very comfortable just meeting the client where they are.
Owen Rickard
Great. Super helpful guys. Thanks for taking my questions here.
Dana Telsey
Of course. Owen, your next question comes from the line of Dana Telsey from Telsey Advisory Group. Please go ahead. The revenue per active client, in terms of what you're seeing, where do you see that going difference between brands and private label in terms of what you're seeing and what's the category trends and how do you feel about the state of the consumer? And lastly on advertising, which was flat at I believe 10.2%, how do you think of the trajectory of advertising spend spend moving forward?
Thank you.
Matt Baer (Chief Executive Officer)
Hey Dana, I captured a few questions there. The first is in terms of our revenue per active client success and where we see that trending. The second is in Terms of the performance of private brands versus market brands, which categories we're seeing success with, how we're viewing the consumer, and then finally the current trends in our advertising expense. If I start at the top. We are very encouraged, given what we're seeing in the total market today, for our revenue per active client to continue to set new highs.
For us from a reporting perspective, it is a really strong signal to us that we are delivering an exceptional service and our goal is to continue to drive that metric as much as we can by meeting the client where they are. We feel really confident that the service that we offer is one that can meet our clients needs for nearly all of their use cases for apparel, accessories and footwear. And our goal is to continue to drive towards that. Part of that is by the category expansion that we continue to talk to.
For us to continue to grow in athleisure, for us to continue to grow in accessories, for us to continue to grow in footwear. All three of those growing outsized relative to our total business, all of them north of 18% growth in the last quarter. We feel really confident that we're going to continue to meet our clients needs while also expanding the different use cases that we can serve them, which gives us a line of sight to future revenue per active client growth and future wallet share gains.
David Aufterhaar (Chief Financial Officer)
In terms of market brands and private brands, we're seeing success in both. As we've talked about previously, we're going to be very client led in this pursuit. For us it's really important to have the market brands that our clients covet. It's very important for us to have market brands to fill white space where our private brands don't have assortment. Today it's very important for us to have the leading brands for certain categories and certain use cases where market brands is a reason to purchase for our clients.
And it's also a really critical signal for us to ensure that our clients understand that we are the leader when it comes to style and trend. From a private brand perspective, the team has done a phenomenal job over the last couple of years increasing the quality and value of the private brands that we offer. And our clients have absolutely taken notice. The awareness, the consideration and demand for those brands continues to increase. And that's why we were excited to highlight just the success that we're having with our private brands, some of which are growing now over 100% year over year.
Something that we take a tremendous amount of pride in in terms of where we see the consumer today. We're really encouraged about the resilience of the Stitch Fix client the Stitch Fix client continues to show up and in a really encouraging fashion, the Stitch Fix client at every single income cohort that we track continues to show up. Equally, we see the same levels, nearly the same levels of revenue growth, no matter the household income of our clients.
And we believe that's because of our ability to personalize the experience to each client no matter what is going on with their budget in any given time. Our assortment allows us to serve a significant breadth of different price points such that if there is a budget constraint at any given time, we're able to meet that client where they are. And we also have the resilience of our business model that is something based on the recurring nature of that business model.
Our product and the relationship that we have with our clients continues to show up for them and is top of mind for them. So that even if they are, say, reducing a shopping trip or a shopping journey, the relationship that they have with us and that deep and enduring relationship that they've built with their stylist and is one that transcends whatever macro impact that client might be having and we are able to capture the remaining wallet share that they have.
David, I'll let you touch on the advertising. Yeah, Dana, on the advertising, I think we've talked about this before of just strength from a seasonality perspective. And certainly this quarter is one of those quarters and we were really comfortable with spending at the high end of the range. I think we'd actually said that in our last call that we expected to spend sort of at the high end of our range. And certainly we're seeing strength across each area of active clients.
New client acquisition was up again, certainly quarter over quarter, but also year over year. Reengaged clients are still incredibly healthy and a great avenue for us to bring clients back into the experience. And client retention continues to look better. And so because of that, certainly marketing plays a big part in that and we're really comfortable with those levels of investments and continuing to spend. Right now, our expectation is to still spend within that 9% to 10% range.
Dana Telsey
Thank you.
OPERATOR
Your next question comes from the line of David Bellinger from Mizuho securities usa. Please go ahead.
David Bellinger
Hey everyone, thanks for the question. I want to go back to the consumer comments you were just making. You mentioned a few times in the prepared remarks some of this increasingly dynamic spending backdrop. Can you walk us through the cadence of this quarter and anything on quarter to date that's changed or this has shown up in the business? And does this have to do anything with this sequential contraction that we're looking for in fiscal Q4.
David Aufterhaar (Chief Financial Officer)
Yeah, David, a couple things. A couple things there in Q3, certainly, you know, really happy with the performance. If you're talking about sort of the progression through the quarter, you know, it was. It was definitely interesting. We probably had a little bit of a slower start to the quarter, and that was around average order value that we were talking about earlier in the call. And then it really rebounded mid quarter and so really saw some strength as we exited the quarter.
And, you know, we expect that strength to continue in Q4. You know, we had already had an assumption. I think we Talked about this 4 to 6% increase in AOV in the back half of the year. We had expected Q3 to be at the lower end of that range and Q4 to be at the higher end of that range. And so because of that, you know, that that's why our guide stayed consistent for Q4, because we already had baked in a higher AOV for Q4. And so just really encouraged with those trends.
And going into Q4, you know, we continue to see resilience with our existing clients. You know, if there's any macro headwind, we're maybe seeing a little bit of an increase in client acquisition costs from a marketing standpoint, we're seeing that across the industry. But what's really interesting, and I think it goes back to what Matt was saying, is our existing clients remain incredibly resilient. And that's true across all of our income cohorts..
