Stitch Fix (SFIX) Q2 2023 Earnings Call Transcript

Stitch Fix (SFIX -2.44%)
Q2 2023 Earnings Call
Mar 07, 2023, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the second-quarter fiscal year 2023 Stitch Fix earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session.

[Operator instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Hayden Blair.

Hayden Blair -- Investor Relations and Treasury

Good afternoon, and thank you for joining us today to discuss the results for Stitch Fix's second quarter of fiscal year 2023. Joining me on the call today are Katrina Lake, interim CEO of Stitch Fix; and Dan Jedda, CFO. Also joining us on today's call is David Aufderhaar. We have posted complete second quarter 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 annual report on Form 10-K for our fiscal year 2022, previously filed with the SEC, and the quarterly report on Form 10-Q for our second quarter of fiscal year 2023, which we expect to be filed tomorrow. 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. With that, I will turn the call over to Katrina.

Katrina Lake -- Chief Executive Officer & Director

Thanks, Hayden. Twelve years ago, I was inspired by a very simple human problem: to help people look and feel their best. Now, as I find myself back as interim CEO, this simple mission feels more resonant than ever. I'm proud of the ways that we've made our mission a reality but also motivated by the opportunity ahead.

We're still in the early days of transforming the industry of apparel, and I feel optimistic that Stitch Fix can continue to lead the way in personalization and achieve greater impact in the years to come. While many companies may be starting to define an AI strategy, our company was built on data science from day one. We have built technology and systems that leverage the best elements of human stylists, combined with machine learning, and the billions of proprietary data points that we have around client and product interactions are rich, meaningful data sets that predict outcomes and help us to understand what clients need. At the same time, I realize we haven't met recent expectations.

Driving toward an ambitious vision has resulted in a loss of focus. We must now, more than ever, deliver on the client experience, bring focus in our marketing efforts, and drive results for our shareholders. We have clarity on our path long term and short term. Long term, I continue to have great conviction that the market opportunity for a more personalized way to buy apparel is large and growing, and that we have a significant advantage rooted in our decade of experience and leveraging data to deliver personalization at scale.

Shorter term, we also have clarity. We need to get back to a position of execution and profitability. We have a history of achieving both in the past, and I'm confident we will get there again. There were two major events in fiscal second quarter intended to help reposition and refocus the company to set ourselves up to optimize for liquidity and profitability in the short term and maximize our long-term growth potential.

First we restructured our operating model and made the difficult decisions to reduce our headcount by 20% of salaried positions and to shutter operations in our Salt Lake City warehouse. Late last year, we began analyzing the team and determined to restructure the organization in an effort to create a leaner operating model. This also allows us an opportunity to reorganize and refocus to more nimbly execute. These decisions are never easy, but we know it was the right decision to achieve our goals of liquidity and profitability and for the overall health of the business.

And second, we are conducting the search for a permanent CEO. The board and I realized that the macroeconomic environment, competitive landscape, and even our own business has changed meaningfully over the past few years. And we are excited to find the right leader for the present and future of Stitch Fix. I'm encouraged by the process thus far.

and I'm confident that we can find an inspiring person to lead the Stitch Fix team and help reestablish the track record of results we were once known for. In addition, we shared in our press release this afternoon that Dan Jedda will be stepping down as CFO to pursue a new opportunity. The board and I want to thank Dan for his service to Stitch Fix and wish him well for the future. David Aufderhaar, our SVP of Finance, will succeed him as CFO.

David joined us four years ago with an eye toward CFO succession. And working together these many years, I have been impressed and inspired by his depth of partnership with the functional leaders at Stitch Fix, his deep commitment to and understanding of our business and our team. He's a thoughtful and trusted leader, and I'm excited for him to step into the CFO role. Now, on to the financials in the quarter.

Fiscal second-quarter revenue came in at 412.1 million, which was at the lower end of the provided range. Despite this, we delivered adjusted EBITDA of 3.8 million, which was at the high end of our guidance range due to effective cost controls and our corporate restructuring. Dan will dive more into the financials later on. But before handing it over, I want to touch on topics in marketing and our products that demonstrate how the company is rallying around bringing focus and clarity to better deliver results for our clients and shareholders.

Consistent with the broader company, our marketing strategy aims to preserve liquidity and achieve profitability, while simultaneously attracting long-term customers to to fuel a return to growth. This will be the case as we continue to refine our traditional paid channels, as well as diversify into under penetrated channels we have yet to scale. We are also continuing to lean into client retention and reengagement strategies in an effort to continue to increase engagement and optimize our CPAs. It's worth highlighting that our CPAs were down over 40% from a year ago, which shows, despite a significant reduction in overall budget, we are gaining traction in more effectively deploying our marketing dollars.

Overall, we know these are the right things to focus on. And when combined with our efforts to maximize the client experience and improve retention, should maximize ROI in the short term and set the stage for a return to growth. Moving on to the client experience. A complicated macroeconomic environment and tighter client wallet make it more critical than ever to reexamine and bring focus to our client experience.

The ambitious vision we embraced for the past many months has resulted in a client experience that is less focused on our core areas of differentiation. And we believe that there is opportunity to drive long-term value by being really deliberate and targeted about the role of features and functionalities in the Stitch Fix ecosystem. As an example, we've recently refined our point of view on fixed preview. Although at the highest level, fixed preview has demonstrated a positive impact on AOVs.

Digging into the data, we see a more nuanced story. There absolutely are clients who significantly benefit from fixed preview, but there are also clients for whom showing a preview actually increases cancellation. Acting on this data, we found an opportunity to drive better outcomes and LTV by experimenting with eliminating the preview for some clients, allowing those clients to enjoy the surprise and delight that we know those clients value while allowing other clients to benefit from the agency of fixed preview. I share this example of letting data drive our decisions and providing more intention and focus in the client experience.

I anticipate there are many similar opportunities as we dig into the data and the experience, and we believe these strategies will drive LTV, enabling us to optimize cash flow and profitability in the short term while positioning ourselves for an eventual return to growth. Before I turn it over to Dan, I want to thank the entire team at Stitch Fix. We talk internally about celebrating Stitch Fix grit as one of our core operating tenants, and I've been inspired by the grit I've experienced day in and day out from the team these past few months. I continue to be inspired by the passion I see to deliver value for our clients and our business and to make our company a fantastic place to work.

