Online personal styling service Stitch Fix is trimming its U.S. distribution network in hopes of better optimizing its clothing inventory across three hubs — rather than its current five facilities — in a cost-cutting move that could help save the company $50 million a year.

The San Francisco-based company is cutting its warehouse space as part of finding its way to profitability, an effort that includes sticking to its core styling services and phasing out operations by year's end in the United Kingdom, where it last had about 180,000 clients. The styling service also cut its marketing budget by 50%.

The cost-cutting measures by Stitch Fix comes after a few financially troubled years at the company, which saw its profits drop in a failed bid to attract a wider variety of shoppers by forgoing the styling subscription service. The company was also hit by a sudden drop in demand for office clothing in the pandemic's fallout and the subsequent work-from-home movement.

"We are evaluating and assessing every aspect of our brand, our business and our operating model," Stitch Fix CEO Matt Baer said in the company's latest earnings call. "We are carefully examining what we do and how we do it, optimizing where we can right now while also looking ahead to the longer-term opportunities."

Baer, who joined Stitch Fix from Macy's in June, told investors last month the company will stay focused on its core styling service business. However, he says the company is taking a "cautious view of the U.S. consumer," who has been hit with higher energy costs, higher interest rates, a resumption of student loan payments and the continued draw-down in consumer savings.

Those broader economic challenges have Baer seeking to focus his team on what can be controlled and making sure stylists can offer a mix of brands at competitive prices for the price-conscious consumer.

Stitch Fix — which uses data and algorithms to curate personalized outfits for customers, complete with apparel, shoes and accessories — had tried to stake a larger claim in the expanding e-commerce sector of the retail market by growing beyond its subscription styling service and adding a traditional retail service that sold apparel directly to consumers.

Stitch Fix is in the process of closing two of its U.S. facilities, one in Dallas and one in Bethlehem, Pennsylvania, which will leave it with three operational U.S. distribution hubs once the consolidation is complete next year. This comes less than a year since Stitch Fix told investors it would close its fulfillment center in Salt Lake City following a similar exit from a warehouse in San Francisco.

The closures of the distribution centers in Texas and Pennsylvania are expected to result in the mass layoff of 951 workers, according to notices Stitch Fix sent the states. Stitch Fix will keep its distribution centers in Atlanta, Indianapolis and Phoenix.

The company's inventory is expected to be better optimized across a smaller network of U.S. warehouses, executives told investors upon announcing its decision to rely on a three-node distribution strategy.

The consolidation of warehouses will have "immediate cost savings" for the company and help stylists build more relevant assortments for clients, Stitch Fix Chief Financial Officer David Aufderhaar said on the earnings call last month.

"We will realize inventory efficiencies as we scale," Aufderhaar told investors.

Stitch Fix is permanently closing its more than 660,000-square-foot distribution center at 1421 North Cockrell Hill Road in Dallas, resulting in a mass layoff totaling 558 employees, according to a Worker Adjustment and Retraining Notification Act letter. The layoffs are expected to begin in December and run through April 2024. The facility is scheduled for closure by June 2024.

In Pennsylvania, Stitch Fix is closing its nearly 500,000-square-foot facility at 4770 Hanoverville Road in Bethlehem, with plans to lay off 393 employees. The company decided to exit its Bethlehem facility because of an impending lease expiration.

Stitch Fix expects to incur between $7 million and $10 million in cash restructuring charges related to closing the two U.S. distribution centers, according to a filing with the Securities and Exchange Commission, including $5 million to $7 million of separation-related payments, as well as $2 million to $3 million of costs to redistribute inventory to other fulfillment centers.

Those costs are expected to be incurred and paid by the company through April 27, 2024.