Sales at Stitch Fix sank 22% in its most recent quarter, and the number of active customers dropped for the sixth quarter in a row. The company warned investors it expects sales to tumble an additional 20% in the coming quarter, with a decline of between 14% and 18% for the full year.
Net revenue slipped to $375.8 million, compared to $481.9 million in the comparable period of 2022. Net losses slowed to $28.7 million, compared to a loss of $96.3 million in the year-ago period.
The number of active clients decreased by 13% to 3.3 million. And active clients spent less, at $497, a drop of 9% year-over-year.
In announcing the results, Matt Baer, the chief executive officer who joined the company three months ago after his previous gig as chief customer and digital officer at Macy’s, says he is confident the company can do better, using its personalization and analytics strengths.
Industrywide, online shopping experiences have improved, he told investors on a conference call discussing the results, “but they are still too focused on session-level conversion and lack the inspiration and personalization that make great style, great fit, and great value attainable. Part of the magic of Stitch Fix is that we can deliver all of that in a way that is truly convenient, not only in terms of ease of shopping but also in terms of anticipating our clients’ needs.”
Baer says the company is focusing on the core Stitch Fix experience and “rightsizing” marketing investments, cutting ad spending by 50%.
Like many digital brands, Stitch Fix has wrestled with the high cost of acquiring new customers, with out-of-whack marketing budgets hurting profits. “We need to ensure that when we go to market, we have a judicious marketing spend that rationalizes every dollar, doing our best job to acquire high-lifetime-value customers,” Baer says.
Observers are unimpressed, especially given the company’s outlook, substantially lower than expected.
“It's hard to call a turnaround here when the top line is under so much pressure,” writes Tom Nikic, an analyst who follows Stitch Fix for Wedbush Securities. “While the expense control is impressive, it's difficult for a retailer to cost-cut their way to prosperity, and eventually they'll have to figure out a way to get the top line growing again.”
Given the current pressure on consumers to cut back on discretionary spending, especially apparel, he says it’s hard to see what might catalyze a comeback.
“We continue to like the renewed focus on profitability,” writes Mark Altschwager, an analyst who follows Stitch Fix for Baird, referring to Stitch Fix’s decision to wind down its money-losing U.K. division. “But it will take time for new leadership to outline/demonstrate a path to sustainable growth for the platform, with another year of sharp revenue declines on tap.”