Our continued focus and data-driven decision making are paving the way for a bright future for Stitch Fix. I believe we are on the right track to get there, and I look forward to continuing the journey with you all. With that, I'll turn it over to Dan.

Dan Jedda -- Interim Chief Executive Officer

Thank you, Katrina. And hello to everyone on the call. Before jumping in. I want to thank Katrina and the Stitch Fix Board for this opportunity and congratulate David on his new role.

David and I have enjoyed a positive and productive working relationship during my tenure, and I am confident he is the right person to lead the team. David and I will be working together over the next several weeks to ensure orderly transition. Onto our Q2 results. Q2 net revenue declined 20% year over year to 412.1 million due to lower net active clients and higher promotional activity in the quarter.

Net active clients in the quarter declined 11% year over year to approximately 3.6 million. As Katrina mentioned earlier, we have continued to diversify our marketing channel while ensuring we realize positive near-term ROI on advertising spend. Total advertising spend in the quarter was 5% of net revenue and down 46% year over year. We like the trends we are seeing in overall CPAs.

Even with the lower spend in advertising, we did see positive year over year in gross client ads in men's in Q2. And while women's and kids' gross ads were down year over year, our rates are improving in both lines of business. We do continue to see elevated levels of inactive clients and continue to focus on improving this with the right client experience. We expect advertising to be 6% to 7% of net revenue for the rest of the year, though we'll continue to be opportunistic if we experience the right ROI and lean in where appropriate.

Revenue per active client declined 6% year over year to $516. While our overall average order value is holding relatively steady year over year, similar to Q1, our analysis continues to show that all client cohorts are spending less than in prior years. We expect this trend to continue through the rest of FY '23. Q2 gross margin came in at 41%, down 400 basis points year over year, driven primarily by lower product margins due to increased promotional activity and higher product cost.

Total transportation costs were also up year over year due to increased carrier rates. Sequentially, gross margin was down approximately 100 basis points from Q1 due mostly to increased promotional activity. We expect gross margins to be around 42% for the remainder of the fiscal year and are actively focused on improving gross margins as we see opportunities to improve product margin, transportation efficiency, and inventory efficiency over time. Q2 adjusted EBITDA came in at 3.8 million, reflecting our ongoing cost control efforts, including a reduction in force and the closure of our Salt Lake City warehouse.

The adjusted EBITDA excludes 34.7 million of restructuring and one-time costs. Net inventory ended the quarter at 159 million, down 28% quarter over quarter and down 13% year over year. Free cash flow for the quarter was positive 15.4 million, our first quarter of positive free cash flow since Q1 of FY '22. And we ended the quarter with 224 million in cash, cash equivalents, and highly rated securities.

In summary on our cost structure, with the execution of our restructuring actions and our reduced advertising levels, we have now executed against all the actions needed to realize 135 million of cost reduction targets for FY '23. Additionally, we shipped our last fix from the Salt Lake City distribution center at the end of January, and we have distributed the inventory across the remaining fulfillment centers in our network. We will begin to see cost savings from the closure in Q4. Our goal remains to achieve positive adjusted EBITDA and free cash flow in the short term, while continuing to position ourselves for profitable growth in the future.

And we believe we are well on our way to achieving these goals. Now, on to our outlook. For the remainder of the fiscal year, we expect to continue to face a challenge in a highly promotional operating environment. With that said, we are leaning into our areas of differentiation and focusing on managing the things within our control.

We will continue to responsibly manage our cost structure with the goal of staying adjusted EBITDA and free cash flow positive for the remainder of the year. For our fiscal Q3, we anticipate revenue to be between 385 million and 395 million. We expect adjusted EBITDA for the quarter to be between negative 5 million and positive 5 million, largely reflecting increased seasonal advertising spend as we continue into the spring/summer season where CPAs are generally more efficient. For the full-year FY '23, we now expect revenue to be between 1.625 billion and 1.645 billion.

We expect adjusted EBITDA for the year to be between breakeven to positive 10 million. Going forward, we remain relentlessly focused on liquidity and profitability. The improvements we have made in our cost structure will allow us to invest in growth as we continue to focus on improving our client experience. And over time, we expect the improved client experience will enable us to grow our net actives revenue and free cash flow.

With that, I'll turn the call over to the operator for Q&A.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from Youssef Squali with Truist. You may proceed.

Youssef Squali -- Truist Securities -- Analyst

Great. Thank you very much. Hi, guys. A couple of questions.

Good to hear from you, Katrina, again. So, the first question may be for Katrina. Can you just speak at a high level about how you see -- I mean, you talked earlier about you, on the one hand, you've had a lot of focus. On the other, you have clarity on the path forward.

One, maybe -- can you just expand a little more about what -- you know, pinpoint the two or three areas where you felt the -- Stitch Fix had lost its focus? And then, maybe, you know, kind of what gives you the confidence that that you are back on -- on the path that should ultimately get you to growth? And then, maybe, can you double-click a little bit on your EBITDA margin guide of negative five to positive five? And just help us about how you get there. Obviously, I think you said gross margin should be around 42%, which really only leaves, you know, advertising, sales and marketing, G&A as the other components. So, maybe just provide a little more color on where you see those for the second half of the year. That would be very helpful.

Thank you, both.

Katrina Lake -- Chief Executive Officer & Director

Great. Thanks, Youssef. It's good to be back. I'll answer your first question, and then I will have Dan weigh in on the second around EBITDA margin.

Kind of the focus and clarity, I think there's innumerable examples that I could bring. I think just at a very high level as we thought about expanding the business in a very ambitious way. We took a marketing approach that probably tried to bring people in through a variety of different customer segments. And very notably, we spent marketing dollars trying to bring people into a freestyle first experience as an example.

So, that's a place where not only did we find that that marketing of freestyle first wasn't as effective as what we had done historically in fixes, but it also actually made it harder for us to be able to be acquiring people into the fixed channel. And so, that's, I think, one example of how that comes to life. Another one is around inventory. We definitely built up an inventory in anticipation of a freestyle customer that was a different set of inventory than fixes and also more unknown.

It was a customer we hadn't served before. It was a channel we hadn't served before, and so, there was more risk in the inventory. And going forward, we can use our 10-plus years of historical data to really be able to buy with confidence on the inventory side. And that's another good example of focus.

