Retailer should promote the new Freestyle option

Retailer should promote the new Freestyle option

Stitch Fix logo on a smartphone displayed in Hastings-on-Hudson, New York, United States on Saturday, June 5, 2021. Stitch Fix Inc. Results are expected to be released on June 7.

Tiffany Hagler Gear | Bloomberg | Getty Images

Now that Stitch Fix has implemented a new way for shoppers to shop for clothes, the online styling department should take advantage of the coming year to bring it to the masses.

“It will take time for consumers to know it’s there,” CEO Elizabeth Spaulding said in an interview Wednesday with CNBC’s Sarah Eisen.

Stitch Fix is ​​known for its subscription offering, which sends customers bundles of handpicked clothing and accessories. The selections are guided by the company’s AI. Now, Stitch Fix is ​​extending the direct purchase option, known as “freestyle”.

“We’re going to be launching a lot of new features, more brands and individual stores,” Spaulding said. “We want to give ourselves the time to really make this big change by becoming the destination for personal shopping and style.”

Stitch Fix stock closed more than 15% on Wednesday at $ 41.01, after falling nearly 30% so far.

Investors rallied on optimistic Stitch Fix fourth quarter results released after the market closed on Tuesday. But many are also looking to the company’s future prospects, as Spaulding takes Stitch Fix in a new direction with a potentially huge market opportunity.

Spaulding said he hopes the changes will help the company grow its traceable market. Previously, customers had to be Stitch Fix customers to purchase clothes or shoes from their website. From now on, direct purchase is accessible to the public.

But Spaulding also said Stitch Fix will need to invest heavily in “freestyle” advertising to a wider audience who may have resisted listing in the past.

The hope is that direct selling will increase profitability in the long run. The company said “Freestyle” is already increasing the average amount spent by active Stitch Fix customers. In the last quarter, this metric surpassed $ 500 for the first time.

Stitch Fix now has approximately 4.2 million active customers, who are people who have either ordered a “Fix” subscription or purchased an item directly from its website in the past 52 weeks from the last day of the quarter.

A “significant test” to come

Still, most analysts remain cautious. Spaulding has been less than 100 days in his role as CEO. And since founder Katrina Lake took over on August 1, she’s already moving the company away from a subscription-based model.

In a research note, Stitch Fix had a better-than-expected fiscal fourth quarter, Wells Fargo analyst Ike Borucho said in a research note. But the company is not “pulling all the cylinders,” he said.

For one thing, the outlook for the online styling service is lackluster. Stitch Fix forecasts revenue growth in its current fiscal year for fiscal 22, of at least 15% over the previous year. Borucho notes that despite increased investment in marketing, the company’s multi-year average falls below 20% year-over-year growth.

“The online clothing dynamic has been stronger than that,” Borucho said.

Stitch Fix’s inventory is also around 80% higher than 2019 levels, which could impact profits, he added. Wells Fargo is underweight Stitch Fix stocks with a price target of $ 35.

Some analysts see potential, but want to see signs of progress in the coming quarters.

JP Morgan analyst Corey Carpenter said in a research note: “We believe that ‘Freestyle’, which has been very successful with existing customers to date, is now a more meaningful test in its ability to successfully lead the acquisition of new customers. “oriented.”

And there are other red flags. Carpenter noted that Stitch Fix added just 58,000 active customers in its last three-month period, the lowest in six quarters. They expect net growth to similar and disappointing levels in the first half of FY22.

Spaulding dismissed this concern on Wednesday, saying the summer months are slow for user development.

“We saw exactly what we thought we were seeing,” she said.

To be more positive on JPMorgan stocks, Carpenter said, the company’s earnings “must constantly turn around after several years of compression.” With a price target of $ 45, JP Morgan has a neutral rating on Stitch Fix stocks.

Stitch Fix has a market value of $ 4.4 billion.

—CNBC Michael bloom contributed to this report.

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