Shares of Stitch Fix (SFIX -3.36%) were falling today after the online styling service got hit by an analyst downgrade this morning.
The e-commerce stock was down 9.6% as of 2:20 p.m. ET.
J.P. Morgan analyst Cory Carpenter lowered the rating on the e-commerce stock from neutral to underperform, and said 2023 could bring continued macroeconomic headwinds to Stitch Fix and the rest of the apparel sector.
The downgrade comes just two weeks after Stitch Fix issued another dismal earnings report with revenue declining 22% in the fiscal first quarter to $455 million. Active clients were down 11% to 3.7 million, and it posted an adjusted EBITDA loss of $7.4 million, compared to an EBITDA profit of $38.2 million in the quarter a year ago.
The apparel company's guidance was also underwhelming as it called for a revenue decline of 19% to 21% in the current quarter and a break-even adjusted EBITDA.
The stock is now down a whopping 97% from its pandemic-era peak when a short squeeze briefly drove the price upward of $110 a share, showing how the business has unraveled since then.
There's no simple reason why Stitch Fix stock has collapsed. Broader headwinds on e-commerce stocks and the aftereffects of the pandemic are one reason, but the company's biggest challenges have more to do with the underlying business. The rise of remote work has killed demand for workwear, a core use case for Stitch Fix, which eliminates the hassle of searching for clothes to buy, and poor execution by new management also seems to be to blame. Finally, its rollout of Freestyle, its service that allows customers to shop directly on the site rather than by getting a "Fix" shipped to their home, has also fallen flat.
Based on the company's guidance, it doesn't seem like management expects a turnaround anytime soon. While the idea behind Stitch Fix still holds promise, it will be difficult for the company to capture its earlier momentum. For starters, it could use better execution and a friendlier macroeconomic environment, which seems unlikely to happen in the near future.