Dive Brief:
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Stitch Fix’s Q1 net revenues fell 17.8% year over year to $364.8 million, as net revenue per active client fell 6% to $506.
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The box apparel service’s number of active clients declined by 515,000, a 15% drop from a year ago, according to a company press release. The lower order frequency of recent quarters hasn’t picked up, Chief Financial Officer David Aufderhaar said on a call with analysts.
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Gross margin expanded 140 basis points to 43.6%, driven by inventory improvement and transportation leverage. Net loss narrowed by 36.5% to $35.5 million. The company completed its exit from the U.K. in the period, which ended Oct. 28.
Dive Insight:
With a retail veteran now at the helm, Stitch Fix is instituting a host of operational changes that executives say will boost sales and profitability.
Newly arrived CEO Matt Baer, who previously had stints at Macy’s, Walmart and his own family’s furniture business, said those include changes in merchandising, pricing, transportation and warehousing. The company in recent years has already boosted private labels from about one third to nearly half of total sales, and, “because these brands perform well, generating higher keep rates and margins, we plan to emphasize them in our assortments moving forward,” he said.
Thanks to a grip on expenses, including marketing, Stitch Fix has improved its bottom line, but the box e-retailer still has much to prove, according to Wedbush analysts led by Tom Nikic. The company has suffered seven straight quarters of year-over-year sales declines, averaging 18%, and continues to expect double-digit declines for the next nine months, with a tough macro environment stymieing its progress, Nikic said.
“Top-line trends remain extremely challenged, though they continue to make significant strides on profitability due to tight cost controls,” Nikic said. “At some point, however, they need to turn around the top line.”
Stitch Fix is working toward serving “high lifetime value clients” who will stick around and keep more from their boxes, Baer said. But that is likely to take a while, analysts said.
William Blair analysts Dylan Carden and Alexander Vasti said that already stabilizing customer metrics in Q1 are encouraging, bolstered by the costs savings, but that it’s hard to know how the company will do longer term.
The analysts said they believe there exists a core Fix business, with lower levels of active customers who spend more, and more frequently. “However, top-line risk still exists given the broader active customer count decline experienced of late, and as a result, we project declining to flat revenue through fiscal 2025,” they also said.
