Shares of personalized online apparel company Stitch Fix (SFIX 3.46%) have had a great year. The stock is up an impressive 55% year to date as the company impressed investors with strong growth in revenue and clients.
Stich Fix's recently reported fiscal first-quarter results capture the company's strong momentum. Active clients increased 16.6% year over year to 3.4 million, and net revenue per active client jumped 9.5% year over year to $485, resulting in 21% revenue growth. Notably, this marked the company's sixth quarter in a row of revenue per active client growth.
But can Stitch Fix keep up this strong growth in fiscal 2020? With the help of these three catalysts, it's quite possible.
Image source: Stitch Fix.
1. Direct buy
Perhaps one of the biggest catalysts Stitch Fix has going for it is its new direct-buy capability. In the company's fourth quarter of fiscal 2019, Stitch Fix rolled out features that allowed clients to buy items directly (outside its curated Fix shipments).
The features are helping drive incremental revenue, prompting management to prioritize further development and improvements to direct-buy features. Even better, management said direct-buy ultimately represents the first steps "on what will be a multiyear process of evolving our offering so that our personalization service can be accessed in more flexible ways," management said in its fiscal first-quarter shareholder letter. "We're confident direct buy has the potential to expand our market opportunity by attracting new clients and increasing our share of clients' wallets," the company said.
2. An improved inventory optimization algorithm
Another driver for Stitch Fix's business recently has been its efforts to improve its process for optimizing the inventory it has available for its stylists.
With the company refining this algorithm over the last few quarters, these efforts drove an increase in average items per Fix toward the end of its first quarter of fiscal 2020. This, in turn, boosted gross margin. Other benefits from this algorithm improvement included increased client satisfaction and shortened styling time for its stylists.
This improved algorithm is likely to continue to positively affect results throughout fiscal 2020.
"Over time, we believe this algorithm will allow us to more effectively serve our growing client base while also driving efficiencies across inventory management, styling and operation," said Stitch Fix COO Mike Smith during the company's fiscal first-quarter earnings call.
3. Strategic marketing investments
Stitch Fix's outlook for full-year fiscal 2020 revenue, when viewed next to the company's reported fiscal first-quarter revenue and its guidance for fiscal Q2, implies an acceleration in the second half of fiscal 2020. While management says some of this expected acceleration is due to its confidence in its direct-buy features, it's also due to its plans for elevated marketing investments, management noted.
Stitch Fix has historically been very strategic with its marketing -- and it's worked. Management's practice to lower ad spend throughout the holidays when there's lots of competition for customers' attention and to ramp up ad spend after the holidays. The company plans to do this again in fiscal 2020 -- and management is confident it will pay off in accelerated revenue growth.