And the customer experience as well, I mentioned -- I mentioned us looking at preview as an example. And I think there are still other places where we can really kind of clean up the customer experience so that we're really maximizing value for the client and value for the shareholder at the same time. In terms of confidence back to growth, I think there's a lot of places where I think all of those places are areas where, you know, the inventory front, I think we can feel confident looking at what we're doing going ahead from now. And on the marketing front, I think we have near-term results that show that things are working.

When Dan referenced that we saw customer acquisition costs down by 40% compared to last year, and to me, that's a great example of how focus is kind of creating value in the business today. And I think we feel really confident that it's creating value in the business long term. Dan, you want to talk about EBITDA.

Dan Jedda -- Interim Chief Executive Officer

Yeah. Hi, Youssef. On the on the EBITDA guide, the negative five to positive five, again, I think we've provided, obviously, revenue and gross margin. And we also provided that 6% to 7% advertising number for Q3.

You know, we're going to be on the higher end of that 6% to 7%, simply because as we enter our spring/summer season, it's a very efficient quarter for us. We talked to -- Katrina talked about it, and we're very focused on the efficiencies within our marketing channel. And we just feel as we exited Q2 and go into Q3, we like what we're seeing. And so, think of the Q3 as the higher end of that 6% to 7%.

That leaves us, of course, with SG&A, excluding advertising, on a run-rate basis after our restructuring, that gets you to that negative 5 million to positive 5 million. Of course, if we're not seeing the efficiencies, we won't spend the advertising dollars. So, we feel pretty good about the guidance and, of course, the level of spend that we're now targeting for advertising.

Youssef Squali -- Truist Securities -- Analyst

And just to be clear, that $34 million that I think you mentioned in one-time restructuring costs and other, that hit the SG&A and expense line of 187 in Q2?

Dan Jedda -- Interim Chief Executive Officer

It did.

Youssef Squali -- Truist Securities -- Analyst

OK. All right. That makes sense now. Thank you very much.

Operator

Thank you. Our next question comes from Simeon Siegel with BMO Capital Markets. You may proceed.

Unknown speaker

Hi. This is Gerrick calling on for Simeon. Thanks for taking our question today. Just noticing in the press release you guys noticed going back to more of a stylus-focused approach, is that kind of a de-emphasis maybe a little bit from kind of freestyle? Katrina, you just mentioned getting inventories right from within the freestyle versus the fixed business, understanding how those are different.

I'm just curious how you guys are thinking about that business going forward and how you're planning to kind of how to work around some of -- some of the challenges maybe you've had there.

Katrina Lake -- Chief Executive Officer & Director

Yeah, Thanks, Gerrick. It's a good question. You know, I think what we're -- there's no question that freestyle adds value in ways that fixes didn't. And so, I think the most clear way that we think about that is looking at the assortment data.

We've shared in calls historically that we're seeing a different assortment being bought in freestyle than fixes. We're seeing more outerwear, shoes, accessories. And so, that says to us that this is helping to fill a different need for our clients. That being said, as I mentioned in the last question, I think the -- using freestyle as a customer acquisition vehicle as an example, that was last effective.

And so, what we're really trying to do is to say what are our areas of differentiation. And personalization, styling are really at the core of that, especially if you think about our kind of competitive positioning relative to others. Those are spaces that we really uniquely own. And so, as we think about what is the customer experience that best delivers against personalization, against styling, I think freestyle can be a component of that.

But we're probably thinking of it more as one ecosystem that has a more clear customer journey, rather than thinking them as kind of separate business unit.

Unknown speaker

Great. Appreciate that. And just as a quick follow-up. Looking at the 42% guidance for gross margin for the remainder of the year, and, Dan, your comments on how the difference from 1Q to 2Q is about 100 bps of markdown pressure, are you guys seeing kind of a return to markdown levels where you were going back a few quarters? I'm just curious how you're planning about markdown pressure for kind of the back half of the year and kind of what you're seeing more broadly within your customers and their ability and their willingness to shop on kind of more of a full-price level compared to kind of a discounted one.

Dan Jedda -- Interim Chief Executive Officer

Yeah. You know, the way we approach, we've talked about this in the past. And thanks for the question. The way we've approached markdown is really focused on where we think we have excess or the wrong inventory and using our freestyle channel to move that inventory.

And we've seen success in that as opposed to the option of of selling it out to a third-party liquidator. And so, we've seen success in that, and we we will continue to utilize that. Although, as you can see from our inventory levels now, we've come down considerably, and we feel we've rightsized our inventory. We feel very good about the inventory position that we're in now in terms of total dollars.

We still have some buckets to work through. And so, we are using the freestyle channel for that. And in the fixed channel, we are not we are not discounting a lot. We simply aren't doing that.

Clients love with the styling service that we give them, and we have not seen the need to discount in the fixed business. And we don't anticipate doing that going forward.

Unknown speaker

Great. Thank you both.

Operator

Thank you. Our next question comes from Mark Altschwager with Baird. You may proceed.

Amy Teske -- Robert W. Baird and Company -- Analyst

Hi. This is Amy Teske on for Mark. Thanks for taking our question. On the inventory point, as you've worked down inventory and pulled back on your receipts, what is your level of comfort that you now have the right type of inventory? So, how do you think about the composition of your inventory between casual and dressy styles and product categories? Thank you.

Dan Jedda -- Interim Chief Executive Officer

Yeah. I'll take that one. That's a great question, Amy, and thanks for asking it. First of all, you know, we had talked about inventory in our Q4, again in our Q1 results, and how we had a lot of inventory, and we simply needed to work it down.

And we've done that. And a lot of that, of course, was was getting rid of excess inventory and/or the wrong styles or brands of inventory. We're in a much better position now. As I mentioned, we still have a little bit of work to do on on the inventory that is going to be short term, and that's included in our guidance going forward.

But we feel really good about the brands that we're targeting and with a big focus on our exclusive brands, which are trending very well for us. And, in fact, I'll just share that we did notice in January where we were soft on some of our exclusive brands on -- our customers told us they wanted that, and we quickly pivoted. And where we were short on inventory, we chased back into it. And that's a great sign for us that our customers love our exclusive and our Stitch Fix-only brands that we're selling.

And so, we're going to continue to focus on that in the very near term as we get into spring/summer and then as we get back into fall/winter a year from now.

Operator

Thank you. Our next question comes from Ed Yruma with Piper Sandler. You may proceed.

Ed Yruma -- Piper Sandler -- Analyst

Hey, thanks so much for taking my question. Welcome back, Kat. I guess just a bigger-picture question. You guys were really known for personalization.

