Stitch Fix (NASDAQ:SFIX) released a surprisingly good earnings report on June 7. In the days that followed, the stock price spiked 13.9% as investors took note of the acceleration in revenue growth, which jumped 44% year over year during the fiscal 2021 third quarter. Analysts had expected revenue to be $510 million, but Stitch Fix reported $535 million for the quarter.

It's been a wild couple of quarters for the online apparel retailer. After disappointing investors in the previous quarter, Stitch Fix seems to be clicking again. The most revealing part of the report was management's comments during the earnings call, discussing the impact of new shopping features that could keep the momentum going the rest of the year.

A person wearing an outfit styled by Stitch Fix.

Image source: Stitch Fix.

Fix Preview is driving higher order values

Stitch Fix finished the quarter with 4.1 million active clients, up 20% over the year-ago quarter. The company crossed a milestone, having shipped over 50 million Fixes since its founding. Still, Stitch Fix only makes money when clients decide to keep items they receive. Management sees a big opportunity to drive higher engagement and satisfaction with its service by giving clients more control over choosing the items in each Fix.

In the fiscal first quarter, Stitch Fix started testing a new feature called Fix Preview. It allows clients to see what is included in their Fix before it ships, and request changes. After a successful test in the U.K., the company expanded the feature to U.S. clients in Q3, and the early results show it's working as intended.

"Across the U.S. and the U.K. to date, we've seen roughly three-quarters of clients opt in to Fix Preview with strong repeat engagement, which has driven higher success rates and higher average order values," said company president Elizabeth Spaulding during the earnings call; she will take over as CEO in August.

Stitch Fix reported that net revenue per active client decreased 3% year over year, down from the 8% increase in fiscal Q2 2020, right before the pandemic. This isn't worrisome, because it reflects the sharp increase in new clients who are just beginning their relationship with the service. But as Fix Preview continues to be adopted by more clients, Spaulding's reference to the higher order values could mean that Stitch Fix can reach a higher growth rate in spending per client. And that could mean we haven't seen the end of Stitch Fix's revenue acceleration.

Clients are buying more items with direct buy

In Q3, Stitch Fix also continued to build on its direct-buy service. The company started allowing clients to buy certain items outside of their normal Fixes a few years ago, and it has been gradually improving this service to prepare for a broader expansion to new client sign-ups.

Direct buy includes different ways for clients to shop new "looks," such as Trending For You and Complete Your Looks, which use algorithms to show clients specific pieces that go with the items they have already purchased. The latest offering is Shop by Category, which allows the client to browse recommended items for specific occasions, and again, the early results look really good.

Spaulding explained that the Shop by Category launch has led to a record high in average weekly units ordered per client. "In addition, we've noted that our newest Fix clients are purchasing through direct buy at increasing rates, thereby meeting more of their needs and increasing their average spend with us."

The bottom line

It's becoming clear that the more options Stitch Fix provides clients to shop the service, the more growth it could experience.

"[W]e're now embarking on our next growth horizon through our introduction of direct buy, which expands our ecosystem of experiences and opens up a total addressable market that we estimate to be multiple times larger than Fixes alone," said founder and CEO Katrina Lake.

Stitch Fix plans to open direct buy to all clients, including new sign-ups, in the fiscal 2021 fourth quarter, which runs through July. Together, Fix Preview and the expansion of direct buy are two major growth catalysts that could send this consumer discretionary stock higher over the next few years.

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