Stitch Fix says clients are 'still being cautious' amid expectations of falling sales

By Bill Peters

'Our current business results are not indicative of what I believe this company can deliver,' new CEO says

Shares of Stitch Fix fell after hours on Monday after the online styling service said it expects falling sales through the months ahead and plans to exit its business in the U.K., as a still-cautious customer pulls back on wardrobe experimentation.

Management, during Stitch Fix's (SFIX) earnings call, said its clients were "still being cautious" in an economy where shoppers are still finding their footing after dealing with big price increases since last year.

"Our current business results are not indicative of what I believe this company can deliver, and I am committed to realizing the full potential of Stitch Fix and driving long-term, profitable growth," Matt Baer, the company's new chief executive, said in a statement.

Shares fell 3.3% after hours.

Stitch Fix said it expects fiscal first-quarter U.S. net sales of $355 million to $365 million, an 18% to 20% drop. For its full fiscal 2024, it said it expects U.S. net sales to have a similar percentage drop to a range of $1.3 billion to $1.37 billion.

For its fourth quarter, Stitch Fix reported a net loss of $28.7 million, or 24 cents a share, compared with $96.3 million, or 89 cents a share, in the same quarter last year. Revenue fell to $375.8 million from $481.9 million in the prior-year quarter.

The company announced the results as it tries to cut costs and focus on its core U.S. styling business, where its stylists send clothes to customers based on their preferences, and customers can keep or return those items. It also allows customers to buy clothing directly. Along with the appointment of Baer, a Macy's Inc. (M) veteran, in June, the company has also shaken up its leadership team and announced layoffs this year.

Within the industry overall, many retail stores over the past year have cut prices on clothing, where demand suffered after inflation forced more customers to focus on buying the things they needed.

In June, management said they would close a distribution center in Dallas and let the lease on another expire. At that time, the company said it would "explore exiting" the U.K., where Stitch Fix set up shop four years ago. On Monday, Stitch Fix said it made the decision to exit that business on Aug. 24, and said it expects that the U.K. business "will be reported as a discontinued operation in the first quarter of fiscal 2024."

"We made the decision to focus on the core 'Fix' experience, which meant changing our inventory, product and marketing strategies," Chief Financial Officer David Aufderhaar said on the company's earnings call Monday.

"To allow time for those strategies to take hold, we focused on near-term profitability and cash flow," he said. "This meant restructuring our organization, consolidating our warehouse footprint, and making the decision to exit the U.K. market."

He said that consolidating its U.S. warehouses would make it easier for stylists to offer selections that customer wanted.

-Bill Peters

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09-18-23 1841ET

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