Stitch Fix Stock Heads To All-Time Low As Future Growth Uncertain
The Stitch Fix logo on a smartphone laid out in Hastings-on-Hudson, New York, U.S. on Saturday, June 5, 2021. Stitch Fix Inc. is expected to report earnings on June 7.
Tiffany Hagler Gear | Bloomberg | Getty Images
Americans are getting dressed. But that doesn’t mean all apparel retailers will benefit from post-pandemic wardrobe refreshes.
Stitch Fix is the latest example. Its shares are poised to open at an all-time low on Wednesday morning if they fall below $10.29.
After the company revealed a bleak outlook for its fiscal third quarter on Tuesday evening and cut its full-year guidance, Stitch Fix chief executive Elizabeth Spaulding tried to convince analysts at a conference call. telephone that the company’s longer-term strategy remained intact.
Over the past three months, Spaulding said Stitch Fix has struggled to onboard new customers, who pay for custom boxes of clothing and other accessories delivered to their homes, called Fixes. But perhaps more concerning to analysts and investors was the fact that the company’s recent rollout of a direct call option, called Freestyle, didn’t convert as many people into Stitch Fix customers as the company did. ‘planned.
“We are still learning how to best onboard early Freestyle customers and recognize that we have work to do on the Freestyle experience,” Spaulding said on the call.
It hasn’t even been a year since Spaulding took the reins as CEO from Stitch Fix founder Katrina Lake last August. But since then she has spearheaded new company initiatives, including the rollout of the Freestyle, to win new customers.
Analysts are beginning to question Spaulding and his team’s execution of these initiatives.
BMO Capital Markets analyst Simeon Siegel noted that Stitch Fix’s investments in Freestyle are significantly different from the company’s original mission and format of selling select boxes of clothing by subscription, which during its launch were “new and different”.
“Ultimately, the push to Freestyle is an attempt to improve everyday retail,” Siegel said. “Whether or not it succeeds will depend on the execution of the business. … At the heart of it, the success of Freestyle will depend on it being a better version of the way people are already buying.”
Truist Securities downgraded the shares of Stitch Fix on Tuesday evening from being bought. Analyst Youssef Squali wrote in a note to clients that management’s execution so far appears to be in dispute. Stitch Fix now offers little visibility into how quickly negative trends will reverse, he said. Truist has reduced its price target to $12 from $40.
Telsey Advisory Group also cut its price target to $14 from $25. The company lowered its rating to market performance from outperformance.
“While we expected [Freestyle] to expand the company’s addressable market and generate incremental revenue, it has proven difficult to deploy without adding friction to onboarding new Fix customers,” said Dana Telsey, Managing Director and Director of Research .
For its fiscal year, which ends July 30, Stitch Fix said Tuesday it expects revenue to be flat or slightly down year-over-year, assuming active customer numbers are flat through the end of the 12 month period. Analysts had expected revenue to rise 8.1% for the year, according to Refinitiv estimates.
Shares of Stitch Fix had closed Tuesday at $11.01, giving the company a market capitalization of around $1.2 billion.
— CNBC’s Michael Bloom contributed to this report.
This story is developing. Please check for updates.