Stitch Fix shares crater as retailer cuts forecast, despite tops earnings estimates

December 9, 2021: -On Tuesday, Stitch Fix shares tumbled 18% in extended trading after the online shopping and styling company cut its revenue outlook, citing supply chain issues and the need to educate consumers on its Freestyle option still.

The number of active customers who use its services fell short of expectations, hinting at slowing demand. A latest promotional offer resulted in a wave of new customers who joined Stitch Fix but didn’t stick around, it said.

While Stitch Fix reported a narrower-than-expected loss in its fiscal first quarter as sales topped analysts’ estimates, it is not enough to please investors who were expecting Freestyle, a direct-buy option, to offer a more significant boost.

“We’re in this big learning phase of recent onboarding clients to the Freestyle and the Fix experience,” said CEO Elizabeth Spaulding in a phone interview. “And there’s this broader supply chain backdrop. We wanted to make sure we were being conservative for the year.”

Stitch Fix reported a net loss of $1.83 million, or 2 cents each share, compared with a net income of $9.54 million, or 9 cents per share, a year earlier. That was ahead of analysts’ estimates for a per-share loss of 14 cents.

Sales grew 19% to $581 million from $490 million a year. That beat expectations for $571 million.

Stitch Fix said active clients increased 11% to 4.18 million a year ago. However, that was reducing the 4.23 million active clients analysts projected, according to StreetAccount. The company defines active clients as people ordering from its traditional Fix subscription or buying an item directly from its website in the preceding 52 weeks from the quarter’s final day.

The company said that net revenue per active client rose 12% to a record $524. Spaulding attributed the growth to more customers buying extra items of clothing, in addition to their subscriptions. The company completed the roll-out of Freestyle to the public in the fourth quarter. Before that, only Stitch Fix subscribers could use the service.

“It’s early days. We are just starting up that new customer experience, but we’re in the game,” Spaulding said. “This is opening up the ecosystem, and it will be a multiquarter transformation. But we’re committed to that building phase.”

The company also said it added more than 20 brands, which include Adidas and Vans, to its platform in the quarter, giving customers more styles to pick from.

Stitch Fix investors have had a rocky year, with shares tanking about 57% year to date as of Tuesday’s market close.