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Stitch Fix Eyes Non-Subscribers Amid 29% Sales Jump

Online personal styling service Stitch Fix beat Wall Street estimates with net revenue of $571.2 million, an increase of 29 percent year over year in its fourth quarter. The California company surprised the Street with net income of $21.5 million on diluted earnings per share of 19 cents, outperforming Refinitiv’s projections of a 13-cent loss.

In a Nutshell: The earnings results came as Stitch Fix unveiled the public launch of its “direct buy” service, now officially dubbed Freestyle. With the option now open to all shoppers, anyone will be able to purchase items directly from Stitch Fix without ordering a Fix first.

“Early indications are that Freestyle is meaningfully accretive to revenue per active client metrics,” CEO Elizabeth Spaulding said in an earnings call. For the year, the retailer grew top-line net revenue for Freestyle more than 100 percent.

The data-driven company reported nearly 4.2 million active clients, up 18 percent from the 3.5 million a year earlier. These clients have bought a Stitch Fix product once in the past year. The company said net revenue per active client was $505, surpassing the $500 threshold for the first time ever, and 4 percent up from the $486 generated in the year-ago period.

Outsized growth in Stitch Fix’s women’s and kids’ categories, as well as triple-digit sales growth across the pond in the U.K., contributed to the total revenue jump. In particular, women’s dresses and other “socializing” items grew 51 percent in the quarter. Additionally, the stylist service’s investment in plus-size is paying off, delivering 51 percent growth in net revenue for the full year. Kids’ clothing jumped 75 percent for the year.

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“In a year where much of the world embraced a work-from-home model, we rapidly expanded women’s active, athleisure and lounge to meet the demand, growing revenue in these product categories more than four times in Q4 over the prior year and establishing this part of our assortment as a true engine of growth that we expect to power us going forward,” Spaulding said.

Chief financial officer Dan Jedda said that Stitch Fix is seeing “some impact” from current supply chain issues, though it shouldn’t affect fall or winter sales. He said Vietnam is in the “single-digits” of Stitch Fix’s total sourcing, and confirmed that the e-commerce retailer is not in a position where they need to use air freight.

Inventories totaled $212.3 million, a 70 percent increase over the $124.8 million carried in 2020, but flat quarter-over-quarter. The increase came as the company was in a “precarious” inventory position during the Covid-19 pandemic, and sought to buy in advance of any potential supply chain issues, according to Jedda.

“We’re covered on the first half. We’re watching very closely for the second half. And the reason, by the way, is we bought that product for fall and winter several months ago,” Jedda added.

In the coming weeks, Stitch Fix will be adding styles from new brands including Adidas, Good American, Vans, Levi’s, DKNY and Champion, with plans to onboard additional labels in the coming months.

Gross margin was its highest ever at 46.5 percent, representing a sequential increase of 50 basis points from the third quarter and a 160-basis-point (1.6-percentage-point) increase from the same period last year. The year-over-year gains were driven primarily by higher product margins and lower transportation costs through efficiency gains.

Teased in a prior earnings call, Spaulding reiterated that Stitch Fix will continue to invest significantly in its infrastructure to enable new inventory models, namely in building the network capacity and automation required to deliver on consignment-like inventory and drop shipping.

At the end of the period, the retailer had $129.8 million in cash and cash equivalents on hand. Working capital, calculated as current assets minus current liabilities, was $293.5 million.

For the company’s first quarter of fiscal 2022, which ends on Oct. 30, 2021, Stitch Fix projects net revenue of $560 million to $575 million, or a range between 14 percent and 17 percent year-over-year growth. The service also expects adjusted EBITDA to range between $15 million and $20 million, or a 2.7 percent to 3.5 percent of net revenue.

The full-year net revenue expectations are largely in line with the quarter, at more than 15 percent growth and adjusted EBIDA of more than 2 percent of net revenue.

Net Sales: Net revenue was $571.2 million, marking an increase of 29 percent year over year above the $443.4 million earned in the final quarter of 2020.

Full-year net revenue was $2.1 billion, up 22.8 percent from the year-ago period when Stitch Fix reeled in $1.7 billion.

Net Earnings: Net income attributable to shareholders was $28 million, or 19 cents per share, in the latest period. A year ago, Stitch Fix posted a net loss of $44.5 million, or a 44-cent-loss per share. Adjusted EBITDA totaled $55.4 million, compared to the $11.8 million taken in the 2020 quarter.

For 2021, the retailer incurred a net loss of $8.9 million and a diluted loss per share of 8 cents, an improvement over 2020’s $67.1 million loss. Full-year adjusted EBITDA was $64.9 million, an improvement on the $38.4 million last year.

CEO’s Take: Spaulding highlighted the potential for growth, revealing that tops and bottoms represent over 75 percent of Stitch Fix sales, despite being only 30 percent of its relevant apparel categories.

“We are now expanding into a broader range of brands and price points as well as investing further in product categories where we are seeing promising success through Freestyle and Fix Preview, namely footwear, dresses, outerwear, accessories and sleep and loungewear,” Spaulding said. “These product categories represent $90 billion in the U.S. women’s market alone and we have already started to see higher growth rates in categories like dresses through our Freestyle experience relative to Fixes. To enable this category expansion, we will broaden our partnerships with notable brands as well as create and power a set of new exclusive brands.”