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Stitch Fix and ThredUp shares fall, as both companies navigate ambitious transitions

By Bill Peters

'It will take time to accomplish our ambitious plan to significantly evolve,' Stitch Fix CEO says

With clothing demand still muted, online styling service Stitch Fix Inc. on Monday said it was trying to become a more "fun" destination for customers, while online second-hand shop ThredUp Inc. has been trying to make a bigger push into consignment sales.

But both companies said those ambitions would take time to realize, and their forecasts for the months ahead disappointed investors, in one way or another.

In the process, Stitch Fix shares (SFIX) tumbled 14.7% after hours on Monday, while ThredUp's stock (TDUP) slid 8.5%.

For the past two years, higher prices for essentials like groceries and gasoline have dampened spending on less essential things, like clothing, and many retailers have cut prices on apparel in an effort to attract customers. Stitch Fix has dealt with falling sales, and recently ended operations in the U.K. Last year, it laid off employees, and it has shaken up leadership.

The company on Monday reported fiscal second-quarter results that were worse than expected. And it said it expected fiscal third-quarter sales of between $300 million and $310 million, below FactSet forecasts for $322 million.

For the full year, set to wrap up around the end of July, the company said it expected sales of $1.29 billion to $1.32 billion, down from prior expectations of $1.3 billion to $1.37 billion and below analysts' estimates for $1.35 billion.

Chief Executive Matt Baer, during Stitch Fix's earnings conference call, said that in the months ahead, the company wants to create a more "fun and visual" experience that would be more interactive. He added that it would take other steps to deepen relationships between customers looking to try out new styles and the Stitch Fix stylists who help them do that.

"Our stylists play a critical part in our value proposition, and our clients have told us they want to get to know the stylists behind their Fixes," Baer said, referring to the personalized clothing shipments its customers receive from stylists.

But he added: "While some of these initiatives will begin to roll out in the coming months, it will take time to accomplish our ambitious plan to significantly evolve the Stitch Fix client experience."

ThredUp, meanwhile, said it expected first-quarter sales of $79 million to $81 million, just below Wall Street's forecasts for $81.2 million. For the full year, the company's sales outlook was $340 million to $350 million, in line with analysts' forecasts for $345 million.

The company over the years has tried to attract younger customers. It has shifted largely to consignment sales, in which the person selling their clothing can get a payout after the sale.

That shift began in 2019 in an attempt to boost margins. But the company on Monday said its efforts to transition its business in Europe, as well as its business that resells clothing from bigger brands, to a consignment model would weigh on sales growth in the near term.

"While the transition of these businesses to consignment should be a tailwind to gross margins over time, we expect it to mute revenue growth simply due to the accounting treatment," Chief Financial Officer Sean Sobers said on the company's earnings call.

"As a reminder," he said, "consignment payouts reduce net revenue. We expect consignment revenue will be an increasingly larger part of our business throughout 2024."

Both companies on Monday stressed their usage of technology, which they said made the shopping experience better.

ThredUp recently introduced AI-backed search capabilities. Stitch Fix's Baer said the company's approach helps ease consumers' frustrations of trying to buy clothing in stores - a process he said was often "cumbersome" - as well as the sometimes "overwhelming" experience of trying to buy them online.

"At Stitch Fix, on day zero, we know our clients better than many retailers can aspire to know their customers over the course of their relationship," he said.

-Bill Peters

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.


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03-04-24 2017ET

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