Stitch Fix Shares Fall, Analyst Says, Retailer Hits “Growth Wall”

The Stitch Fix logo on a smartphone hosted in Hastings-on-Hudson, NY, USA, Saturday, June 5, 2021. Stitch Fix Inc. plans to release earnings on June 7th.

Tiffany Hagler-Gird | Bloomberg | Getty Images

Stitch Fix fell 24% Wednesday to a new 52-week low as one analyst said the company had hit a “growth wall.”

The online shopping and styling service was able to beat financial first-quarter expectations after Tuesday’s call, but slower user growth and weaker earnings forecasts were a wake-up call for investors.

It reported 4.18 million active customers, up 11% from a year earlier. But within that figure, there were only 15,000 net new additions – the lowest amount of Stitch Fix ever ordered in a three-month period, with the exception of one quarter, which was depressed due to the onset of the coronavirus pandemic.

COO Elizabeth Spaulding told CNBC that the retailer is in the midst of a “multi-block transformation.”

During a call with analysts, she explained that Stitch Fix is ​​still working to bring new customers to its Freestyle option, which is now generally available. Previously, the direct buy platform was only open to existing Stitch Fix subscribers. Now anyone can go to the seller’s website and, for example, buy one dress or a pair of shoes.

But investors were hoping to see stronger results in the last period thanks to the Freestyle rollout, which was completed in the fourth quarter.

Evercore ISI analyst Mark Mahani lowered his target price for Stitch Fix from $ 68 to $ 24. He also downgraded the stock to “in line” from “best market” after Tuesday’s report.

“We are calling for Stitch Fix to hit a growth wall and its core offering, Fix, is likely to hit the US market by now,” Mahani said in a note to customers. “The new Freestyle offering could give another leg of growth, but it took longer than we expected … and perhaps [it will] have not yet turned out to be material. “

Stitch Fix shares closed at $ 19 on Wednesday, at one point hitting a 52-week low of $ 17.92. Since the beginning of the year, the stock has dropped about 67%.

The company lowered its fiscal year revenue growth forecast to single digits from its previous forecast of 15% or more. Analysts had expected sales to rise 15.7% year over year.

Telsey Advisory Group lowered its target price to $ 40 from $ 55.

The firm’s CEO and chief investigator, Dana Telsi, said she continues to believe Freestyle will help Stitch Fix expand its targeted market and lead to increased revenue potential. In the near term, however, estimates have declined as the company overcomes some hurdles, she said in a research note.

Spaulding also told analysts that the company cut marketing spending in the last quarter as it identifies the best ways to attract potential new customers. This was another warning sign for investors that what Stitch Fix had in mind was not appealing to customers.

Wells Fargo analyst Ike Boruchow told his clients that all of this Stitch Fix news comes at a time when retailers are experiencing “some of the fastest growth in the apparel industry in recent memory.”

“Unfortunately, in our view, this casts doubt on the model,” he said.

Wells Fargo lowered its target price to $ 14 from $ 35.

Read more about Stitch Fix’s financial results for the first quarter here.

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