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Stitch Fix said the holiday was softer than expected.
Thanks to Stitch Fix
Stitch Fix shares traded sharply in the late trading session on Monday after the entry-level retailer achieved disappointing results for its fiscal second quarter and adorned the lead for the upcoming financial year, which begins in July.
Shares fell 23% to $ 53.14.
For the quarter ended January 31, Stitch Fix (ticker: SFIX) reported revenue of $ 504.1 million, up 12% from a year ago, but less than its proposed range of $ 506 million to $ 515 million. The company has an adjusted Ebitda loss – earnings before interest, tax, depreciation and amortization – of $ 8.9 million, wider than the proposed range of a loss between $ 3 million and $ 6 million. It lost 20 cents a share in the quarter, two cents better than the Street Consensus forecast of a 22-cent loss.
Stitch Fix had 3.9 million active customers at the end of the quarter, up 12% from a year earlier. Average revenue per active customer was $ 467, down 7% from a year ago.
In the third quarter of the year, Stitch Fix generated revenue of $ 505 million to $ 515 million, below the previous consensus at $ 523 million. For the full year, the company now sees $ 2.02 billion to $ 2.05 billion, compared to a previous estimate of $ 2.05 billion to $ 2.14 billion.
Stitch Fix blamed the quarterly revenue shortfall for delivery issues. “As a result of the pandemic, airlines have an unprecedented range during the holidays, and we have seen increased cycle times,” the company said in a letter to shareholders. The company said that, taking into account the factor, the revenue would have been within the guidelines.
Stitch Fix said it was “taking steps to diversify our outbound transport mix, and we are working with our primary carrier, the US Postal Service, to process our returns more efficiently.”
Stitch Fix also said its direct call option helped the company keep its ‘strongest month-on-month revenue growth of any January on record’ in January. But the company also said that ‘a softer holiday performance is seen than we expected’, with people switching from self-purchases to gifts.
In terms of leadership, Stitch Fix said it “sees strong trends for new customer acquisitions, a healthy level of retention for cars and increased customer engagement in direct buying.” But the company also said ‘longer cycle times … continued in February’, which could affect the second half of revenue.
“These longer cycle times, which mainly include delays in transportation and customers, have an impact on revenue recognition during the period and may delay subsequent Fix orders, as a large majority of our customers receive recurring Fix shipments,” said the company. “There is still a lot of uncertainty in light of Covid, and as a result we are taking a more measured approach to our prospects.”
The company also said that the implementation of the direct call option to new customers will only take place towards the end of this financial year. “Our product teams are focused on expanding the features of the user experience to ensure that direct purchase from the start is a great experience for new-to-Stitch Fix customers,” the company said. “As such, we plan to test the product throughout the third quarter to the fourth quarter before launching our full-scale product launch in the late fiscal quarter. This implementation period also plays a role in our revised guidance. ”
In an interview with Barron’s, Elizabeth Spaulding, president of Stitch Fix, said the company remains confident in its business model and its opportunity – she thinks 50% of the clothing market will move online by 2025.
But she also concedes that the company’s plan to offer the direct buying model to new customers compares to previous internal expectations, citing the complexity of the project. “We want to make sure we get it right,” she said.
Regarding the shipping issue, Spaulding notes that the company has seen cycle times – the period from shipping products to customers to returning to the company for unwanted items – that have increased “in the high double digits” on a percentage basis, a large change related to the delay of the carrier, although the company also had higher times of consumers before returning. She also notes that the February cycle time is bad due to bad weather, which particularly affected distribution centers in Dallas and Indianapolis.
Write to Eric J. Savitz at [email protected]