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Why Stitch Fix Stock Jumped Today

By Jeremy Bowman – Apr 9, 2020 at 4:09PM

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Investors reacted warmly to the company's business update last night.

What happened

Shares of Stitch Fix (SFIX -6.09%) were surging today after the company issued a COVID-19 business update that acknowledged challenges from the pandemic but was also upbeat about the company's competitive position during the crisis.

As a result, the stock finished the session up 10.9%.

A Stitch Fix box leaning against a yellow door

Image source: Stitch Fix.

So what

The personalized online styling service said last night it was pulling its guidance for the current quarter and the fiscal year due to the impact of the coronavirus outbreak. The company had earlier said it had closed two distribution centers in accordance with local orders, and CEO Katrina Lake now acknowledged "significant constraints on our operations" from the closures and increased health and safety procedures at its other facilities.

However, Lake added:

Even with this challenging macroeconomic climate, we believe our business remains well positioned to succeed long term. Stitch Fix has been cash flow positive since 2014 with a long history of strong unit economics. We believe this foundation, and our unique personalization capabilities, coupled with a convenient at-home model that offers an obvious advantage in the new reality and positive momentum on Direct Buy effectively positions us for the future.

Indeed, the company does have an advantage over brick-and-mortar retailers, which must absorb store-related costs such as rent, insurance, and labor now even though all apparel companies are likely seeing a decline in sales as most Americans are under stay-at-home orders.

Also notable about the company's announcement was the lack of a mention of drawing down a credit line or furloughing employees, as many apparel retailers have done. That's a sign that Stitch Fix is in a better competitive position than some of its peers. 

Now what

Apparel retail stocks also rose broadly as the Federal Reserve announced a new round of funding and support for small and medium-sized business and corporations today, promising to back up loans to help keep employees on payroll and effectively buy corporate bonds.

Investors interpreted that announcement favorably for the retail sector, and Stitch Fix should also benefit from the effort to strengthen the economy and consumer spending.

Jeremy Bowman owns shares of Stitch Fix. The Motley Fool owns shares of and recommends Stitch Fix. The Motley Fool has a disclosure policy.

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