You've talked about this a lot today. Can you talk about competitive gap. Do you think that your competitors have gotten better since the inception of your business? And maybe, Kat, if you have any observations of things that have changed adversely since you left and have come back and you're looking to rectify quickly, we'd appreciate that. Thank you.

Katrina Lake -- Chief Executive Officer & Director

Thank you, Ed. I think I got your question here. So, in terms of just more of the competitive gap, you know, honestly, I -- I feel really strong about our capabilities. And we've been able to be in this business for 10-plus years with a history of profitability, with a history of being able to deliver cash flows.

And and, you know, there's not a lot in the competitive set that are able to claim the same thing. And so, this focus that we've had around data science, the focus that we've had around personalization, I strongly believe that we continue to lead on that front. And and I feel just as good, if not better about that coming back into the role. In terms of things that -- I think your question was more of just like what has adversely changed.

I think -- I spoke to it on the call, but I really do think it's focus. You know, I do think hindsight is 2020. And I think we had some really ambitious visions that that we were chasing after. And with kind of chasing an ambitious big vision came kind of reduction of focus on what I would consider our core differentiators, which are really around personalization and the styling.

And so, I think a lot of what we've been talking about internally is just how can we make sure that everything that we are doing with our valuable resources and time are really focusing against delivering that for our clients and, ultimately, our shareholders -- being able to deliver an experience that feels personalized for all of our clients and making sure that everything that we invest in achieve that goal.

Ed Yruma -- Piper Sandler -- Analyst

Thank you.

Katrina Lake -- Chief Executive Officer & Director

Thanks, Ed.

Operator

Thank you. Our next question comes from Trevor Young with Barclays. You may proceed.

Trevor Young -- Barclays -- Analyst

Great. Thanks. First one, Katrina, just on the testing of discontinuing the fixed preview. Are you getting any sort of signal that keep rates are eroding in those circumstances? And then, more broadly, big-picture, do you feel like the cost base is in a good place now to set the stage for recovery in some future quarter after we go through kind of the reset on -- you know, on core fixes here? Or is there some work to be done and maybe even some reinvestment to be done on the tech side to get that into a better place? Just any thoughts on that would be appreciated.

Katrina Lake -- Chief Executive Officer & Director

Great. Thanks. Thanks for the question, Trevor. I'll take the first one and have Dan talk more about the cost basis.

On fixed preview, I mean, one way to really think about it is to try to maximize the ROI and LTV of a given cohort. And so, as we do some segmentation, we can see at a high level that, overall, we saw AOVs go up with the ability to have access to fixed preview. But once you dig in, there's going to be some cohorts where we see people more likely to cancel when they see a fixed preview. And so, what we're really trying to optimize for are those LTVs.

And so, we I think what we're able to do is to fine tune, I guess, a little bit more at a more personalized level of where we're going to be deploying fixed preview to be able to maintain that benefit that you mentioned to keep rate in AOV for the populations for whom we know that that will occur, while at the same time, reducing cancellations and making sure that we are retaining and engaging clients best in all of our cohorts by -- by eliminating fixed preview from those who we don't think will benefit from it. And I would say also from a customer-survey perspective, like one of the things that we hear is that one of the real benefits of Stitch Fix is is surprise and delight. And so, to be able to -- for some clients, you know, you can think of it as a lack of agency, but you can also think of it as actually allowing people to have that surprise and delight. You know, somebody said to me, which I love this quote, of like, as an adult, you just don't get a whole lot of good surprises in your life.

And Stitch Fix can be one of those. And so, we know there are clients who really, really value that. And actually being able to continue and maintain that for those clients is valuable and LTV-positive for those clients. Dan, do you want to answer the question on the cost basis?

Dan Jedda -- Interim Chief Executive Officer

Yeah. And on the total cost, when you look at where we ended Q2 and adjusted for restructuring, we're back to fiscal 2019 SG&A excluding SPC. And we feel very good about that and -- going forward. And there's still more efficiencies to have.

In my prepared remarks, you heard us talk about gross margin and the opportunities that we see there. There's also -- there's further opportunity on our footprint to better monetize that as we reduce our corporate office space. We have variable efficiency projects that are ongoing. So, yes, I feel the cost structure is in a very good space, in a very good place.

And I think there's tremendous opportunity to improve it going forward. So, we're in a good place from a cost standpoint and a liquidity standpoint.

Trevor Young -- Barclays -- Analyst

Great. Thank you, both, and best of luck, Dan.

Dan Jedda -- Interim Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from David Bellinger with Roth MKM. You may proceed.

David Bellinger -- MKM Partners -- Analyst

Hey, everyone. Thanks for the question. On the cost per acquisition being down 40% in the quarter, how much of that is internally driven through some type of channel mix shift and the ROI where that's getting better versus some of [Inaudible] external factors at play within the broader apparel category?

Katrina Lake -- Chief Executive Officer & Director

Yeah. Thanks for the question, David. I can start and might benefit from some of Dan's going in here. But I think, honestly, a lot of that is really more from a perspective of focus.

And so, if you think about where we were last year, we were doing more freestyle for marketing. We were driving people to an immediate purchase experience instead of driving people into a styling experience through fixes. And and just very simply put, that freestyle-first marketing was not as efficient as our core fixed experience. And so, I think just to be able to have the marketing messages be more clear around the benefits of personalization and styling and to be really focused on driving people through one channel of conversion has been driving that efficiency.

We definitely are always looking at diversifying our channels. And so, we have our tried-and-true channels that we know perform. And those have performed well, as you've kind of heard in the numbers. And at the same time, we're always experimenting to make sure that we're getting all the emerging channels and to make sure that we're kind of exercising that muscle of acquiring and converting clients in all the new places that we see our clients kind of spending time.

I don't know, Dan, if you have anything to add to that.

Dan Jedda -- Interim Chief Executive Officer

Yeah. The only -- first of all, I 100% agree with what Katrina said. And I think I would simply add that part of the experiences where we really hardened the funnel really helped with conversion of traffic and, therefore, the efficiency of the marketing spend, in addition to just being very focused on the next dollar spent within the channels and is that an efficient spend? And, you know, I think the marketing team has done a tremendously good job of diversifying the channels but then focusing on the efficiency and making sure we're bringing in the right clients, which we feel very good about. And I think we've talked about that in the earlier remarks.

