As one of the least fashionable people in the U.S., I hate shopping for clothes with a passion that’s hotter than a thousand suns. And that’s why I really wanted to like Stich Fix (NASDAQ:SFIX), both as a customer and an investor. However, I found the service to be far more appealing than SFIX stock.
First, Stitch Fix does take the guesswork out of buying clothes for the fashion-challenged. It outsources the actual work of outfit-picking to a professional stylist. Its website is well-designed and easy to use.
Well-regarded sites like The Wirecutter also sing Stitch Fix’s praises. And as for me, I liked the clothes that I saw. Moreover, unlike similar companies like meal-kit providers, this one actually makes money. During the latest quarter, it reported $11.43 million in net income.
While Stitch Fix stresses that it is not a subscription service, the company makes it obvious in its sign-up process that it really wants consumers to buy “fixes” on a set schedule (every two weeks, monthly, every two months or every three months). This makes sense from SFIX stock’s perspective, since customers pay a $20 styling fee along with the price of the apparel it’s shipping. However, it isn’t clear how many consumers are taking the hint.
Active Clients for SFIX Stock?
As of Feb. 1, Stitch Fix had 3.5 million “active clients,” a gain of 17% from last year. The company defines “active client” as someone “who checked out a Fix or was shipped an item using our direct-buy functionality in the preceding 52 weeks, measured as of the last day of that period.” I don’t see how someone who orders something once a year could be “active” anything.
Net revenue per active client rose 8% on a year-over-year basis, the company’s seventh straight quarter of growth in the metric.
SFIX stock’s performance in other metrics isn’t as good. Customer acquisition costs are expected to be flat compared with 2019 though the company has seen costs rise in some “key digital channels” which it didn’t identify. The company reported a decline in average order value in the latest quarter though it declined to provide specifics.
Speaking to investors during SFIX’s most recent quarter, founder and chief executive Katrina Lake attributed the decline in customer spending to “the heightened promotional activity across retail.” Given the slowdown in consumer spending from the Covid-19 pandemic, that trend isn’t going to get better any time soon.
Competition from Amazon Looms
Indeed, Amazon (NASDAQ:AMZN) last year launched its Stitch Fix clone called Personal Shopper by Prime Wardrobe, available to members of Amazon’s Prime loyalty program at a cost of $4.99 for one styling per month. Stitch Fix’s other competitors include Trunk Club and Wantable.
Shares of SFIX stock have gotten pounded in 2020, falling nearly 50% fueled by disappointing earnings guidance and the coronavirus-inspired market correction. Though its shares are currently trading at a 47% discount to the company’s average 52-week price target of $19, I would wait on buying the stock given the challenges that lie ahead for the company are tougher than many pundits expect.
Jonathan Berr is an award-winning freelance journalist who has focused on business news since 1997. He’s luckier with his investments than his beloved yet underachieving Philadelphia sports teams. As of this writing, he did not hold a position in any of the aforementioned securities.