As outdoor movement gathers pace amid easing pandemic restrictions, a growing number of consumers are spending more on apparel products. Revival in apparel demand has been aiding the well-known personalized styling retailer — Stitch Fix, Inc. SFIX. The company is gaining from growing base of active clients as well as prudent efforts undertaken to boost assortment categories and consumers’ shopping experience. Shares of the company have rallied 30.3% in the past three months against the industry’s fall of 5.6%. That said, let’s take a closer look at the aspects aiding this Zacks Rank #3 (Hold) company.
Robust Demand Boosts Clientele
Stitch Fix has been gaining from solid demand for its Fix offering from first-time as well as reactivated clients. Management highlighted that strong Fix and direct-buy offerings have helped the company meet demand. During third-quarter fiscal 2021, Stitch Fix saw better success rates across the Women’s, Men’s and Kids categories on a year-over-year and sequential basis.
Consistent growth in active client base is also a significant upside for Stitch Fix. Active clients rose 20% year on year to 4.1 million in the third quarter. Sequentially, the company’s active clients went up 234,000, marking the second highest quarter-over-quarter increase. This can be attributed to strong Fix demand, re-engagement of old clients and reduced dormancy rates (as the company lapped the pandemic-led weakness in the year-ago period). We note that the company has been evolving its Fix offering to drive conversion and retention of new and existing clients.
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Notable Growth Efforts
Stitch Fix is on track with efforts to boost assortments as well as shopping experience for clients. The company expanded its offerings to include more affordable products across categories. New products and features boosted client adoption during the third quarter. Management remains optimistic about its Fix Preview feature, which offers the opportunity to view proposed items for clients’ next Fix before it is shipped. Markedly, management expanded the availability of Fix Preview to its entire client base in the U.K. as well as to more than half of its U.S. clients and experienced impressive response. The company plans to keep rolling out the Fix Preview to more clients in the forthcoming periods. Apart from these, the company introduced Shop by Category to the current clients, helping them to shop more conveniently, with personalized recommendations in every category. It also introduced the Shop Your Looks feature, which is part of its direct-buy facility.
To reinforce personalized recommendation, the company is collecting client feedback data on shipped direct buy items. It is leveraging the usage of Style Shuffle for collecting data. Last year, Stitch Fix rolled out Trending For You, which enhances feed-based shopping experience.
Backed by strong products and prudent website features, the company’s direct-buy penetration continued to grow across men's and women's client base. As the company continues to expand its direct buy facility, it expects to generate stronger margins and client outcome.
Growth Trends to Persist
The strong business momentum witnessed during the third quarter is expected to continue in the fourth quarter as well. This led management to provide an optimistic view. For the fourth quarter, Stitch Fix expects net revenues of $540-$550 million, which suggests growth of 21.8-24% from the figure reported in the year-ago quarter. For fiscal 2021, it projects net revenues in the band of $2.07-$2.08 billion, indicating 20.9-21.5% growth from the year-ago quarter’s reported figure. The Zacks Consensus Estimate for revenues in the fourth quarter and fiscal 2021 is currently pegged at $547.8 million and $2.08 billion, respectively.
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Abercrombie & Fitch Company ANF, flaunting a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 18%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Foot Locker, Inc. FL boasts a Zacks Rank #1 and has a long-term earnings growth rate of 4%.
L Brands, Inc. LB, also with a Zacks Rank #1, has a long-term earnings growth rate of 13%.
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