In its most recent quarter, the online apparel retailer's business continued to unravel, with its number of active customers dropping 17% year over year.
Shares of Stitch Fix (SFIX 4.45%) dropped 21% on Tuesday, following the online personalized-apparel retailer's release on the prior afternoon of its report for the second quarter of fiscal 2024 (ended Jan. 27).
The stock's decline is attributable to the quarter's earnings missing the Wall Street consensus estimate, revenue guidance for the third quarter coming in lighter than analysts had expected, and management lowering its full-year top-line outlook. The magnitude of the decrease in "active clients" might have also been a tailwind.
Below is an overview of Stitch Fix's fiscal Q2 results and its guidance, centered around five key metrics. The company discontinued its U.K. business in the prior quarter, and this operation is now reported as a discontinued operation in its financial reports. The key metrics below are for continuing operations.
1. Revenue from continuing operations declined 18%
In fiscal Q2, net sales from continuing operations fell 18% year over year to $330.4 million, which was nearly in line with the $330.9 million Wall Street had expected. The result was in the middle of the company's own guidance range of $325 million to $335 million.
2. Active clients from continuing operations decreased 17%
| Metric | Fiscal Q2 2024 | Change YOY |
|---|
| Number of active clients* from continuing operations | 2,805,000 | (17%) |
| Average net annual revenue per active client from continuing operations | $515 | (3%) |
Data source: Stitch Fix. *The company considers an active client to be any customer who has bought at least one item in the past 52 weeks. YOY = year over year.
For context, last quarter, the number of active clients from continuing operations fell 15% year over year, and average revenue per active client from continuing operations declined 6% year over year.
3. Loss per share from continuing operations dropped 48%
The quarter's net loss from continuing operations was $35 million, or $0.29 per share, down 48% from the year-ago period. Wall Street was looking for a loss of $0.20 per share, so the company fell short of this expectation.
4. Free cash flow from continuing operations was negative $26.1 million
In fiscal Q2, free cash flow from continuing operations was negative $26.1 million. The company attributed the negative free cash flow to the "timing of receipts related to our inventory purchases in the first fiscal quarter."
Stitch Fix ended the quarter with $229.8 million in cash, cash equivalents, and short-term investments attributable to continuing operations, and no bank debt.
5. Full-year fiscal 2024 revenue from continuing operations is now expected to decline by 19% to 17%
For fiscal Q3 (ends April 27), management guided for revenue from continuing operations of $300 million to $310 million, which translates to a decline of 22% to 19% year over year. This outlook fell short of the analyst consensus estimate of $323.3 million.
For fiscal year 2024 (ends Aug. 3), management lowered its guidance for revenue from continuing operations to a range of $1.29 billion to $1.32 billion, down from $1.3 billion to $1.37 billion. The updated outlook translates to an annual revenue decline of 19% to 17%.
Continue to pass on Stitch Fix stock
Stitch Fix has a relatively new CEO who has solid related retailing experience. But I think it's highly unlikely any leader will be able to drive sustainable and profitable revenue growth because Stitch Fix's business model is flawed and seems unmendable.
As I've previously written, "I believe the main issue is that only a quite limited percentage of the apparel-buying population is interested in having a box containing apparel and accessories -- a 'Fix' -- that they did not choose themselves sent to them on a regular basis, or even just occasionally."
Beyond this core issue, the continued steady decline in the number of active clients reflects that a substantial number of customers who try the service are not satisfied with it.
There are much better stocks
Reiterating what I wrote after Stitch Fix's Q4 fiscal 2023 report:
Investors come to The Motley Fool looking for advice in helping them invest for the long term. So I don't like to be bearish on a stock I'm writing an earnings article about without offering investors some stocks that I'm bullish on.
After Stitch Fix reported its prior quarterly [Q3 fiscal 2023] results, I suggested investors explore athletic apparel specialist Lululemon and tech giant Nvidia.
These two stocks are up 123% and 25.7%, respectively, since June 8, 2023, when I initially mentioned them as just two examples of much better buys than Stitch Fix stock. Shares of Stitch Fix have been cut nearly in half since that date.
I think Nvidia and Lululemon still look attractive as long-term investments.
Beth McKenna has positions in Nvidia. The Motley Fool has positions in and recommends Lululemon Athletica, Nvidia, and Stitch Fix. The Motley Fool has a disclosure policy.
FAQs
For its fiscal second quarter ended Jan. 27, 2024, Stitch Fix reported: Total revenue declined 18% year over year to $330.4 million. Active customers fell 17% to 2.8 million.
Why is Stitch Fix stock falling? ›
The weak topline performance was impacted by a decline in active clients, which fell below expectations ( -17% year on year). Revenue per active client also came in weak (-3% year over year). The bigger concern is the underwhelming guidance as the company lowered full-year revenue and adjusted EBITDA guidance.