And so, you know, really encouraged by that. And we see that continuing in Q4, and all of that is included in our guide.
David Bellinger
Understood. Thanks for all that. And then going forward, thinking about SG&A dollars, the last few quarters have been in this $150 million or so range. As the business gets back to growth mode, is there anything we should think about that should come into that base or some type of incremental uplift in SGA dollars as the business returns to growth? Thank you.
OPERATOR
Yeah, David, thanks for the question for SG&A. I think it goes back. I think we touched on this a little bit earlier, but we have been really focused on driving leverage actually across the entire P&L, certainly in gross margin, but then below gross margin. To your point, SG&A, a big part of that is our variable labor teams, our warehouse teams, our stylus teams, and driven a lot of leverage there. And so even over the last year, SGA spend has come down 220 basis points.
And so we continue to really make sure that we are driving that leverage. And sbc, I think, is something we've called out in the past as well. That's a big part of the total SGA spend. And SBC was at 3.3% of revenue this quarter. That's down 100 basis points. And so just across each one of the areas of SG&A, we want to make sure that we are investing appropriately for growth, but that we continue to drive leverage. And we don't see any significant investment needs to turn that in the other direction.
We just want to make sure we're still driving leverage in the P and L. Your next question comes from the line of Anisha Sherman from Bernstein. Please go ahead.
Anisha Sherman
Thank you and congrats on a great quarter. So, David, I want to follow up on your comments on the prior question. It sounds like you're saying that you ended Q3 at a high point in terms of revenue growth relative to the first half of Q3. So I would imagine above the quarter's average of of 4.7%. What does that imply for the current trend? Are you running ahead of the kind of Q4 guide or at the top of the Q4 guidance range at the moment? And do you expect it to decelerate a little bit through the quarter to get through to that 3.5% to 5% guidance range? And then related to that AOV, your compares get a little tougher in Q4. Are you seeing or expecting any moderation or flattening out of the aov growth in Q4 as those compares get a bit tougher?
David Aufterhaar (Chief Financial Officer)
Yeah, thanks for the question, Anisha. On the trends, definitely what we called out holds in Q3. We were definitely a little bit slow at the beginning of the quarter and then rebounded for Q4? I think we see something similar where there's a little bit of slower start to the quarter from an AOV perspective and then it's already starting to come back. And so we see a little bit of the same for AOV in Q4, though we had already assumed that it was going to be 6% year over year and so still really comfortable with the AOV compares in Q4.
It was just in Q3 we got there faster than we had expected in being able to rebound to be able to land just above 6% for the quarter in Q3. And that's one of the reasons why we didn't necessarily play forward the beat is because we already had the strength included in Our guide for Q4 last quarter.
Anisha Sherman
Okay, that makes a lot of sense. And then if I can ask one follow up on your client new client LTVs. Beyond the family accounts that are obviously helping there, is there any particular other mix shift in terms of demographics amongst those new clients that's driving higher LTVs that you're seeing in your mix?
Matt Baer (Chief Executive Officer)
Hey, Anisha, it's Matt. I'll take that question first. Just a point of clarification. Within our household accounts, we treat each of those accounts separately. So from an LTV perspective, while we're really encouraged by the results we're seeing in household accounts, the growth we've seen in new client ltvs is actually independent of that. So for us to have effectively doubled our new client LTVs from where they were just three years ago, that's really the aggregate impact of everything that we have done to improve both the experience and our assortment.
Part of that is the larger fixes that we offer. Part of that is the continued improvements in our assortment. Part of that is all of the continued investments that we're making into our engagement mechanisms, from Stitch Fix Vision to our AI style assistant to our Stylus Connect platform. And as we continue to create more opportunities for us to engage our clients, as we continue to create services that uplevel the experience for our clients, we're continuing to see that increase in spend for each of the new clients that we acquire.
In terms of who's coming into this service, our marketing team continues to do a really good job getting more and more focused and methodical in terms of who we're targeting, such that we are bringing in clients that have a clear resonance for the service that we offer and also finding very specific client segments like we've discussed before that we believe will be able to serve at an exceptional level. A great example of that is the success that we've had targeting clients that are likely on a GLP-1 medication and going through a body transformation.
We're able to follow them all the way through the funnel from prospective marketing that explains to them why this service is one that will help them ensure they have all of their apparel needs met. As their body is transforming, they come into a landing page that really helps explain again why this service is right for them. And then their stylist can work for them to meet their needs at each stage of the body transformation journey that they're going through.
And, and we have lots of different segments that we're able to focus on similar to that, as well as ensuring that the clients that we bring in we just continue to serve at a really high level overall.
Anisha Sherman
Thank you.
OPERATOR
Of course, at this time. There are no further questions. I would now like to turn the call back to Matt Baer for closing remarks.
Matt Baer (Chief Executive Officer)
Okay. Thank you. So, to close, I just want to reiterate how proud I am of the team overall. The progress that we've delivered this quarter and the success that we've been able to drive throughout the entirety of this transformation. We're building a healthier and more durable client base. We continue to strengthen our assortment. We're deepening the engagement levels with our clients, and we continue to prove that Stitch Fix can deliver a more personal, a more convenient, and a more inspiring way to shop.
I'm excited. The progress continues to show up across multiple dimensions of the business. We're growing our revenue. We're improving our active client trends, we're gaining market share, and we're doing all of this while maintaining the financial discipline that has been central to the transformation. That includes the robust margins that we're delivering, our positive free cash flow, the strategic capital allocation that David discussed, and the progress towards net income profitability At Stitch Fix.
We're operating from a position of strength, and I'm confident in our ability to continue to do so. I appreciate your interest in our business, and I look forward to sharing our continued progress in the future. Thank you.
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