What happened
Shares of Stitch Fix (SFIX +1.93%) were rising 8.6% this week compared to where they closed last Friday, according to data from S&P Global Market Intelligence, rebounding from last week's sharp 23% plunge.
The online fashion subscription service has been largely moving higher all week long on no company-specific news, and on Black Friday, may be benefiting from investor hope that consumers will be looking Stitch Fix's way heading into Christmas.
Image source: Getty Images.
So what
Stitch Fix seemingly hits all the right notes when it comes to what consumers are looking for. And yet sales continue to fall. Full-year revenue was down 16% in fiscal 2022 that ended July 30 (it will report fiscal first-quarter results next month) when it turned a $21 million profit in 2021 into a $96 million loss this year as the number of customers it had fell 9% from last year.
The problems plaguing Stitch Fix are the same facing the rest of the retail industry: Rampant inflation and higher energy costs have consumers targeting where they spend their money. It's expected to carry over into the new year as Stitch Fix is forecasting revenue to drop between 20% and 22% this quarter.
The clothing company is trying to expand into new verticals, first opening up a direct purchase option for all customers called Freestyle, which it then limited to only those who buy its monthly box of clothes subscription service. Revenue in that business did rise 21% for the year.
NASDAQ: SFIX
Key Data Points
Now what
Subscription box services of all stripes have had a rough go, whether it's Stitch Fix selling clothes, Blue Apron selling meal preps, or Bark Box selling dog treats. The problem is maintaining interest over long periods of time, especially when pocketbooks are being pinched. Superfluous services like that will be the first thing jettisoned when consumers have to cut back.
It's also more difficult to make a profit because shipping costs are expensive. Lower sales and higher costs of goods sold conspired to cause a dramatic spike in operating losses. Stitch Fix may see some respite with higher holiday sales and and a slight easing of energy prices.
