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Why Stitch Fix Stock Jumped 12% in September

By John Ballard – Oct 6, 2020 at 2:26PM

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Investors see long-term growth potential from its direct buy service.

What happened

Shares of Stitch Fix (SFIX 0.55%) gained 12.3% in value last month, according to data provided by S&P Global Market Intelligence. The online apparel seller and styling service delivered a larger-than-expected loss when it reported its fiscal first-quarter results on Sept. 22. However, investors were more focused on positive developments such as growth in the number of the company's active clients and the growing adoption of its direct buy service. 

The stock was already rebounding to start the month as investors have been optimistic about the company's ability to gain market share with more consumers going online to shop for apparel.

A woman unboxing a Stitch Fix order.

Image source: Stitch Fix.

So what

Direct buy has proven a hit with Stitch Fix clients. Sales of women's activewear grew by 350% year over year during the quarter, driven by strength across regular Fixes and direct buy. Stitch Fix recently launched its Trending For You service for direct buy clients; in the first two weeks after that debuted, the company experienced a 30% year-over-year increase in weekly direct buy orders. 

Stitch Fix's revenue grew 11% year over year for the quarter, and active clients grew 9% to reach 3.5 million. Overall, then, it's performing better than average in the retail clothing industry, where many incumbents have reported revenue declines.  

Now what

"As traditional retailers close their doors, consumers are shifting to Stitch Fix as evidenced by our increased demand and growth, validating that we're taking share," said President Elizabeth Spaulding during the earnings conference call. 

So far, a relatively small number of clients are using direct buy, which leaves a lot of room for continued growth as more clients adopt it. It's also encouraging that two-thirds of customers who have tried direct buy have returned to make another purchase. 

Management believes direct buy offers a "step change" in the company's growth trajectory; that potential is largely why investors remain bullish on Stitch Fix's future. 

John Ballard owns shares of Stitch Fix. The Motley Fool owns shares of and recommends Stitch Fix. The Motley Fool has a disclosure policy.

Stocks Mentioned

Stitch Fix Stock Quote
Stitch Fix
$3.69 (0.55%) $0.02

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