Please ensure Javascript is enabled for purposes of website accessibility

Why Stitch Fix Shares Were Sliding Today

By Jeremy Bowman - Mar 23, 2020 at 12:20PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Worries about the coronavirus continued to impact the online clothier.

What happened

Stitch Fix (SFIX -8.18%) stock was selling off today as the online personalized styling service continued to respond to the broader volatility in the market. Consumer discretionary stocks like Stitch Fix have been hit hard by the coronavirus crisis; consumers have cut back on spending, and many have been laid off. Others, meanwhile, are focusing on buying food and essentials, since the pandemic looks set to keep many Americans inside their homes for at least the next few weeks.

On Friday morning, the company also announced that it would temporarily close two of its distribution facilities, one in California and one in Pennsylvania, in response to local orders regarding the COVID-19 outbreak. That move shows that the pandemic is impacting not just brick-and-mortar stores but online sellers as well.

As of 11:50 a.m. EDT, the stock was down 12.8%, while the S&P 500 had fallen 4.7%.

A Stitch Fix box lying against a yellow door.

Image source: Stitch Fix.

So what

Stitch Fix said its South San Francisco distribution center would be closed until April 7, according to the current order, while its Bethlehem, Pennsylvania, facility would be closed until the governor allows it to be reopened.

That will impact the company's shipping capabilities, but the greater issue right now is the probable lack of demand. Stitch Fix already warned that revenue growth in the second half of its fiscal year would slow down as it pulled back on marketing spending while it fine-tunes its direct-buy program, but that guidance didn't take into account the current impact of the outbreak, which has forced mass closures of schools and businesses.

Stitch Fix relies, for at least part of its business, on customers needing clothes for specific reasons like work, dates, and weddings. Those events largely aren't taking place right now, which should hamper demand over the near term.

Now what

The silver lining for the company here is that it has less exposure to the outbreak than its brick-and-mortar rivals, who have had to close stores and are stuck dealing with fixed costs like rent and, in some cases, paying retail staff who can't work. Stitch Fix also has a strong balance sheet with no debt, so the company should almost certainly be able to weather the current storm. Though the coming months will be difficult, when the pandemic fades, Stitch Fix should have an advantage over its brick-and-mortar rivals, many of whom could be forced into bankruptcy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

StitchFix Stock Quote
StitchFix
SFIX
$4.94 (-8.18%) $0.44

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
317%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.