David Bellinger -- MKM Partners -- Analyst

Great. Thanks for that. Just one other follow-up. I think you mentioned some type of chasing inventory.

It sounds like you're more comfortable with the assortment. So, what's the next step if we think bigger-picture here in getting your core customer back in spending again? Is there's some type of refresh needed on top of that on the inventory side, or is there more of a technology connectivity issue you need with your core customer to get them back again?

Katrina Lake -- Chief Executive Officer & Director

Yeah, I mean, I can take that. And I think to be clear, like we -- we are saying we're seeing that customer perform in a pretty healthy way. I mean, we're seeing our AOVs be pretty consistent on the inventory side. You know, it's, of course, been gradual over the last few months with kind of evolving into the inventory mix that we want.

But we feel really good about where we are on the inventory perspective. That being said, there's definitely opportunity. I think we see -- Dan mentioned we're seeing some cohort weakness. There is no question there's some macro headwind, but I'm not willing to accept that it's all macro.

I think there are still opportunities for us to improve the customer journey for us to improve the ways that we're serving our clients so that they can have the best possible experience. That then leads to LTVs. It leads to shareholder value. And so, I definitely still think that there's a lot of opportunity.

But as we kind of dig in and look at how our fix is doing, how are people feeling in their actual transactions, we're actually seeing goodness there. And I think it's on us now to be able to deliver more goodness to the rest of the customer experience.

David Bellinger -- MKM Partners -- Analyst

Great. Thank you.

Operator

Thank you. Our next question comes from Ike Boruchow with Wells Fargo. You may proceed.

Jesse Sobelson -- Wells Fargo Securities -- Analyst

Hi, everyone. This is Jesse Sobelson on for Ike. It looks like taking down inventory was a major source of cash this quarter. So, on the liquidity front, I'm just curious how much cash do you guys need to run the business.

And what should investors expect regarding cash flow generation throughout the rest of the year?

Dan Jedda -- Interim Chief Executive Officer

Yeah. Thanks for the question. And so, yes. We did have a source of cash come from our inventory position, which we implied was going to happen last quarter as we brought our inventory down.

And on a go-forward -- how much cash do we need to run the position? From a liquidity standpoint, we're in a very good position. We have 323 million -- 223 million of cash equivalents. And we have a credit facility which we don't plan to use. And so, going forward, as we guided to a positive H2 adjusted EBITDA, we talked about EBITDA as a great proxy for cash flow for us simply because we do not have a lot of capex, and we do not anticipate a lot of capex spend over the next several quarters.

And so, we feel that both our EBITDA and cash flow are trending positive for H2. And, you know, we'll give more guidance on FY '24 at a later date. But, overall, we feel very good about the liquidity position that we're in and the cash flow that we've generated in both Q2 and for H2 as we go forward.

Jesse Sobelson -- Wells Fargo Securities -- Analyst

Great. Thank you.

Operator

Thank you. Our next question comes from Blake Anderson with Jefferies. You may proceed.

Blake Anderson -- Jefferies -- Analyst

Hi. Thanks for taking our question. I wanted to revisit the freestyle topic and how the tone has seemed to maybe change a little bit on that. This is more of a philosophical one, but should we expect any strategic changes to that business before a new CEO is announced? Just wondering, Katrina, how much influence we could have on that business in the short term.

Thank you.

Katrina Lake -- Chief Executive Officer & Director

Yeah. Thanks. Thanks, Blake, for the question. You know, I mean, we're always evolving to experience.

And so, at a very high level, like, I really don't see a big foundational shift in the strategy. I think the strategy of focusing on personalization, of focusing on styling, and focusing on the areas that we know are valuable areas of differentiation for our client, you know, I think I think it's hard to imagine that we would deviate from that. That being said, we are always doing experiments. We're always doing a A-B tests to better understand what are we doing that -- what can we be doing differently or better in order to optimize that client journey, to drive LTV, to drive value for our clients, to drive profitability and long-term growth? And so, we're always making changes.

And so, hopefully, what I can say is like you can probably expect to see some small changes in terms of the way that the customer journey evolves over time. But I honestly -- I wouldn't see them as like fundamental big changes. I think we know that freestyle adds value. We know that -- we know which ways in which it adds value.

And so, really, it's about how do we make sure to tailor and target the right customer experience so that clients are getting the most value out of their experience with Stitch Fix, and thus we are getting the most value out of clients that we acquire.

Blake Anderson -- Jefferies -- Analyst

That's helpful. Thank you. And maybe I missed it, but did you talk about kind of trends by month throughout the quarter? And any commentary you guys can provide on the quarter to date, just especially how that how the budget shopper is holding up? Thanks so much.

Dan Jedda -- Interim Chief Executive Officer

Yeah. I can take that. So, the -- we did not provide trends by quarter for our Q2. I will say that, you know, February has largely been as expected for us.

We are, again, we -- the guidance that we gave, of course, takes into account five weeks of February, and we're not seeing anything that is out of the ordinary where we've seen a change in trajectory to the negative. So, we continue to see our keep rates trending positively. You know, there might be some frequency with the cohorts analysis that we talked about for Q2 to see that trend continue. We haven't looked at that yet for Q3, but we will.

But no real trend update beyond what we've provided in -- for the guidance for Q3 and the commentary that we gave on Q2.

Blake Anderson -- Jefferies -- Analyst

Great. Thank you. Best of luck.

Katrina Lake -- Chief Executive Officer & Director

Thank you.

Operator

Thank you. Our next question comes from Tom Nikic with Wedbush Securities. You may proceed.

Tom Nikic -- Wedbush Securities -- Analyst

Hey, thanks for taking my question. Dan, quick one for you. Sorry if I missed this. Did you actually say what the marketing expense was in Q2 as either in dollars or as a percentage of revenue?

Dan Jedda -- Interim Chief Executive Officer

We did 5%.

Tom Nikic -- Wedbush Securities -- Analyst

Got it. OK. Thanks. And, Kat, welcome back to the CEO role in an interim basis.

But when we think about the permanent CEO role or the successor, what are you looking for? What skill sets are you looking for? And what -- optimally, who's -- what attributes would your ideal candidate have for the permanent CEO seat? Thanks.

Katrina Lake -- Chief Executive Officer & Director

Yeah. Thanks, Tom. Yeah. So, we've kicked off the search.

