What happened
Stitch Fix (SFIX 0.47%) stock fell considerably more sharply than the rest of the market on Tuesday: Its shares were trading down by 11% as of 3:30 p.m. ET, compared to a 3.6% slump in the S&P 500. The online apparel retailer is now down by more than 70% since the start of 2022.
Tuesday's slide specifically was sparked by pessimism about the economy and the e-commerce sector.
So what
The U.S. Labor Department reported Tuesday that inflation remained at a stubbornly high rate in August, which will likely keep pressure on the Federal Reserve to further increase interest rates. Such moves raise the potential for a recession, and so the wider market fell.
The Nasdaq Composite index, home to Stitch Fix and many other e-commerce specialists, was down by more than 5% near the end of the day's session as Wall Street worried about how a recession might impact discretionary spending.
Stitch Fix is entering this potentially weak selling environment without positive momentum. Executives said in early June that sales would likely fall by as much as 15% in its fiscal Q4, which ended in late July.
Now what
Investors won't have to wait long to find out how the business is faring. Stitch Fix will announce its fiscal Q4 results on Sept. 20, at which time management will update shareholders on its short-term outlook.
Investors are hoping to see evidence that management is making progress on fixing the company's issues with marketing and the confusion that its new direct-buy platform has caused among some of its subscription-based customers. But shareholders' main fear is that executives will cite a weakening macroeconomic environment while issuing a sour outlook for the new fiscal year.
Investors seeking a rebound story might find the stock attractive considering its huge decline so far in 2022. Yet it might be wise to wait and see if Stitch Fix can make progress on reducing its losses and returning to customer growth before calling it a growth stock again.
