Kunal Madhukar: Hi. Thanks. Thanks for taking my question. A few, if I could. One is on the inventory side. So, I go back to Q3 €˜22 earnings call, where you talked about the supply chain and the improvements that you have made. And I am literally reading from the transcript. One of the big benefits of our business we can make adjustments pretty rapidly, especially given the nature of how many goods we are actually in control of directly? And I compare that to what you said earlier in this call today is the inventory was higher because of long lead time. So, can you help us understand exactly what’s happening with the inventory? Are you in control of the supply chain? Are you not can you rapidly flex up and down? That will be the first.
Dan Jedda: So, let me just explain. First of all, from order placement to receipt of inventory for a lot of our products, especially, of course, our exclusive brand product, which is made to order is about a six-month lead time. So, there are other areas, specifically within national brands and other areas that we can flex up or down in, but we have a fairly sizable exclusive product. And those are pretty long lead times. Actually, they are probably even longer than six months. So, what I was referring to in why our inventory was €“ is higher now is because we had placed those orders when we had a different demand trajectory six months to nine months ago. We have since adjusted, which is why we expect inventory to go down in Q2 and then continue to go down throughout the rest of the fiscal year.
That said, where there are pockets of opportunity, we absolutely can chase into that demand depending on where it is, and we do that fairly well. But we do have these slightly longer lead times for exclusive and our €“ well, our exclusive product.
Kunal Madhukar: Got it. Thanks. Second one would be, you have guided to 5% to 6% of some advertising cost of like 5% to 6%. That is significantly below anything that you did pre-COVID. And you were extremely disciplined even then. But what that means is, this quarter, your advertising spend was down 19% year-over-year when sales were down 22% year-over-year. For the rest of the year, you are guiding to sales being down 20% in each of the following quarters, but the advertising spread will be down about 50% in each of the quarters. So, what gives us the confidence that sales should not be even lower than the guide right now?
Elizabeth Spaulding: Yes. Kunal. I can start on that, and Dan feel free to add on. I mean first of all, I think we have always been very disciplined about how we manage our marketing spend and I think we both touched on that to some extent on the call. We are opting to be even more rigorous in the time period of payback than we typically are just in the spirit of the macro backdrop, this uncertain time and really ensuring that we have very near-term ROI on our marketing spend. A certain portion of our revenue, to be clear, comes from subsequent sales of existing clients that we are marketing to through channels like CRM and engaging them to come back in. But it’s not as much as the result of our paid spend. So, our growth rate is in part due by new customer acquisitions, but it’s also in part based on the installed base of our customers that are on auto ship and subsequent sales.
So, I don’t think you should expect to see a perfectly one-to-one correlation with that downshift in marketing spend relative to our revenue rate. I would say overall in terms of is that a permanent shift or not, I think we got that question earlier. We are going to measure as we always do, day-to-day, week-to-week and make adjustments accordingly. And some of the new areas that we have been leaning into that are underpenetrated for Stitch Fix, SEO, SEM, influencer affiliate as we start to see goodness there, we will begin to scale those. So, of course, that number may change over time. But I would say net-net, the delta between those two rates is that part of the growth rate as an installed base and part of the growth rate is new customer acquisition.
Kunal Madhukar: Got it. Thanks. And one last one, if I could. And this is with regard to the comment around keep rates and we are flat, but we see stretching frequencies. So, is that €“ can you give us a sense of like how the frequency is stretching? And could that stretch into once every 6 months or once every 12 months in order to further push the fixes into maybe next year kind of thing?
Elizabeth Spaulding: Yes. I can start on that. Our clients aren’t all university €“ universally like every three months. We have a mix of cohorts, some of which you get fixes every six weeks, some of which are every three months, some of which are biannual. It’s more that €“ and then a certain amount of our clients are what we call manual. They are episodically ordering fixes and they tend to occur at a certain frequency. I would say a few things are probably driving that stretching out. One is a little bit of stretching across all of those cohorts. So, it’s not like everyone is going from three to six. Somebody might have been six weeks and maybe they are skipping a shipment and then going back to that six-week cadence.
It also €“ as we have slowed down the new ad cohorts, they tend to have some of the higher frequencies. And so some of the stretching is also a result of the mix shift of our client base in terms of the cohort age. But I think our goal is really overall on just continuing to be meeting the moment for our clients, helping their dollars go further with things like what I was describing with outfits being incredibly effective at how we are listening. And frankly, just having the right assortment. One thing we have seen is that we have sort of a sweet spot of where we have seen very strong velocity with price points under $100 blazer sort of contemporary apparel and women’s at the $150 price point. So, just really making sure we are meeting them with what they are looking for, regardless if they are extending a little bit or at the same frequency that they have been with us over time.
Kunal Madhukar: Got it. Thank you so much.
Elizabeth Spaulding: Thanks Kunal.
Operator: Thank you. And our next question comes from the line of Trevor Young with Barclays.
Trevor Young: Great. Thanks. Just first on the increase in the cost reduction target to 1.35. Do you expect to realize all of that in €˜23 since most of that is advertising. And then within that, how much is really advertising and durable versus just more kind of near-term pulling back given the current environment?
Elizabeth Spaulding: Yes. Thanks Trevor. I can start, but I definitely would love Dan to chime in here. As we said in prior quarters, we had that $40 million to $60 million, we shared that we were tracking to that and likely to go beyond it. Now, this increase to 1.35, a meaningful chunk of that is, in fact, advertising dollars together with fixed and variable productivity. In terms of when we will see it realized. Dan, do you want to just share more on that?
