Uncowed by Q2 Losses, Stitch Fix President Vows Growth

Stocks, in their infinite volatility, tend to react wildly to earnings misses, then settle in the following hours after the initial nerves wane — but not always.

A day after Stitch Fix disclosed second-quarter net losses and a revenues miss, the shares’ nauseating plunge has yet to right itself.

The problem, said Stitch Fix president Elizabeth Spaulding, is in how the industry values the earnings metrics.

“Revenue per active client is calculated as a 12-month view, and the denominator is all the new clients. We’ve added more clients in the last two quarters than we did in all of fiscal 20[20]. So that just naturally has a little bit of a downward tug on that calculation,” Spaulding told WWD, adding that the company wasn’t actually surprised by that.

In fact, the scenario points to something the company’s very excited about: “When you look at newer clients coming on the platform,” she said, “what we’re seeing is contribution margin expansion with our newer customers.”

The influx of new customers drawn by paid advertising over the previous three or six months, versus the same period a year ago, has not only grown, but in the right ways. Stitch Fix saw momentum across both its standard Fix offering and its newer direct buy service. The former ships curated assortments of recommended products to customers, while the latter allows shoppers to directly buy specific items. For Spaulding, understanding them both and the dynamics at play would be “a more accurate view of reality.”

View Gallery

Related Gallery

Backstage at Chanel RTW Fall 2021

The reason: Direct buy, also known as “Shop,” will expand in the fourth quarter to brand-new, first-time shoppers. So “just by launching direct buy, as another way to enter Stitch Fix, we see the opportunity to accelerate our active client population overall,” Spaulding explained.

It’s not clear if Wall Street will buy this rationale. But that won’t matter, if the plan works.

And that plan is to evolve Stitch Fix beyond just Fixes to encompass curated shipments and the direct-buy model in Shop. To prepare for the expansion, the company has already laid some groundwork.

Last year, the company rejiggered its staffing and distribution strategies. It shed some 1,400 California-based stylists and recruited in other regions. In the fall, it even surpassed its hiring targets, Spaulding confirmed. Meanwhile, Stitch Fix let go of a lease on a South San Francisco warehouse, deciding instead to spin up a new distribution center in Salt Lake City.

Work on the latter remains ongoing. When it finally opens, the facility will add additional capacity to the business, while other investments — such as flat packing and mezzanines — aim to boost density in the distribution centers. And to manage the evolving financial priorities, the company also brought on a new chief financial officer, Dan Jedda, in December.

These moves are coming at a critical time. Apparel retail, sensing the pent-up demand from locked down consumers, can finally see light at the end of the pandemic tunnel, with more vaccines going out and restrictions easing.

Not that there aren’t plenty of challenges between here and there — Stitch Fix has already blamed one, namely carrier delays, for dinging its latest earnings. But those that can make it through the tunnel could see a boom waiting on the other side and beyond.

“We think close to 50 percent of apparel will be online by 2025, and we’ve seen five years move forward within this past year,” Spaulding continued. “And commensurate with that, you know, we’re feeling great about our new customer demand trends. We have 50 percent year-on-year growth in our first Fix shipments, up from 25 percent last quarter.”

That has Stitch Fix in preparation mode to build on that basis, so it can “meet the moment.” Part of that push is a deeper focus on the customer experience, with the data-driven styling service pointing its considerable tech talent at things like consumer-facing content.

According to Stitch Fix, people have been clamoring for more content, and that’s already informed a number of features. Fix Preview, which lets Fix customers peep upcoming shipments, will go out to all U.S. customers this year. The company is also testing Live Styling, which makes live stylists available to consumers via direct video.

“There might be other mediums [in which] you could interact with a stylist or even see stylist video content in the future,” the Stitch Fix executive added. It’s unclear whether that amounts to something like live-shopping features or perhaps integrated social-oriented video. But what’s certain is that the company is eager to explore ways to bring more customers into the fold.

“I would anticipate more innovation over the quarters and years to come,” Spaulding said, “all under this umbrella of personalized shopping inside of discovery.”

Source: Read Full Article