What happened
Stitch Fix (SFIX 0.47%) shareholders lost ground to a falling market this week. The stock declined 11% through Thursday trading, according to data provided by S&P Global Market Intelligence, compared to a 4.1% slump in the S&P 500. The drop added to big losses for owners of the e-commerce specialist, which is down over 70% so far in 2022.
General economic worries drove the slump, but Wall Street also has big concerns heading into Stitch Fix's upcoming earnings report.
So what
The main factor driving Stitch Fix shares lower was news from the Labor Department showing that inflation remained stubbornly high in August. That update stoked fears of a pullback in consumer spending on the way that would impact many businesses.
Stitch Fix cited inflation as a drag on sales in its last earnings report. High inflation also raises the likelihood that the Federal Reserve will be aggressive in raising interest rates, potentially pushing the economy into a recession in hopes of getting prices under control.
Stitch Fix investors have specific concerns about the business, too, with an earnings report slated for Sept. 20. The company predicted back in June that sales declines will accelerate to as much as 15% this quarter. A steeper fall isn't out of the question, either, if e-commerce demand weakened over the summer season.
Now what
Stitch Fix is also likely to report continuing net losses for the fiscal fourth quarter, which ended in August. But watch for progress at reducing those losses thanks to management's aggressive cost-cutting program. A lower expense burden will give the company flexibility and could amplify earnings gains when a demand rebound arrives.
But the key trend to watch is Stitch Fix's customer acquisitions. The company shed clients last quarter, and no amount of cost cutting will return the business to growth-stock status without a return to steady signups of new customers.
