Stitch Fix Shares Crumble as Company Cuts Forecast

Despite topping its earnings estimates on Tuesday, shares of Stitch Fix were falling after the company cut its forecast.

The share price drop occurred despite the retailer reporting a narrower than expected fiscal first quarter loss and beat analysts’ sales expectations.

Wall Street was more concerned with the company slashing its revenue outlook for the fiscal year, saying that it faces ongoing supply chain pressures and is in a transition period as it brings on new users.

For its fiscal second quarter, Stitch Fix sees sales ranging between $505 million and $520 million. Analysts had been looking for $585 million in sales.

For the year, the company expects revenue growing at a high-single-digit rate, down from its prior outlook of 15% or more growth. Analysts had been looking for sales to be up 15.7% year over year.

The stock tumbled 18% in extended trading Tuesday.

The online shopping and styling company cited supply chain issues and the need to still educate consumers on its Freestyle option.

The number of active customers also using its services fell short of expectations, hinting at slowing demand.

The company said a recent promotional offer resulted in a wave of new customers who briefly joined Stitch Fix but didn’t stick around.

“We’re in this big learning phase of onboarding new clients to the Freestyle and the Fix experience,” said CEO Elizabeth Spaulding in a phone interview. “And there’s this broader supply chain backdrop. … We wanted to make sure we were being appropriately conservative for the year.”

For the quarter ended October 30th, Stitch Fix reported a loss per share of 2 cents. This is compared to a loss of 14 cents that had been expected by Refinitiv.

Revenue at $581 million was also better than the $571 million that had been expected, per Refinitiv.

The company reported a net loss of $1.83 million, or 2 cents per share, compared with net income of $9.54 million, or 9 cents per share, a year earlier. That was ahead of analysts’ estimates for a per share loss of 14 cents.

Sales grew 19% to $581 million from $490 million a year earlier. This also beat expectations for $571 million.

Active clients grew 11% to 4.18 million from a year ago. However, that was less than the 4.23 million active clients analysts projected, according to StreetAccount.

The company defines active clients as people who either ordered from its traditional Fix subscription or bought an item directly from its website in the preceding 52 weeks from the final day of the quarter.

Net revenue per active client increased 12% to a record $524, the company said.

“It’s early days. … We are just opening up that new customer experience, but we’re in the game,” Spaulding said. “This is now opening up the ecosystem … and it will absolutely be a multiquarter transformation. But we’re deeply committed to that building phase.”

Chief Financial Officer Dan Jedda said it will likely take a few quarters for the company’s efforts to begin to pay off.

Disclaimer: We have no position in any of the companies mentioned and have not been compensated for this article.