What happened
Share of online personal styling service Stitch Fix (SFIX 3.69%) fell 12.5% in April, according to data from S&P Global Market Intelligence. But Tapestry (TPR 1.50%), the owner of Coach, Kate Spade, and Stuart Weitzman, rose 16%. And the far more mainstream Camping World Holdings (CWH -0.96%), which caters to the RV market, advanced an even more impressive 19.5%.
There's a lot going on here that shows you can't simply talk about the retail sector as if it were a uniform group. Indeed, there are material subtleties hidden beneath the surface if you take the time to look.
Image source: Getty Images.
So what
The Stitch Fix concept is an interesting one. Using the power of the internet, you can get professional help with your "look." Not bad for those who are stylistically challenged or just simply don't have the time to ensure they are on trend. However, the company's new client growth rate was cut in half in 2020. Revenue growth, meanwhile, fell from 26% in 2019 to 11% in 2020, thanks to the fact that each client was, on average, spending less. In fairness, these trends make sense -- why spend as much to look your best if you are stuck at home in a pandemic?
That said, the rollout of vaccines has allowed more people to get out. Stitch Fix's customer growth and overall revenue have picked up, but its average spend has fallen by 7%. Investors might be worried that it isn't hitting on all cylinders as the recovery unfolds. It doesn't help that the founder and CEO decided to step down in April, creating a little additional uncertainty about the future. To be fair, it's not like Stitch Fix's business has fallen off the rails, but it lost $0.20 per share in the fiscal second quarter of 2021, suggesting that the concept may not be catching on as well as hoped. All in, investors don't appear too pleased with what's going on at this very niche retail name right now.
Tapestry's stock, meanwhile, had a great run in April, as the high-end retailer is expected to benefit from the ongoing economic reopening. So far, frankly, it has been doing pretty well in that regard. The company's fiscal second quarter of 2021 was its second consecutive quarter in the black, after suffering early on from the shutdowns used to slow the spread of the coronavirus. In fact, the strength of the business outpaced internal expectations, which is an incredibly encouraging sign. Even more pleasing, perhaps, is that the company announced that it expects 2021 to see roughly 10% revenue growth year over year, providing a broad guideline for the company's ongoing recovery and another reason for investors to be bullish in April.
Camping World shifts the retail story to an entirely different place, since the company has been benefiting from the pandemic's social distancing theme. Indeed, traveling in an RV is a way to avoid people and enjoy yourself at the same time. April, meanwhile, was a pretty busy month for the company, as it announced business expansion plans, bought a reservation service provider, said it will start accepting Bitcoin, invested in an audio app for travelers, provided additional details on a peer-to-peer RV rental service it's planning, and increased its dividend by nearly 9%. That's a lot of positive news all cramped into one month. No wonder investors were excited about this name and its rather pedestrian business, even though it is likely to cool off some as social distancing becomes less important. It's worth noting that the company reported strong earnings results in early May.
Now what
There's nothing inherently wrong with Stitch Fix, but it is still working to build its niche business and 2020 was not a great year for that. Although things are getting better, bleeding red ink and slowing spending trends are not good signs. The CEO departure simply adds to the uncertainty. That said, there are clearly other areas of the retail sector that are bouncing back, like the high-end stores operated by Tapestry. With a strong core business, investors are rewarding it for its success. Meanwhile, Camping World shows that, despite the likelihood of a retracement at some point given that vaccination rates are growing, the pandemic may have a lingering benefit. The big takeaway, though, is that it's probably more important than ever to dig into the stories behind the stocks in the retail sector.
