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Why Stitch Fix Stock Fell 11% in July

By Demitri Kalogeropoulos – Aug 10, 2020 at 8:32AM

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Investors continued to punish the stock following its weak third-quarter earnings report.

What happened

Stitch Fix (SFIX 4.32%) shareholders trailed a booming market last month as the stock dropped 11% compared to a 5.5% rally in the S&P 500 in July, according to data provided by S&P Global Market Intelligence.

The decline put the online apparel seller back in negative territory for the year, down 12% so far in 2020. It had previously been lower by nearly 60%, though.

A woman unpacks clothes from a delivery box.

Image source: Getty Images.

So what

Without any official updates from Stitch Fix or its competitors during the month, investors likely continued punishing the stock for its weak earnings report from mid-June. That announcement showed that Stitch Fix, in contrast to online selling rivals like Amazon and Walmart, struggled with major fulfillment challenges during the COVID-19 shutdowns. These issues reverberated through the entire business in the third quarter, including by pressuring sales growth, limiting inventory availability, and hurting profits.

Now what

CEO Katrina Lake and her team said Stitch Fix returned to sales growth in May, but investors appear to be in "show-me" mode and are waiting for confirmation that the subscription clothing service has put its Q3 struggles behind it. That evidence might show up in Stitch Fix's fourth-quarter report in early October.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Demitri Kalogeropoulos owns shares of Amazon and Stitch Fix. The Motley Fool owns shares of and recommends Amazon and Stitch Fix and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. The Motley Fool has a disclosure policy.

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