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Stitch Fix ‘Excited’ About Fashion Resale

Stitch Fix generated third-quarter revenue of $535.6 million, an increase of 44 percent year over year and out in front of Refinitiv estimates of $511 million, sending the company’s shares up 16 percent in after-hours trading. The online personal stylist service and retailer narrowed net losses to $18.8 million from $33.9 million in last year’s Q3.

In a Nutshell: While the shipping delays at key West Coast ports increased “cycle times” in Stitch Fix’s second quarter, chief financial officer Dan Jedda said in an earnings call that the shipping windows have come back down to pre-holiday levels, but remain elevated compared with a year earlier.

“We had seen an increase in cycle times during the holiday and then again [in] February, which we attributed to the weather and we expected those cycle times to come down in March and April,” Jedda said. “We did in fact see cycle times come down mainly on both our client holding time and our carrier delivery times. They have come down to pre-holiday levels.”

The company earnings call was the last for Katrina Lake in her position as CEO, as she will become executive chairperson on Aug. 1. Lake first announced in April that she was stepping aside from the role, with current president Elizabeth Spaulding succeeding her in the post.

In line with current trends, Spaulding noted that all signs point to “dressier, more tailored looks,” with rompers and jumpsuit sales in the women’s category increasing 60 percent year-over-year and midi skirt sales jumping more than 80 percent year-over-year.

The female customer “is also traveling again and we’ve seen an increase in requests for vacation-related items and Fixes, and bright seasonal colors in particular are doing exceptionally well,” Spaulding said in the call. “In men’s, he is beginning to venture out of leisurewear and seek more structure with button-up shirts trending recently in our Fix Request note. These positive underlying demand and client satisfaction results reflect our differentiation being able to collect early signals to identify trends and react to deliver great client outcome.”

Activewear and athleisure continue to be Stitch Fix’s highest growth categories, but Spaulding believes they will decelerate over time.

Inventory jumped 72.7 percent to $215.6 million for the quarter from $124.8 million in the prior-year period, with the company putting a bigger focus on its growing direct buy business model. By the end of the year, Stitch Fix plans to open up the direct buy service to all shoppers, instead of current subscribers.

“As we scale direct buy, breadth and depth of selection become more important to us. We want our direct buy customers to come back weekly and daily and we’re going to continue to invest in selection,” Jedda said. “We are focused buying our inventory in the most efficient way possible.” He said the merchandise for the direct buy will continue to be a mix of private-label and third-party brands.

While the company’s biggest strategic priority continues to be its expansion of product offerings, Spaulding said Stitch Fix is “excited” about upcoming investments in a consignment-like model as well as drop shipping.

“We’ve made progress every quarter for the last year or so on developing the technology, partnering with many of our great vendors in beta mode of these new offerings,” Spaulding said. “And so we have nothing specific yet to share, but that we will be making multi-quarter investments to scale up these new models.”

The online personal stylist scaled the availability of Fix Preview to its entire U.K. client base and to over half of its U.S. clients. The new tool, which gives clients the chance to view prospective items and work with a stylist to tweak them before they ship, has seen approximately 75 percent of clients opting in, resulting in higher average order values.

Stitch Fix now has 4.1 million total active clients who checked out a Fix or purchased via direct buy in the past year, an increase of 689,000, or 20 percent from the third quarter of 2020, and up 234,000 clients quarter over quarter.

Net revenue per client of $481 slipped 3 percent from the year-ago period, which generated $498 per person. Jedda attributed the dip to an influx of new clients who are early in their spending.

“Revenue per client may be lower until these new cohorts of clients have more time on our platform,” Jedda said.

Third-quarter gross margin grew 520 basis points (5.2 percentage points) to 46 percent, which marked the company’s highest quarterly gross margin since fiscal 2017. It represented a sequential increase of over 310 basis points (3.1 percentage points) from the second quarter. Year-over-year, these gains were primarily driven by improvements in inventory health and lower merchandise cost.

Stitch Fix ended the quarter with no debt, and $303 million in cash, cash equivalents and highly rated securities. And earlier this month, the company renewed a three year, $100 million revolving credit facility.

For the fourth quarter, Stitch Fix expects net revenue of $540 million to $550 million, or year-over-year growth of 21.8 percent to year-over-year growth of 24 percent. Adjusted EBITDA is anticipated to be between $15 million and $20 million.

In the full year, net revenue is anticipated to come between $2.07 billion and $2.08 billion, a growth range of 20.9 percent and 21.5 percent. Adjusted EBITDA for the year is expected to be between $25 million and $30 million.

Net Sales: Net revenue totaled $535.6 million, an increase of 44 percent year over year from the $371.7 million taken in during the third quarter of the year before.

Net Earnings: Stitch Fix had a net loss of $18.8 million on diluted losses per share of 18 cents, alongside adjusted EBITDA of $11.6 million. The losses were a significant improvement from the $33.9 million loss in the third quarter of 2020, or 33 cents per share.

CEO’s Take: Lake shared her thoughts on the potential role resale could play in the Stitch Fix business.

“We’re very interested in how can we extend the life of the garments,” Lake said. “We have many clothes that we’ve sold into people’s homes, we know a lot about that and the data advantage that we have can be just as powerful, if not more powerful, in the secondhand world. I think we’re probably more interested in secondhand versus rental to be honest. But there is definitely a lot of excitement and internal momentum.”

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