Stitch Fix Trips on Its Own Heels

Stitch Fix said holiday carrier delays resulted in expected revenue being pushed out. Unlike other e-commerce companies, which tend to recognize revenue when an item is shipped, Stitch Fix only does so when a client checks out after having tried on their new items at home. The longer it takes clients to receive a Fix, the longer it will likely be before they purchase the next one since they tend to buy in a regular pattern.

Meanwhile, a la carte purchasing wasn’t exactly a boon. Stitch Fix said it was surprised by lighter than anticipated direct-buy purchases from existing clients during the holidays. In retrospect, this makes sense. Direct-buy purchases are personalized to the client—a top already purchased but in another color, for example. During the holidays, buying for oneself appears to have taken a back seat to gift giving, leading to softer holiday performance in the direct-buy segment. The company said it expects to roll out a la carte purchasing to new clients by the end of the fourth fiscal quarter—another disappointment to investors hoping for its availability earlier in the fiscal year.

But there is light at the end of the runway, especially with the shares falling so significantly. Because some clients didn’t love the element of surprise in receiving a “Fix,” the company said it is now allowing clients to preview Fix items before they are shipped. It also said it is gearing up to dropship, a dramatic change from holding all its own inventory. The company is also beta testing a consignment-like model in which it essentially holds new inventory but doesn’t pay until it is sold. Lastly, Stitch Fix said it is testing live styling video calls, which would give clients the ability to show a stylist their closets rather than hope an algorithm works, sight unseen.

These changes should materially increase Stitch Fix’s addressable market, resolving pain points that the company has encountered thus far. Even without them, though, Stitch Fix is due for a windfall. Growth in new clients receiving a Fix for the first time was up 50% year-over-year in the fiscal second quarter—good news, given that clients tend to increase their spending as they mature on the platform. The company also said that spending by men hasn’t yet come back as quickly as it has for women but seems likely to change, as offices open back up later this year. Stitch Fix said it expects fiscal 2021 revenue to grow at least at double the rate it achieved the year prior.

Stitch Fix was a company trading at record highs in January as a supposed beneficiary of the online shift in retail accelerated by the pandemic. The company is now working to debut a vastly improved model at a much more reasonable price.

Investors might want to at least try it on for size.

Write to Laura Forman at [email protected]