What happened
Shares of Stitch Fix (SFIX 3.69%), which bills itself as an online personal shopping and styling service, fell sharply at the open on March 9, losing as much as 20.5% of its value in early trading. The big story here was the retailer's fiscal second-quarter 2022 earnings release, which hit the market after the close on March 8. Investors were clearly displeased with the update and for good reason.
So what
Stitch Fix's sales came in at $517 million in the fiscal second quarter of 2022, up around 3% from the same period of fiscal 2021. Notably, sales per client reached $518, up 18% year over year. It was the third consecutive quarter that per-client sales were above $500. The company has 4.02 million active clients, up 4% year over year. All in, the company's top line bested Wall Street's expectations. Stitch Fix lost $0.28 per share in the fiscal second quarter. That was worse than the $0.20 per share it lost in the same period of fiscal 2021, but actually better than what analysts had been predicting. That's the good news.
Image source: Getty Images.
Unfortunately, the bad news is that Stitch Fix went on to provide weak guidance for the fiscal third quarter of 2022, calling for sales to fall as much as 10% year over year. In fact, CEO Elizabeth Spaulding said, "[W]e continue to experience challenges with onboarding and conversion of clients."
That's not a positive take on the company's results and suggests that the business model here is still struggling to gain traction. The CEO went on to explain that Stitch Fix is working to grow its client base and, effectively, make its service more attractive to use, but the third-quarter guidance was troubling enough to put investors in a selling mood.
Now what
Roughly an hour into trading, Stitch Fix stock had clawed back about half of its losses and was sitting at a roughly 11% decline. The truth is that this is a unique business trying to take what would typically be an in-person experience and shifting it to the web. It isn't surprising that it might require ongoing tweaking to get the model right. There are bound to be more ups and downs along its journey. Still, Stitch Fix is a public company and it eventually needs to make a profit. Investors are probably right to be a little leery about the near-term prospect of that right now given the CEO's comments.
