Fashion web site Stitch Fix (SFIX 1.96%) lost 16% of its stock value in August, according to data provided by S&P Global Market Intelligence. There was no new specific to the company, so it seems that the decline was due more to pessimism about the company's prospects amid declining sales and management changes.
Stitch Fix markets itself as an online personal styling service, and it uses data and machine learning combined with a human personal stylist to create fashion looks for its clients. It has gone through several iterations since its inception in 2011, beginning as a pureplay "fix" experience where customers receive a monthly set of styled apparel, and moving on to nonsubscription fixes, fixes at chosen intervals, and Freestyle, where customers can choose their own pieces from a personalized selection.
It became very popular very quickly, and exploded during the pandemic. Now it's trying to grow into that scale, and it's having a difficult time. That wasn't helped by the exit of founder and CEO Katrina Lake last year.
In the third quarter (ended April 30), revenue declined 8% from last year, and active clients decreased by 200,000 to 3.9 million. That looks worrisome for what was previously a growth company. Even worse, net loss came in at $78 million, after the company had posted many (nonconsecutive) quarters of net income.
Management said that it was reducing salaried positions by 15% and total staff by 4% to bring the company in line with current growth projections. Revenue is expected to decline 13% to 15% for the full year, with adjusted loss before interest, taxes, depreciation, and amortization of $25 million to $30 million.
There were some rays of light, however, in the second quarter. Net revenue per client continued to climb, reaching $553, a 15% year-over-year increase. Sales from Freestyle increased 15% over last year, with Freestyle dress sales shooting up 75%. CEO Elizabeth Spaulding said that the addressable market for the Freestyle business is two to three times more than the fix-only business, giving the company more room to run.
Stitch Fix was once a growing business, and it certainly looks like it still has potential. However, it's figuring itself out at the same time that it's facing inflation and tough year-over-year comparisons from a time when there was still stimulus money in the marketplace. It looks quite risky right now from an investing standpoint.