Online subscription retailer Stitch Fix, in its second quarterly financial disclosure, showed net revenue up 25 percent for the period ended Jan. 27 to $295.9 million, compared with $237.8 million a year ago. Net income or “comprehensive income” came in at $3.6 million, or 2 cents a diluted share, an increase from net income of $233,000 this time last year, but still relatively little against revenues.
Founder and chief executive officer Katrina Lake during a call with financial analysts touted the quarter as the fourth consecutive one with growth around 25 percent, as well as its recent expansion into innerwear, branded Extras, which she said is set to boost “incremental revenue.” She also revealed that Stitch Fix now has an offering called Style Pass that allows a client unlimited shipments of fashion selections, or “fixes,” for $49 a year. Otherwise, the company offers its $20 “styling fee” for monthly deliveries, which is generally applied to purchases.
Lake said Style Pass and Extras “represent significant steps in our strategy to continue innovating and improving our client experience.”
“These offerings are intended to drive a more frictionless and flexible client experience and grow both our mind share and wallet share with our clients,” Lake added. “Most importantly, we believe that these new capabilities reflect a step change in enabling our clients to better personalize their experiences with us.”
When asked about what the company is seeing so far with the new elements, Lake said it’s “still early but we’re optimistic about the results.”
The company added 100,000 active users since the last quarter and 588,000 since the same quarter last year, bring its total number of users to 2.5 million, but that wasn’t enough for Wall Street. After surging toward a yearly high at $24.12, shares of Stitch Fix fell 5.68 percent to $23 in after market trading.
This stems from not only Stitch Fix’s adjusted earnings before interest, taxes, depreciation and amortization falling 32 percent to $18.23 million from $24.09 million, but coming in below estimated earnings of 6 cents a share.
Financial types took a similar turn against the company after its first quarterly report in December, showing sales up 25.2 percent to $295.6 million, while its net income dropped 66.8 percent to $1.3 million, or 4 cents per diluted share. EBITDA was also more than halved to $11.8 million from $28 million, which the company attributed to planned investments in staff and marketing.
The same reason was given for this quarter’s EBITDA reduction, and Lake said during the call that hiring was done specifically in engineering and data science, adding that certain employees are going to be given an increase in stock-based compensation in a retention effort.
In order to offset some of these headcount costs, Lake noted that there have been “efficiency” efforts in other areas of staff, mainly among stylists and those working in warehouses. But she did not offer specifics on savings.
Another cost issue the company seems to be experiencing is shrinkage, which chief financial officer Paul Yee said decreased slightly year-over-year without giving a dollar amount. Nevertheless, Stitch Fix has launched “several initiatives” this quarter to tackle it.
Going into the third quarter, the company expects revenue of between $300 million and $310 million, equaling a rate of 22 to 26 percent, but again, EBITDA is set to fall between $5 million and $10 million. Yee said there are some costs that were shifted to the third quarter, but also said there are some tests planned in marketing and hiring.
This quarter will see Stitch Fix roll out its partnership with Nike, adding the brand to its women’s apparel offering. Mike Smith, chief operations officer, said the deal is likely to expand into men’s and other areas of apparel.
While Stitch Fix’s male client base is around two-thirds the size of its female one, the company said men are already willing to spend about 80 percent as much as women, but both bases are continuing to grow.
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