Stitch Fix's (SFIX -2.97%) stock has taken a beating over the past year, but there are positive signs ahead. In this video clip from "The Virtual Opportunities Show" on Motley Fool Live, recorded on May 31, Fool.com contributor Rachel Warren outlines the significant growth potential that the online styling service is projecting by 2026.
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Rachel Warren: This is a company I'm just now looking into. It's not one I own, it's not one I'm jumping onto buy right now, but it's one I'm paying closer attention to, as you mentioned, they've been beaten down really hard in recent months.
For anyone that doesn't follow Stitch Fix, they're a personal styling service and their mantra is that we combine data science and human judgments delivered for apparel, shoes, accessories, personalized to clients' unique tastes. They ship to all 50 states and U.S. territories plus the U.K. shipping returns and exchanges are free.
How it works is you basically, you go on Stitch Fix, you take a style quiz, you pay a $20 styling fee which covers the stylist's expertise and time. You can try items on before you actually press the buy button, and you can also do shipping returns for free, so if you try on those items and let's say you want to go ahead and buy a couple of pieces and you don't like the rest, there's a prepaid return envelope, it's included, and so there's no hidden fees there. You don't have to subscribe.
It's a pretty simple and easy-to-understand business model. They did recently announce a new service that's a little bit outside this traditional way of how they've done things. I think it's called Freestyle, where essentially you can just go on Stitch Fix and you can buy items outright rather than going through a stylist.
Super interesting company, we don't have a ton of time here today, but I do want to cover just briefly. One of the things that's interesting, they see in their most recent investor presentation. We see that there's a huge, massive market opportunity across the U.S. and the U.K., which is mentioned those are the two markets that the company operates in right now.
For example, the U.S. and U.K. apparel footwear, and apparel accessories market represented in 2021 a $434.9 billion market opportunity. They think that same market in the U.S. and the UK is going to represent a $543.8 billion market opportunity by the year 2026. Just four years from now. With online sales representing about $258.3 billion of that. There is a lot of opportunity there.
Again, one of the things they do and is sort of their mantra is they have this personalization model where they leverage the knowledge of stylists as well as data science to basically predict what their customers will like and want to buy. They say predictive algorithms help stylists successfully serve clients. They have a 63% match score.
It's a really interesting model. There's clearly a lot of growth opportunity within this space. It's no secret that the apparel accessories market within the broader e-commerce space, there's a lot of opportunity there and even outside of e-commerce.
What has been interesting and I think what remains to be seen for Stitch Fix is how profitable this can be for them. We know the space they operate in, there's a lot of growth potential. It's still a lot of market that has yet to be tapped into. They have a very simple and easy-to-understand business model.
But the financial metrics have not been super strong of late, so they report their third-quarter earnings for fiscal year 2022 in early June. Just coming up in a little over a week here. In the most recent quarter, net revenue was up just 3% year over year. Active clients surpassed four million. That was up 4% year over year. Net revenue per active client grew at a much stronger clip of about 18% year over year. Although the company did report a net loss of about $31 million.
It's an interesting company. I like what they're doing. This idea of personalized styling services, also combined with the online shopping model using a really strong and proven platform driven by data science. They have a whole team of data scientists that they employ. It's really fascinating.
