Shares of personalized online apparel retailer Stitch Fix (NASDAQ:SFIX) soared to all-time highs in early December after the company reported blockbuster first-quarter numbers that soared above expectations and also included an exceptionally bullish full-year outlook. Stitch Fix stock surged more than 40% in a day.
This big rally in Stitch Fix stock should be no surprise.
Online shopping is the future. Subscription business models are the future. Data-driven personalized consumer experiences are the future. Stitch Fix sits at the overlap of all three.
So, it should be no surprise that Stitch Fix’s growth narrative is gaining momentum today, at a time when the future is quickly becoming a reality because of a disruptive, once-in-a-lifetime pandemic.
This robust business momentum will persist for the foreseeable future. As it does, you will see this $5 billion personalized e-commerce platform fundamentally redefine the near $2 trillion global apparel market.
Of course, as that happens, still-tiny SFIX stock will keep soaring.
Here’s a deeper look.
Stitch Fix Is the Future of Shopping
Stitch Fix has a unique and compelling opportunity to fundamentally change the way we shop. This disruptive potential boils down to three huge value-additive features of the Stitch Fix business model.
First, Stitch Fix is online. This one is obvious. Most apparel shopping still happens offline. But a lot of that shopping has been shifting online for the past several years. This trend will persist, because online shopping offers significant convenience advantages over offline shopping, and to the customer, convenience is king.
As such, Stitch Fix makes shopping faster and more convenient through digitization.
Second, Stitch Fix is personalized. Consumers love smartly personalized experiences. Stitch Fix leverages shopper and fashion trend data to create smartly personalized shopping experiences, built on curated apparel assortments that are unique to each user. In so doing, Stitch Fix is essentially morphing into everyone’s personal stylist, which should improve shopping outcomes for consumers.
As such, Stitch Fix makes shopping better and smarter through personalization.
Third, Stitch Fix is (mostly) a subscription business. As much as consumers love smartly personalized experiences, they equally love subscription business models for their consistency and convenience. Stitch Fix turns shopping into a subscription business model through monthly “clothing boxes”.
As such, Stitch Fix makes shopping more consistent and easier through subscriptions.
It doesn’t take a rocket scientist to connect the dots. Through its unique, hyperpersonalized e-commerce platform built on the back on subscriptions, Stitch Fix is making shopping faster, more convenient, better, smarter, more consistent, and easier.
Stitch Fix is simply improving the shopping experience. That’s why this company has a compelling opportunity to turn into the future of apparel shopping — and why SFIX stock is a long-term winner.
Business Momentum Is Building
Stitch Fix’s multi-faceted value props were lost in the Covid-19 shuffle. But, as consumers have learned to better adjust to life with the pandemic, Stitch Fix is starting to shine.
In the first quarter of fiscal 2021 (which roughly lines up with the third quarter of calendar 2020), Stitch Fix added 240,000 new clients, a record-high number and more than double what the platform added in the previous quarter (just 100,000).
More than that, these new clients were hyper-engaged with Stitch Fix. Nearly 80% of first Fixes in the quarter were considered “successful” — i.e. the client purchased at least one item in their first Fix and said they looked forward to their second fix. That’s a record high.
Meanwhile, Stitch Fix’s “success rate” in the quarter — the percentage of time a given item is purchased by clients — also hit record highs in the quarter.
Why all the record high engagement metrics? A few reasons.
Stitch Fix is getting bigger, which means more data, which means a more enhanced “style graph”, and better apparel recommendations. The personalization engine is only getting stronger. At the same time, the company is fleshing out new features like Direct Buy and Shop by Category to make Stitch Fix more shoppable and increase buying conversions.
These drivers are secular in nature. They will persist for the foreseeable future. As they do, Stitch Fix’s newfound business momentum will persist, too.
That’s why management is guiding for revenues to rise more than 20% for the full-year 2021, implying 30%-plus revenue growth in the back-half of the year, a sharp acceleration from -9% growth just two quarters ago.
Alongside this accelerating growth, SFIX stock will keep powering higher.
Stitch Fix Stock Has Tons of Upside
Taking a step back, Stitch Fix is an innovative online apparel company, with unique personalization and subscription advantages, and a ton of business momentum right now.
Put together, that means Stitch Fix today has healthy visibility to disrupting the near $2 trillion global apparel market over the next few years.
Yet, Stitch Fix is worth just $5 billion, even after the enormous post-earnings surge.
To that end, this big rally in SFIX stock is far from over. Instead, it’s just beginning. My numbers say that SFIX stock — based on the company’s long-term earnings potential — deserves to trade above $50 today, and has upside to $100-plus prices in the long run.
Bottom Line on Stitch Fix Stock
Stitch Fix’s personalized apparel shopping model built on the back of subscriptions represents the future of shopping, and so, SFIX stock is a long-term winner.
Sure, maybe don’t go chasing the stock at all-time highs and on the heels of this record rally. But, on the next dip, be ready to buy, because the future has never looked so bright for this company.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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