We've engaged with a search firm, and we've been having conversations with candidates, quite a few conversations with candidates. And, you know, overall, I feel excited and optimistic about kind of the quality of people that we're meeting. And at the highest level, like are very simply like, I really do think it's having a history of delivering results, of executing a business that -- our business is fairly complex. And so, I think somebody who's had experience in a business that has similar complexity to ours and have a kind of history of delivering results is, of course, first and foremost important.

And then, relatedly, we have a large -- we have a large company that has a lot of people in different types of roles. And so, that leadership and someone who has a natural leadership and somebody who's going to be able to be successful in leading a diverse organization is really important. And so, at the highest level, I think those are two things that that we're really looking for. But as we've kind of talked and as we've had a lot of conversations, we've have a lot of candidates who have firsthand experience with Stitch Fix who know the business well and feel really connected to the business and the customer.

And I think we're excited about the people we're meeting. So -- so, you know, optimistic.

Tom Nikic -- Wedbush Securities -- Analyst

Sounds good. Thanks, Kat. Best of luck in the CEO search and with the business the rest of the fiscal year.

Katrina Lake -- Chief Executive Officer & Director

Thank you.

Operator

Thank you. Our next question comes from Kunal Madhukar with UBS. You may proceed.

Kunal Madhukar -- UBS -- Analyst

Hi. Thanks for taking the question. One -- one more housekeeping and then one more longer term. So, on the housekeeping side, can you help us understand? The LTM-active clients has been down -- has been declining for the past five quarters now.

How should we kind of think of the trend for LTM-active clients going forward? And then, Katrina, you talked about the eventual return to growth. And you also talked about having a lot of lot more visibility on the business. So, can you help us understand in your mind how you're thinking of growth going into 2024 and maybe into 2025? When are we going to get to growth? And part of the reason is in fiscal 4Q of this year, that is going to be a 14-week period rather than a 13. So, the guide does not inspire a lot of confidence.

Thank you.

Dan Jedda -- Interim Chief Executive Officer

I'll take the RPEC question. RPEC is a trailing metric. It's a trailing 12-month metric on actives. And so, there is a lot of math that goes into the mix of RPEC.

And so -- and I know your models take into account RPEC, but I think the best way we can say that is, while we are seeing some cohort degradation in terms of spend which will impact our RPEC, mix is a bigger impact of RPEC. Mix of the tenure of our clients. We've mentioned in the past that our older clients spend less. Our newer clients spend more as their closets get get filled up.

And so, we'll continue to talk about RPEC from an actuals basis, but we're not guiding to future RPEC. That being said, I think it's safe to say that, you know, where we might see some cohort degradation on spend and some mix. We're not expecting big reductions in RPEC, you know, on a go-forward basis. We'll probably see some of that because of the spend in cohort on a year over year, but we don't think it's going to be material.

Our clients do continue to spend with us. They do continue to stay with us. The newer clients that we're bringing in as we look at them are cash-flow-positive clients that we talked about, the near-term ROI, all that will have the effect eventually of stabilizing that RPEC and it ultimately bringing it up. But that's going to happen over time.

Operator

Thank you.

Dan Jedda -- Interim Chief Executive Officer

Sorry. I think we want to --

Katrina Lake -- Chief Executive Officer & Director

Yeah. Is there a part -- so, the part two is more around like how am I thinking about the eventual return to growth? Is that -- OK. I think -- I mean Dan mentioned -- I totally agree with everything that Dan mentioned. And I would just also that, you know, in our business, so much of our business is serving clients that are returning.

And that's a great part of our business. We generate a lot of revenue from our existing customer base. And so, all of the benefits that we -- all the things that we are able to do to be able to make that client more valuable. And so, all of the ways in which we can reengage that client, all the ways in which we can offer those clients reasons to come back also add.

And so, we're always thinking about new clients. We're also thinking about how do we make sure that our existing base is healthy. And I think we've seen some positive signals that we've been excited about and feel really confident that we're doing the right things and the things we need to be doing right now.

Operator

Thank you. Our next question comes from Janet Joseph Kloppenburg with JJK Research Associates. You may proceed.

Janet Kloppenburg -- JJK Research Associates -- Analyst

Hi, Katrina. Hi, Dan. I just wanted to follow up on that question. It seems to me that -- and please correct me when I'm wrong -- that you're going to be spending your investment will -- spending will shift to a higher degree of investing in fixed and low degree and freestyle, and that should drive up your active customer participation and your sales.

I think that's what you're saying. And that you'll use freestyle as this -- to some extent as a liquidation channel for fixed. But that investment spending will go back toward the personalization fixed business, and that that should help to improve the EBITDA performance of the company as well. And does it mean that maybe the advertising rates can stay below 7%, 8% as we as we go forward? Or is that something that needs to be tested and refined? Thank you.

Katrina Lake -- Chief Executive Officer & Director

Sure. I think I can answer at a high level, and then Dan can kind of weigh in on more of the specifics. But I mean, I think at a high level, the way to think about it is that that we are really focusing the business around personalization and styling. And, yes, fix is a very big part of that.

And having a more focused messaging from a marketing perspective helps us to drive marketing efficiency. Having a more focused point of view around who the client is, I think one of the challenges with trying to acquire freestyle-first clients was that we were definitely deviating from our historical client and trying to kind of, you know, trying to have many different messages and to actually have an assortment that back that. And so, simplifying on the inventory side also delivers efficiency. And freestyle definitely still has a role to play in order to be able to help our client to fill in their closet and to be able to engage in between fixes.

And so, we definitely are going to continue to have to be thinking about how to freestyle add value to that client experience. But I would say that the investing is more around thinking more holistically around what is the fix -- what is the Stitch Fix ecosystem, and how do all these pieces fill in together in order to drive the best LTV and experience for our clients but then, also, of course, delivering results for our shareholders? So, maybe -- and, Dan, you wanna talk a little bit about the marketing side?

Dan Jedda -- Interim Chief Executive Officer

Yeah. On the marketing side, again, Katrina mentioned we're not marketing a freestyle-first experience, which we had done in the past. And that, along with a lot of the product -- the client experience improvements we have made, it just has allowed us to focus on that fixed-first client in a very efficient way. And so, while the advertising drop year over year seems large, when you look at the clients that we're bringing in, we're seeing very efficient spend.

