b'allegations that the Nutanix salesforce was actuallyas press or internet search engine results. The Form experiencing high attrition and poor productivity.10-Q further stated that, [s]tarting in calendar year 2017, The court further held that plaintiffs sufficiently pledwe began to increase our paid marketing expenses by scienter with respect to statements regarding customerinvesting more in digital marketing and launching our first acquisition through confidential witness allegations thattelevision advertising campaigns and that it expected to the individual defendants were present at quarterlyincrease paid marketing spending, but noting it could not meetings where the declining sales pipeline wasbe certain that these efforts will yield more clients or be discussed and received regular updates on sales datacost-effective. that would have alerted them to the issues. Similarly,On October 1, 2018, Stitch Fix disclosed in a the court held that alleged confidential witnessshareholder letter made available on the companys statements that the companys employees regularlywebsite that for 10 of the 13 weeks during 4Q 2018, discussed at all-hands meetings sales-team attritionStitch Fix temporarily suspended its national TV problems and the need to hire more salespeopleadvertising to measure the efficacy of such advertising. were sufficient to plead scienter as to the well-pledThe same day, Stitch Fix also reported 4Q 2018 statements regarding success in hiring.financial results, which showed that sequential active Defendants answered on October 23, 2020. Plaintiffsclient growth fell 70%, from 180,000 new additions in motion for class certification is set to be filed by Marchthe 3Q 2018 to 54,000 in 4Q 2018. The following day, 10, 2021 and heard on July 21, 2021. Fact and expertStitch Fixs stock price dropped by more than 35%. discovery are set to close in March 2022 and AugustInvestors filed putative securities class actions against 2022, respectively. Dispositive motions are due to beStitch Fix and certain of its officers alleging violations heard by January 18, 2023 and trial is set for May 1, 2023.of Sections 10(b) and 20(a) of the 1934 Act and Rule 10b-5 promulgated thereunder. Plaintiff alleged that In Re Stitch Fix, Inc. Securities Litigation,defendants made six false and misleading statements Case No. 18-cv-06208-JD, 2020 WLregarding Stitch Fixs advertising and marketing 5847506 (N.D. Cal. Sept. 30, 2020)expenses as well as active client growth which were later purportedly revealed to be false in its 4Q 2018 Changes To Marketing Strategies Andfinancial results and shareholder letter. Decreased Client Growth Defendants moved to dismiss the consolidated amended Stitch Fix, Inc. is a publicly traded online retail fashioncomplaint, which the court granted, with leave to amend, subscription service self-described on its website asholding that plaintiffs moving-target theory of pleading the worlds leading online personal styling service.in the complaint does not give defendants fair notice of The companys business model relies on the use ofthe allegations for which they are called to account was clothing, shoes, and accessories purchased from othersufficient alone to warrant dismissal. manufacturers or made by Stitch Fix itself to curateWhile the court declined to reach the issues of scienter personalized shipments to customers that are called aor loss causation, it held that the consolidated amended Fix. Customers can try on the items in their Fix, buycomplaint inadequately pled falsity. First, the court held what they like, and return the rest and are incentivizedthat none of defendants statements regarding national to buy all the items in their shipment with a 25%TV advertising being an important component of discount applied only if the entire Fix is accepted.marketing were false, rejecting plaintiffs allegations that An important metric for Stitch Fix is the number andstatements in Stitch Fixs October 2018 shareholder letter growth rate of its active clients, who are users whoregarding temporarily halting national TV advertising check out [i.e. decide to keep all or part of] a Fix in thecontradicted such statements. Rather, the court noted, preceding 12-month period. Stitch Fixs active clienteven if it were to accept that Stitch Fix temporarily growth increased from 261,000 in Fiscal Year 2014,suspended its national TV advertising, that fact did not to 2,194,000 in FY17. The company added more thancontradict or undermine the challenged statements 100,000 active clients in each quarter from Q2/17 throughbecause none of those statements amounted to a Q2/18. On a June 7, 2018 investor conference call, Stitchrepresentation that national TV was ongoing. The court Fixs CEO touted the companys active client growth,further held that statements made regarding Stitch stating that it grew to 2.7 million active clients as of AprilFixs marketing capabilities were too vague and not 28, 2018, an increase of 614,000 and 30% year-over-year.connected to whether Stitch Fix was running national TV In its June 8, 2018 Form 10-Q, Stitch Fix stated that itscampaigns as of June 7, 2018 and were directed to prior success depends on our ability to attract new clients inmarketing efforts when taken in context. The court found a cost-effective manner and that in the past, it reach[ed]other statements like a June 7, 2018 statementclients through paid marketing, referral programs, organic[w]e continue to make strategic and measured word of mouth and other methods of discovery suchmarketing investments were mildly closer to 40'