What are the 10 stocks the Motley Fool recommends? ›
See the 10 stocks »
Mark Roussin, CPA has positions in AbbVie, Alphabet, Coca-Cola, Microsoft, Prologis, and Visa. The Motley Fool has positions in and recommends Alphabet, Chevron, Home Depot, Microsoft, NextEra Energy, Prologis, and Visa.
Why is the Stitch Fix failing? ›
The company has struggled to retain clients in the face of rising competition, which now includes rental services like Rent the Runway and Nuuly. In its fiscal first-quarter earnings, reported, in December, Stitch Fix reported a net loss from continuing operations of $26.2 million.
What's going on with Stitch Fix? ›
Dive Brief: Stitch Fix is doing away with full-time styling positions as of March 31, the company confirmed by email. The news was first reported by Modern Retail. As of July 29, 2023, the styling box retailer employed about 2,620 stylists, according to its most recent annual report.
What is the lawsuit Stitch Fix? ›
As the company's deteriorating performance became increasingly clear to management, the insider trading defendants "sold tens of millions of dollars of stock while concealing the fact that its business would soon experience severe headwinds with a concomitant stock price drop," the complaint from shareholder Melonie ...
Is Stitch Fix going downhill? ›
Stitch Fix is down 27.4% since the beginning of the year, and at $2.61 per share it is trading 51.8% below its 52-week high of $5.42 from March 2023. Investors who bought $1,000 worth of Stitch Fix's shares 5 years ago would now be looking at an investment worth $91.94.
Why has the Stitch Fix gone bust? ›
When Stitch Fix announced the possibility in June, it said “the macroeconomic environment and our business have changed”, reporting a 20% net revenue drop from the previous year and a net loss of $21.8m (£17.5m), compared with a loss of $78m (£62.7m) in the same period in 2022.
What is the projection for Stitch Fix stock? ›
The average price target for Stitch Fix is $3.40. This is based on 7 Wall Streets Analysts 12-month price targets, issued in the past 3 months. The highest analyst price target is $4.00 ,the lowest forecast is $2.80. The average price target represents -1.45% Decrease from the current price of $3.45.
Which stock will boom in 2024? ›
5 best stocks to buy
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| 1. | Shriram Finance | NBFC |
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The Ultimate Portfolio for 2022 is a model portfolio built from stocks recommended in Stock Advisor and Rule Breakers, and works as an example for how you can better manage your risk through diversification without sacrificing your return potential.
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The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, and UiPath. The Motley Fool recommends Alibaba Group and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft.
Why is Stitch Fix losing customers? ›
Stitch Fix (NASDAQ:SFIX) is one such example: the fashion e-commerce company has seen sharp bleeding of customers and revenue over the past two years as its once-innovative business model has largely been deemed irrelevant.
Is Stitch Fix bad quality? ›
My Experience With Stitch Fix
Overall, I was impressed with the cuts and quality of Stitch Fix's clothes. You could definitely feel which pieces were made from synthetic material, but the trade-off for those was a lower price point.
What is better than Stitch Fix? ›
Check out our list of the best alternatives, and read our in-depth reviews to find the subscription that's best for you.
- Trunk Club. 3.5 overall. ...
- Gwynnie Bee. 2.6 overall. ...
- Wantable Style Edit. 2.5 overall. ...
- Dia & Co. 2.5 overall. ...
- Fabletics. 3.6 overall. ...
- JustFab. 2.9 overall. ...
- Rent The Runway. 3.7 overall. ...
- Wantable Active Edit.
Net revenue from continuing operations of $330.4 million , a decrease of 18% year-over-year. Active clients from continuing operations of 2,805,000, a decrease of 184,000, or 6%, quarter-over-quarter; and a decrease of 572,000, or 17%, year-over-year.
What is the outlook for Stitch Fix? ›
SFIX Stock 12 Month Forecast
Based on 7 Wall Street analysts offering 12 month price targets for Stitch Fix in the last 3 months. The average price target is $3.26 with a high forecast of $4.00 and a low forecast of $2.00. The average price target represents a -14.21% change from the last price of $3.80.
Is Stitch Fix getting rid of stylists? ›
The San Francisco-based fashion company has used algorithms since launching and has openly embraced advances in artificial intelligence. Stitch Fix, the personal styling company founded in 2011, is eliminating its full-time stylist positions. Article continues after video.
What age group is Stitch Fix for? ›
What ages can you style? Each shipment is completely customized to fit your individual preferences and needs. We carry a wide range of inventory that allows us to choose pieces that'll be perfect for your personal style—regardless of your age. However, you must be at least 18 to order a Fix delivery for yourself.