And that was the point when we talked about men's actually being up on a gross ads basis and women's and kids improving, while still down year over year, improving from current trends. That's with that 46% reduction in marketing, inadvertising. So, we do anticipate to stay on this trend of lower advertising spend but focusing on the right client, the fixed-first client and then having freestyle be a very important incremental opportunity once the client is in the door and engaged in the fixed business. It still is a material part of our business and will continue to be freestyle, that is.

Janet Kloppenburg -- JJK Research Associates -- Analyst

Thank you both so much.

Operator

Thank you. Our next question comes from Dana Telsey with Telsey Advisory Group. You may proceed.

Dana Telsey -- Telsey Advisory Group -- Analyst

Hi. Good afternoon, everyone. Kat, welcome back for the interim period. As you think about the near term and the long term, on the near term, how are you thinking about the core customer, what they're spending on pricing, how you're thinking of brands, and how do you think about the differentiation between the freestyle and the fixed in terms of whether it's AUR or captivating the customer? And then on the long term, obviously, new processes, as it sounds like, are being put in place right now.

What do you see is the most incremental driver to return to growth under the hood in terms of operations or logistics or processes? Thank you.

Katrina Lake -- Chief Executive Officer & Director

Thanks, Dana. Let's see. So, on the first part, as we think about of what are we seeing on the customer side, we actually are seeing AOVs hold pretty strong. We're seeing a AURs hold pretty strong.

You know, I think in terms of what the customer is looking for, I think what's really differentiated about our channel relative to others, it's not necessarily price. It's not necessarily, you know, kind of finding the brand that you love. It is actually around fit. It's about -- it's about fit.

It's about style. It's about finding things that you love and, in some cases, finding things that you love that are surprising to you. And that's something that really only our channel can deliver on. And so, you know, that's kind of how we're thinking about who the core customer is.

And the good news is I think there's a lot of that core customer. You know, there's some data that we had that -- well, most men and even half of women would characterize themselves as not loving to shop. And there's not a lot of other retailers that are focusing on that customer. And Stitch Fix is one that really makes shopping more tenable and makes it easier.

It helps people to look their best without spending a lot of effort to do it. And and those are really differentiating qualities in our customer that that we can build the right assortment to be able to deliver on. In terms of what's most influential under the hood, I mean, that's a good question. But I mean, really for me, I think the broad umbrella of it really is focus, and it really is around focusing those marketing messages, focusing that conversion funnel, focusing on the inventory side.

I think just really being able to focus on the things that we already know that we are able to deliver on, that we have a business that's 10-plus years old that has a history of profitability delivering on this business, to be able to focus back on the things that we know and know that we can deliver is -- is kind of the core thesis. And I would say, rather than having one big thing, it's probably a lot of little things like the ones that I mentioned around marketing and inventory. And I shouldn't call them little things. They're really meaningful.

And I think you can see that in the marketing numbers that we shared. But I feel optimistic by kind of what we've been able to see as we dig into the business and excited to be able to deliver more in the quarters to come.

Dana Telsey -- Telsey Advisory Group -- Analyst

Thank you.

Operator

Thank you. Our next question comes from Mark Mahaney with Evercore ISI. You may proceed.

Mark Mahaney -- Evercore ISI -- Analyst

OK. Thanks. Two questions, please. Katrina, you talked about marketing diversification into newer channels that have yet to scale.

Can you provide a little color on what those newer channels could be? And then, secondly, I was wondering if I could just get you to comment on sort of macro trends. And I realized there's a lot of other factors going at play here. You've got year-over-year revenue declines pretty consistent in Q2, Q3, -- Q1, Q2, Q3, and Q4. So, my sense is that maybe overall macro trends are soft but kind of consistently soft or kind of riding along at the bottom.

But can you just comment on whether you think macro trends -- the consumer macro consumer demand trends are at the margin, further softening, stabilizing, or possibly recovering? And I know there's a lot of other factors going on, but I'm wondering if you would just address that question. Thank you.

Katrina Lake -- Chief Executive Officer & Director

Great. Thanks, Mark. So, first on marketing diversification, I think, you know, it's probably some of the obvious, but we've done some experimenting with TikTok that I think has some promise. We've done some experimenting in YouTube and trying to think about how does YouTube fit into kind of our overall conversion funnel.

And then, actually a return to organic is definitely a big place, too. I think we've seen being able to use influencers, both I think well-known influencers, but also more of what you would call like micro-influencers be effective. And that's definitely been a part of the history of Stitch Fix. Some of the very early years of growth of Stitch Fix were driven by that -- by that kind of -- at the time was more bloggers, but more of those micro-influencer categories.

And so, that's another place that we're making sure we rebuild the muscle in. And in terms of macro, I mean, I wish I had a crystal ball and that I could tell you what's happening. You know, what's happening in our business, you know, we see AUR and AOV actually be pretty stable. And so, I think the places where we would expect to see macro headwinds would be -- would be probably around more conversion and customer acquisition.

You know, we've seen some success there as we shared in this last quarter, but I think that's a place that you could anticipate that there could be some headwinds. And then, I think any other place is probably around just longer term like fix frequency or purchase frequency. And I think Dan shared that we have -- we've seen some software cohorts. And, you know, I think we do believe that some of that is macro.

But, you know, as I said, I do -- I'm not willing to accept that it's all macro. I do think that there are things that we can be doing better to be able to deliver on a better client experience that delivers more LTV. And so, I don't know, Dan, if you have any pontification to add. But I wish I could give you a solid answer on what to expect.

Dan Jedda -- Interim Chief Executive Officer

I don't I don't have anything to add. I completely agree with all of that. Specifically, you know, on some of the macro, we talked about how we like the trends we were seeing on gross ads. On the improvement, I think that's a positive.

But we are still seeing some elevated in actives, and that's something that we're very focused on fixing with improvements in the client experience. And we do believe a lot of that, of course, is macro related.

Mark Mahaney -- Evercore ISI -- Analyst

OK. Thanks, Katrina. Thanks, Dan.

Dan Jedda -- Interim Chief Executive Officer

Thanks, Mark.

Operator

Thank you. Our next question comes from Aneesha Sherman with Bernstein. You may proceed.

Aneesha Sherman -- AllianceBernstein -- Analyst

Yeah. Thank you for taking my question. So continuing on the theme of the macro and the consumer demand behavior trend, last quarter you talked about the consumer being more judicious with their spending and frequency declines. It sounds like you've seen that again.

