Stitch Fix Reports Loss, Calls Out Carrier Delays

Stitch Fix chalked up its net losses in the second quarter to issues like shipping delays. Had these carrier complications not come up, the company said, it would have hit its guidance range. But that explanation wasn’t enough to keep the firm’s shares from tumbling.

Not all the news was bad. Net revenue clocked in at $504.1 million, for a year-over-year jump of 12 percent. Active clients also grew 12 percent over the year-ago quarter, with the addition of 408,000 — 110,000 of which came in during the last three months — for a total of almost 3.9 million.

And the company saw nearly 50 percent year-over-year growth in shipments for first “fixes” — the preselected assortments sent to customers — which grew 25 percent compared to the previous quarter.

But net revenue per active client declined 7 percent compared to last year, coming in at $467. The company also reported a net loss of $21 million and diluted loss per share of 20 cents, along with an earnings loss of $8.9 million.

Analysts expected a loss per share of 22 cents, and with projected revenue of $512.2 million out of reach for the $504 million reported, stocks nosedived. Shares plunged on the news, falling more than 23 percent in after-hours trading.

The company explained that carrier delays increased cycle times for “Fixes” — the company’s name for the preselected assortments sent to customers. But in a statement issued alongside the results, Katrina Lake, Stitch Fix founder and chief executive officer, focused on the positive, calling attention to the growth in net revenue and active client count. “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 explained.

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“This level of demand for our model of personalized discovery and radical convenience positions us well to continue to capture share amidst the ongoing shift in the retail landscape, and gives us confidence in our long-term opportunity,” she added, calling the fundamentals of her business “strong” and pledging to continue expanding the service “in innovative new ways.”

From Stitch Fix’s point of view, the COVID-19 era’s challenges are giving way to major opportunities, with the pandemic igniting seismic and permanent changes to the way people shop — namely, the massive traction of e-commerce. The company believes that consumers, having flocked to online retail, aren’t going to switch back.

Stitch Fix’s numbers tell a story that may feel all too relatable in commerce circles: Retail sits in an awkward stage, as it remains challenged with the complications of the coronavirus pandemic, while knowing that better times are likely just around the corner, as more vaccines go out and the health emergency retreats.

For now, the company sees the increase in first fixes as a hopeful sign of the future. And, it pointed out, clients are migrating to the platform at the highest rates it’s seen in years.

On the earnings call on Monday, Stitch Fix president Elizabeth Spaulding emphasized that growth was strong across women’s, kids’ and the U.K. market. Men’s, however, was another story.

“Men’s is one area [in which the] consumer has come back a little bit more slowly,” she said. “We just believe it’s a function of that client. Frankly, it was a little bit softer than we expected in Q2, and some of that resulted in us incurring on some higher inventory reserves. In addition to that, we probably were a little bit slower to shift as dramatically into kind of a lounge and athleisure wear that we’re seeing in the highest demand for that client segment.”

To drive growth, the company plans to continue focusing on features such as Fix Preview — which offers shoppers a glimpse of what will be in their next Fix — and Live Styling video sessions connecting customers with a personal stylist.

Such offerings join Shop, also known as “direct buy,” which lets shoppers choose and purchase specific items. Plans are in the works for Shop to expand in the fourth quarter of this year to allow non-Fix customers to buy directly.

That may sound like a standard e-commerce experience, but Stitch Fix distinguishes it as a highly curated, personalized feature that’s designed for convenience, even if the shopper hasn’t bought from the platform before. That speaks to the company’s data-driven approach, which it’s applying to the direct buy model.

The company has a lot of hopes pinned to the service, along with the other features and improvements, to attract new customers.

“We have a solid foundation in place, and our development efforts are largely focused down on expanding the experience for first-time clients,” Spaulding said. “This includes evolving, our client on-boarding process and user interface, tightening logistics and operations and streamlining the client style collection of information specifically within the client experience.

“We’re focused on expanding the breadth of our assortment to accommodate client’s individual preferences while balancing the browse-and-discovery experience to ensure ‘direct buy’ remains highly personalized and engaging,” she added.

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