Inventory accumulation leads to financial loss for Stitch Fix
In the second quarter of 2021, Stitch Fix reported a net revenue of approximately $312 million, marking a slight increase of 0.7% compared to the same quarter the previous year. The company had about 3.2 million active clients during this period.
Despite the revenue growth, Stitch Fix's quarterly earnings per share (EPS) was negative at ($0.06), indicating a smaller loss than expected. However, the company still operated at a net loss margin of 4.44%, reflecting ongoing financial challenges.
One of the strategies Stitch Fix is employing to mitigate risks is shifting to a "multi-inventory" model that includes vendor-managed inventory and drop shipping. This move is similar to Nordstrom's approach, as both companies aim to diversify their supply chains and reduce inventory costs.
Stitch Fix has been boosting its inventory of comfortable clothes and activewear to serve demand during the pandemic. The company also offers a "direct buy" option, allowing customers to choose items rather than waiting for the company's algorithms to select them. Additionally, Stitch Fix is testing a program in the U.S. where customers can preview their scheduled boxes and reject items before they arrive.
However, the apparel market was under siege before the pandemic and was further weakened by the pandemic. As a result, Stitch Fix saw a decline in net revenue per active client, which fell by 7% to $467 in the second quarter. Moreover, the average order value and transactions could take a hit in the short to medium term if consumers choose to shop in stores as life re-opens.
Interestingly, Stitch Fix has adamantly resisted including brick-and-mortar in its sales model. However, the company is now rolling out a similar program in the U.K. This expansion suggests that Stitch Fix may be reconsidering its approach to physical stores.
In the holiday quarter, most stores were open to shoppers, but some were not comfortable shopping online. As a result, consumers tended to shop for others rather than themselves during the holidays, which undermined any potential boost for Stitch Fix as an online retailer.
In Q2 2021, Stitch Fix reported a net loss of $21 million for the second quarter, compared to a net income of $11.4 million a year ago. The adjusted EBITDA loss for the quarter was $8.9 million.
A record number of "first Fixes" were seen, reflecting the rise in active clients. Moreover, the number of active clients for Stitch Fix in the holiday quarter increased by 408,000 or 12% year over year, reaching nearly 3.9 million. Interestingly, 48% of those who got their first Fix in the last six months were heavily incentivized.
In conclusion, while Stitch Fix showed signs of revenue growth and beat earnings expectations in Q2 2021, the company continued to experience net losses. The company's shift to a multi-inventory model, expansion to the U.K., and testing of new programs indicate a willingness to adapt to changing market conditions and consumer preferences. However, the ongoing financial challenges and potential impact of brick-and-mortar stores on the company's business model remain areas of concern for investors.
- Stitch Fix's research into a "multi-inventory" model, similar to Nordstrom's, aims to diversify their supply chains and reduce inventory costs, as part of their strategy to mitigate risks.
- The pandemic has led to a rise in demand for comfortable clothes and activewear, which Stitch Fix has boosted its inventory of.
- Despite the company's resistance to including brick-and-mortar in its sales model, Stitch Fix is now rolling out a similar program in the U.K., suggesting a possible reconsideration of their approach.
- The ongoing financial challenges and potential impact of brick-and-mortar stores on Stitch Fix's business model remain areas of concern for investors, even as the company shows signs of adapting to changing market conditions and consumer preferences.
