Stitch Fix Reports Q2 Loss Due To Higher Costs, Slower New Customer Growth

Online personal styling service Stitch Fix said it swung to a $21 million loss last quarter due to increased shipping costs, higher inventory reserves and rising compensation and benefit expenses.

According to a company statement released after the close of trading Monday (March 8), those operational headwinds overshadowed a 12 percent gain in revenues and the addition of 110,000 new customers for the three months ending Jan. 30.

Although the San Francisco-based online apparel company’s per-share loss of 20 cents was smaller than analysts had expected, revenues of $504 million were below the average estimate of $512 million. At the same time, the company’s current quarter revenue forecast of $505 to $516 million was also less than the average analyst estimate of $523 million.

Given that the investors have bid up shares of Stitch Fix by more than 200 percent over the past year, investors took the results badly and sent the shares down more 20 percent in after-hours trading, erasing more than $1.5 billion of market value along the way.

On the company’s call with investors, Founder and CEO Katrina Lake said Stitch Fix was well-positioned to capture the ongoing digital shift in the retail landscape to where 50 percent of apparel is purchased online, and that she remains confident in the long-term prospects for the business and ultimate shift.

“In our first two quarters we had more net active client additions than in our entire past fiscal year, and we delivered one of our strongest Januarys on record,” Lake said, noting the company added 110,000 new clients during the quarter for a total active user base of nearly 3.9 million customers.

Fashion And Trends

In terms of spending, Stitch Fix said the net revenue per active client fell to $467, a markdown of 7 percent from the year ago quarter which included one additional selling week.

“This decline is driven primarily by the increase in new client growth, with an influx of new clients that are early in their spending journey with us, revenue per client may be lower until these new cohorts of clients have more time on our platform,” CFO Dan Jedda said on the call.

In addition, Jedda said Stitch Fix has seen a higher inventory of men’s clothes as that segment had rebounded more slowly than women’s and kids during the pandemic.

“We believe men are shopping less frequently during these COVID times, we expect these trends to improve as we emerge from this backdrop,” he said.

Style-wise, Stitch Fix President Elizabeth Spaulding said the effects of working from home were still present as the company was still seeing very strong growth in sneakers, casual and active and slower purchasing of career and workwear type items.

“We have tried to keep a pulse on markets that are opening up a little bit more quickly, markets that have moved out of lockdown phase and the trends are largely similar a little bit stronger in some of those workwear categories but they’re still down on a year on year basis,” Spaulding said. “We’re anticipating this casualization to continue to persist post-COVID,” she added.

Three months ago, when the company was reporting its fiscal first quarter results in early December, its stock was at an all-time high and it had just seen a record 240,000 new customers — more than twice as many as it did in Q2 — sign up to receive a box of designer-curated clothing shipped to their door each month.

At the time, Lake touted the company’s ability to adapt to lifestyle changes brought on by the pandemic as the reason for its continued growth.

“Our ability to leverage data to generate insight allows us to relentlessly adapt our inventory assortment and continually strengthen our recommendations,” Lake told analysts.

That ability to adapt in the face of changing trends and rising competition from increasingly digitized retailers and other apparel competitors will be more important than ever as consumers begin to transition back to normal life.