Katrina Lake Stitch Fix

Against a turbulent retail market marked by extreme highs and lows, Stitch Fix’s quarterly results secured its spot on the buzzworth-iest end of the spectrum.

On Wednesday, the online styling service released numbers that blew past guidance on earnings and net revenue for the fiscal third quarter of 2019. Wall Street immediately reacted by vaulting shares up over 25 percent in after-hour trading. Stitch Fix’s stock has soared 38 percent since the beginning of the year.

Analysts expected a loss of 3 cents on earnings per share, but the company pulled out EPS of 7 cents. As for revenue, Stitch Fix handily beat expectations of $394.9 million, raking in $408.9 million in net revenue — a 29 percent year-over-year increase, shooting past its guidance of 22 to 26 percent growth.

More people seem to be entering the Stitch Fix fold as well. Active clients, or subscribers who received at least one shipment in the preceding year, jumped 17 percent year-over-year, to 3.1 million.

Each customer is spending more as well. Per active client, the company reported its fourth consecutive quarter of growth in net revenue, with an 8 percent increase compared to the same quarter last year.

“These results demonstrate our ability to attract new clients and to serve our existing clients well,” Katrina Lake, Stitch Fix founder and chief executive officer, said in prepared remarks. “The continued strength of our women’s category and the growth of our men’s category give us even more confidence in our ability to scale new categories and geographies.”

The next quarter may be even more telling for Stitch Fix’s prospects. The latest results came at a time when tech companies Instagram and Amazon unveiled new features designed to accelerate shopping discovery on their platforms. Earlier this year, Stitch Fix, whose specialty is blending fashion and intelligence, introduced a new way to predict demand using data from styling reviews and quizzes in its app.

The company also marked the anniversary of Style Pass, its one-year-old, unlimited styling offering that lets clients apply the $49 annual fee toward purchases. On the earnings call, Lake expressed her enthusiasm about the service.

“Today, our one-year renewal rates have exceeded 70 percent across both men’s and women’s clients,” she said. “In addition, as of Q3 2019, Style Pass continues to reduce friction from the client experience and delivered better client and business outcome.”

The company sees such features as a way to amp up revenue per client, as well as boost customer satisfaction.

As far as the increase in revenue per client, Mike Smith, Stitch Fix’s president and chief operating officer, noted the success and growth, but seemed intent on developing the tech behind it even further. “We do think it is still early days and the attributes that will help us even do better — a better job with matching using that inventory algorithm,” he said. “So there’s so much that we can do.”

In case there are any consumers who are still not familiar with the service, the company kicked off the third quarter with a brand awareness campaign. It plans to focus more on brand marketing going forward.

These efforts just scratch the surface. According to a spokeswoman, the company aims to make more strategic investments for long-term growth across three pillars: keeping current clients happy, attracting new ones and expanding its market opportunity.

“As I look forward, I’m excited about the opportunities ahead to delight even more clients around the world,” added Lake. The company rolled out in the United Kingdom in May.

One point of concern came up when an analyst brought up China, and the company acknowledged that it sources a lot from the country. But the company seems unconcerned, at least for now, expressing confidence in its deepening line-up of brands, partners and vendors.

One area the company hasn’t moved into yet is rentals. Lake left the door open, calling it an “interesting” area, one that Stitch Fix is monitoring closely.

Stitch Fix raised its fourth-quarter and full-year net revenue projections, as well as adjusted earnings before interest, tax, depreciation and amortization. The latter will be between $5 million and $10 million in the fourth quarter, and range from $38 million to $43 million for the year.

 

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