What happened
Stitch Fix (SFIX -0.46%) shareholders had a good day on Tuesday, as the stock jumped 12% by 2:45 p.m. ET, compared to a 1.3% surge in the S&P 500. However, the e-commerce specialist remained in deeply negative territory for the year, down roughly 80% in 2022.
The rally came as earnings season started gaining steam, especially among tech stocks, and the investor outlook turned more positive.
So what
The Nasdaq Composite index, which is home to Stitch Fix and many other beaten-down tech stocks, surged higher by nearly 2% on Tuesday on hopes of a positive week for earnings ahead. Coca-Cola painted a bright picture on consumer spending habits, saying in a Tuesday morning press release that sales will likely rise by as much as 16% this year.
That upgrade, plus hopes around imminent earnings releases from major tech companies, had investors feeling more positive about the direction of the economy.
Stitch Fix cited weakening macroeconomic trends in its last quarterly update and projected more sharp sales declines ahead into late 2022. Yet continued elevated spending on the part of consumers might make its turnaround plan easier to implement. As a result, investors chose to send the apparel retailer's stock higher along with the broader market.
Now what
Stitch Fix has some major problems to work through over the next few quarters. It has been losing many of the new clients it won during earlier phases of the pandemic. The company's addition of a direct-buy feature confused many existing users, and its marketing approach has been struggling to keep ad effectiveness high. These factors contributed to significant net losses for the Q4 period that ended in late July.
Executives are predicting over 20% sales declines for the fiscal Q1 period as well, which ends in late October. A stronger economy might help Stitch Fix outperform that target.
But the stock will likely remain under pressure until investors see a clear path back toward steady sales growth.
