As traditional bricks-and-mortar retailers continue to endure sales declines,
quarterly results released Monday afternoon show how the experience of shopping for clothes could be changing for good.
Stitch Fix said that, in addition to double-digit year-over-year revenue growth for the quarter ended Oct. 31, it saw the highest sequential net client additions in its history. Investors sent its shares surging 39% Tuesday following the report.
That reaction is likely less a reflection of the quarter itself—revenue growth of 10% was a far cry from the 21% pace Stitch Fix posted for the comparable period last year—and more the expectation that record client growth will pay off later. It likely also was exaggerated by very high short interest in the stock heading into earnings. The company still has to show that it can improve margins.
Stitch Fix, which offers algorithmically personalized clothing with the help of a stylist, for years has been asking new clients to ditch decade-old habits of trying clothing on in a store before paying for it. For the first several months of the pandemic, it seemed this was too big of an ask for many shoppers. Stitch Fix’s sales in the quarter ended Aug. 1 grew just 3% from a year earlier after falling by more than 9% in the prior period.
But the company’s latest results suggest that many more consumers are coming around, and it is happening just as a window of opportunity is about to close: When more shoppers feel comfortable visiting shopping malls as Covid-19 cases recede, Stitch Fix might have hooked customers for good.
The more engagement Stitch Fix’s algorithms see, the better they seem to get at predicting what consumers will buy. For a styling fee, Stitch Fix sells clients a “Fix” of a handful of pieces that they can try on at home and then buy or return. Stitch Fix said over the past two quarters that nearly 80% of its first time “Fix” clients purchased at least one item and said they were looking forward to their next order. That is the highest level of successful first Fixes the company has seen over the past five years. It also said that clients purchasing a Fix for the first time grew 25% year-over-year in the most recent period, its fiscal first quarter. Once hooked, clients tend to spend more on subsequent Fixes.
Stitch Fix’s guidance suggests it can continue to build on its late-pandemic momentum. The company said it expects recent customer additions to help yield at or above pre-pandemic revenue growth in the back half of the year.
It made money on the basis of adjusted earnings before interest, tax, depreciation and amortization in its fiscal first quarter. But the company said it expects to swing to a loss on the same basis in the current quarter because of increased marketing spending. The company said lower priced products have been popular amid the pandemic. While Stitch Fix might deem a one-item purchase a “success,” it is unclear how many pieces on average are needed for Stitch Fix to turn a profit.
With its shares having nearly doubled over the past three months, the burden is on Stitch Fix to prove that it can tailor a consistently profitable business from its increasing ranks of satisfied customers.
Write to Laura Forman at firstname.lastname@example.org
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Appeared in the December 9, 2020, print edition as ‘Stitch Fix Shoppers Start to See the Light.’