What happened
Stitch Fix (SFIX -0.94%) investors were in a good mood early Tuesday. The beaten-down e-commerce stock jumped 10% by 10:45 am ET, compared to a 2% spike in the S&P 500. That boost barely made a dent in recent losses for the apparel retailer, though. Shares remain lower by 80% so far in 2022.
The rally came as investors become less pessimistic about the economy as we kick off third-quarter earnings season.
So what
The big banks ushered in the earnings season with generally good news that suggests consumer spending is holding up well as we head into Q4. Reports from Bank of America on Monday and Goldman Sachs on Tuesday painted a rosier picture than many investors had feared on the economy.
Stitch Fix cited macroeconomic concerns as a key factor behind its worsening sales trends. The company shed 370,000 clients in fiscal Q4, or 9% of its base, through late July. "Today's macroeconomic environment ... has been a challenge to navigate," CEO Elizabeth Spaulding said in late September.
The prospect of an improving environment helped convince investors to become a bit less pessimistic about Stitch Fix's short-term earnings prospects.
Now what
The stock remains extremely risky, though. Stitch Fix is posting net losses and is predicting a brutal 20% year-over-year sales decline in the current quarter. Management is slashing costs in a bid to take steps back toward profitability, but those cuts might also make it harder for the business to grow. Its expansion strategy is cloudy given that the launch of a direct-buy functionality isn't meshing well with its core subscription delivery service.
As a result, investors can't count on many more up days like this for the stock until the company demonstrates a clear path back toward growth and profitability.
The stock price decline in 2022 makes the stock susceptible to bounces higher when optimism finds its way back into the market. But Stitch Fix has lots of work to do to reestablish itself as a growth stock.
