Clothing discounts are weighing on Stitch Fix sales, as it shakes up its executive team


Shares of Stitch Fix Inc. fell after hours on Tuesday after the online clothing-selection and styling service offered up dimmer sales forecasts, as it tries to shore up profits and deal with aggressive discounting from retailers competing for inflation-weary shoppers.

And in the latest executive shake-up for the company, Stitch Fix
said that Dan Jedda would step down as chief financial officer “to pursue another opportunity.” He will be replaced by David Aufderhaar, current senior vice president of finance, on April 3.

Executives forecast third-quarter sales of between $385 million and $395 million, compared with FactSet forecasts for $394 million. For its full fiscal year, which ends on July 29, they forecast sales of $1.625 billion to $1.645 billion — a bit narrower than forecasts given late last year for $1.6 billion and $1.7 billion. Wall Street was expecting $1.647 billion.

For its second quarter, Stitch Fix reported a net loss of $65.6 million, or 58 cents a share, compared with $30.9 million, or 28 cents a share, in the same quarter that ended a year earlier. Revenue fell to $412.1 million, compared with $516.7 million in the prior-year quarter.

Analysts polled by FactSet expected Stitch Fix to report a per-share loss of 34 cents, on revenue of $413 million. Shares fell 4.2% after hours.

Jedda, during Stitch Fix’s call, attributed the sales results to “lower net active clients and higher promotional activity in the quarter.” And he said that company analysis “continues to show that all client cohorts are spending less than in prior years.”

Interim Chief Executive Katrina Lake, during the call, said Stitch Fix tended to be immune to big markdown pushes from other clothing retailers. But she said the weaker demand that led to such a push last year risked making it more difficult to attract customers.

“My hypothesis is that it probably impacts conversion more,” she said. She added that as shoppers assess where they can cut personal spending, “refreshing your wardrobe might not be as high priority as it might have been 10 months ago.”

Active clients — or users who checked out or bought clothes over the past 52 weeks — fell 11% to 3.57 million. FactSet forecast active clients of 3.6 million.

The company reported after announcing in January that it would cut salaried positions by 20% and close its Salt Lake City distribution center. At that time, Stitch Fix said that Elizabeth Spaulding was stepping down as chief executive. Katrina Lake — the company’s founder and onetime chief executive — is temporarily replacing Spaulding at the top spot.

Those layoffs followed cuts last year, as Stitch Fix tries to return to profitability. The company has dealt with subscriber losses, a steady drop in its stock price, waning e-commerce demand, and consumer concerns about a recession and more expensive gas and grocery bills.

Spaulding, during Stitch Fix’s quarterly earnings call in December, also said that discounting among retailers — who were cutting prices to rid their shelves of unwanted clothing as consumers tried to cover essentials — led to lower spending and engagement among Stitch Fix’s own users.

Stitch Fix, whose stylists ship customers clothing that they can keep or return, has also been trying to grow its “Freestyle” business, which allows users to buy clothing directly from Stitch Fix online based on personalized recommendations. Spaulding, during the call in December, noted more “softness” in the Freestyle segment than expected.

Shares of Stitch Fix have fallen 52.7% over the past 12 months. By comparison, the S&P 500 index
has fallen 5% over that time.




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