What happened
Shares of Stitch Fix (SFIX 0.46%) jumped 12.6% this week compared to where they closed last Friday, according to data from S&P Global Market Intelligence, after the online apparel subscription service received a ratings upgrade from Wall Street.
Last Friday, Wells Fargo (WFC -0.50%) analyst Ike Boruchow upgraded Stitch Fix to equal weight from underweight and set a $4 price target. That would represent a 14% gain from where the stock was trading just before the announcement. Stitch Fix shares are trading at $4.14 per share at 11:06 a.m. ET today.
Image source: Getty Images.
So what
While the analyst upgraded his view, his outlook for the subscription-based business seemed to be a backhanded compliment at best. Boruchow noted Stitch Fix was coming off its worst year since the global financial crisis and had few catalysts for growth in 2023. Maybe he was thinking that things were so bad that this year could only look better in comparison, and the only way the business could go was up.
Boruchow also believed the best investors could hope for with the company's upcoming fourth-quarter results was an "OK" performance, and the first quarter wasn't looking particularly favorable, either. Makes you wonder why he didn't leave his previous rating untouched.
The problems plaguing Stitch Fix are the same as those facing the rest of the retail industry: Rampant inflation and elevated energy costs have consumers targeting where they spend their money. The difficulties are expected to carry over into the new year, and Stitch Fix is forecasting revenue to drop between 20% and 22% this quarter.
Now what
Last week, Stitch Fix announced that it was cutting 20% of its salaried jobs, the second round of layoffs in just a few months, and that the CEO was stepping down. Founder Katrina Lake returned as interim CEO.
It's not easy to operate a subscription-box service like Stitch Fix when consumers are being pinched. Not only does it have to sustain interest over time, but a nonessential service is one of the first things consumers will cut from the budget when it comes to choosing between food or fuel and fun extras.
All subscription services are having a similarly rough go of it, including Blue Apron (APRN), which delivers meal kits, and BarkBox (BARK), which focuses on dog toys and treats. And Stitch Fix didn't do much to help itself by confusing customers with its new Freestyle service, which allows them to purchase clothes directly from its site, thus undermining the subscription aspect of its business.
Shares of Stitch Fix have lost nearly 80% of their value from their high point over the past year.