Is the mix shift or higher demand for own brands over national brands, do you think that is part of it? Do you think that's -- are you seeing the consumer sort of trade down a little bit to lower price points rather than the national brands? And if so, does that -- how does that or does that change your national brand strategy that you've been talking about for the last few quarters on increasing your mix of national brands? And can you also talk about how that impacts gross margins because I understand that your own brands are more profitable? Does that change your margin mix kind of looking into next year? Thanks.

Katrina Lake -- Chief Executive Officer & Director

Great. It's a great question, Aneesha. I'll answer the first part. And I know Dan is chomping at the bit to answer the gross margin part.

But, yeah. I mean, I don't know if I would say that it's necessarily mix shift that's driven by macro, but I would say like, historically, it's very interesting in our channel. historically, national brands do not perform very well in fixes. And I do think fixes are a place where you -- the apparel is kind of the most stripped down version of itself, and people are really looking at those fixes to say, does is this my style? Does this fit me well? And brand is like a very tertiary kind of consideration beyond those.

And so, historically, we've actually not seen national brands perform very well in fixes. And so, a lot of the intention around bringing national brands into the portfolio recently has been to support a better freestyle experience. And so, as we -- and I think, candidly, like those brands haven't performed as well in the freestyle experience, although better than in the fixed experience, but we, I think, longer term, the national brands will probably be a smaller part of our portfolio going forward is the way that they work historically with fixes. And I would actually really position that as a positive of being really a testament to our personalization.

And at the end of the day, like even if it's not a brand that somebody recognizes, if you're delivering jeans that fit someone, someone's going to buy them. So, Dan can speak more to that on the gross margin side.

Dan Jedda -- Interim Chief Executive Officer

Yeah. Just to follow on to your second point on that question, what Kat is saying, this idea that what we're going to be focused more on our exclusive brands and be tighter with national brands having less of that, that will, of course -- we think it's the right client experience. And also, what that does is, of course, lead to higher margins simply because the private label and exclusive brands have higher product margins. When I mentioned earlier in the call that we see opportunity in gross margin, the first comment I made was in product margins.

That is a big driver of product margins. So, as we get tighter with that, we do expect margins to positively impact margins. We do have some national brands that we're still -- inventory that we're still working through, although it's not a huge number. And we'll get through that.

And we feel very good of the impact. Our focus will be on product margins. It will also have the impact of making inventory more efficient, which is a huge positive to cash flow. So, we feel good about that strategy and how it will impact the financials.

Operator

Thank you. Our next question comes from Noah Zatzkin with KeyBanc Capital Markets. You may proceed.

Noah Zatzkin -- KeyBanc Capital Markets -- Analyst

Hi. Thanks for taking my question. Kind of along the lines of the macro questions, maybe I'll ask it slightly differently. With Stitch Fix traditionally being a full-priced business, how would you kind of frame or how do you kind of think about parsing out the impact of the broader promotional environment in apparel and what that's had on Stitch Fix over the last couple of quarters? And with others in the space talking about inventory beginning to be right sized or, at least, having line of sight to more right-sized inventory positions, how are you thinking about potential upside in the model should the promotional environment begin to normalize over the next couple of quarters? Thanks.

Katrina Lake -- Chief Executive Officer & Director

Thanks, Noah. Yeah, it's a good question. I mean, you know, Stitch Fix has been, I would say, kind of oddly resilient to promotional periods. And I think we see some marginal impact, but not really as much as you'd expect.

And what we see is -- like in the fixed experience, like, first of all, I don't think people are coming to Stitch Fix in order to find a deal. That's not the primary intention. Of course, we need to do right price all the time. There's no question about that.

But I would say that like people aren't coming to our channel in order to get a deal. And so, what that means is people actually coming to our channel because they want clothes that fit them, because they want to refresh their wardrobe, because they want things that are their style. And so, as a result, I would say that we see like our AOVs and AURs have kind of held -- held pretty strong. And so, I would say that we see maybe less of what you would expect in terms of like the highly promotional environment right now.

But I would say my hypothesis is that it probably impacts conversion more where there are probably going to be fewer people that, as they're looking at their budgets and as they're looking at where are they going to spend fewer dollars that they might have in a bank account that, like refreshing a wardrobe, might not be as high a priority as it might have been 10 months ago. And so, I would say our hypothesis is that our existing clients that are in the ecosystem are relatively stable. Like I think there probably is a headwind a little bit on the customer acquisition side that hopefully, as things let up and as we see things turn up the other way, that will alleviate and make things easier for us. But I would say that it's a little bit of a unique proposition within Stitch Fix.

That's not a perfect analogy to the promotional environment that you see outside of our ecosystem.

Dan Jedda -- Interim Chief Executive Officer

I'll take the second part of that question, which I believe was a question on inventory. And I hope I'm answering -- I hope I'm interpreting that correctly. But from a standpoint of where we see inventory going forward related to the macro and what we're seeing in our focus on our exclusive brands, is we do expect our inventory to be more efficient. You know, when you look at our -- the way we report turns externally, we've been as high as six turns in the past.

And while that was pre-freestyle, we do believe that we are going to see improved efficiency in the back half of this year simply because we've taken our inventory down as we ended Q2, and we do not expect significant changes for it to increase and may ebb and flow a little bit quarter to quarter. But we feel very good about the inventory efficiency, and we expect, on a net-inventory basis, to be back above four in H2.

Noah Zatzkin -- KeyBanc Capital Markets -- Analyst

Thank you.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Hayden Blair -- Investor Relations and Treasury

Katrina Lake -- Chief Executive Officer & Director

Dan Jedda -- Interim Chief Executive Officer

Youssef Squali -- Truist Securities -- Analyst

Unknown speaker

Amy Teske -- Robert W. Baird and Company -- Analyst

Ed Yruma -- Piper Sandler -- Analyst

Trevor Young -- Barclays -- Analyst

David Bellinger -- MKM Partners -- Analyst

Jesse Sobelson -- Wells Fargo Securities -- Analyst

Blake Anderson -- Jefferies -- Analyst

Tom Nikic -- Wedbush Securities -- Analyst

Kunal Madhukar -- UBS -- Analyst

Janet Kloppenburg -- JJK Research Associates -- Analyst

Dana Telsey -- Telsey Advisory Group -- Analyst

Mark Mahaney -- Evercore ISI -- Analyst

Aneesha Sherman -- AllianceBernstein -- Analyst

Noah Zatzkin -- KeyBanc Capital Markets -- Analyst

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