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Stitch Fix misses on Q4 earnings, faces client engagement troubles

Yahoo Finance Live anchors discuss fourth-quarter earnings for Stitch Fix.

Video Transcript

[AUDIO LOGO]

JULIE HYMAN: Welcome back. We still have a few moments to the opening bell so we're taking a look at some of the movers that we're watching on this Wednesday morning. Stitch Fix is definitely one of them. Those shares about 5% to the downside. The company missed fourth quarter earnings expectations, posted a 9% drop year-over-year in active clients.

To remind you, Stitch Fix sells clothing but it's supposed to be sort of picked by an algorithm in cooperation with a person. You get a box. You decide what to keep. But this company has just been a perennial underperformer. The stock is down 75% this year. I believe it closed at a record low yesterday. And we're just not seeing any kind of signs of a recovery here.

BRAD SMITH: Stitch Fix has been fumbling the bag. I don't know any other way to put it right now. And it's really looking at some of the consumer appetites and the ability to maintain that consumer that's been so critical, that has just not been taking place.

I think for a lot of the consumers coming out of the pandemic, they were not necessarily looking for everything to be picked for them but looking for some differentiation, looking for the opportunity to take that into their own hands.

And even as they're now looking at what their expenditures may look like on a discretionary basis, it's even more of the cutting through the exact products, the clothing, or the footwear that they need right now versus wants. And that makes even more of the actual picking important to that consumer.

And so one thing that sticks out to me is that to even re-engage those who have not bought with Stitch Fix, clients who haven't shopped with them for over 12 months, that's gonna be marketing dollar spent for re-engagement campaigns. And then it's the new client acquisition costs that are also gonna rack up in this interim period of time to try and get back to profitability.

They talked about this on the earnings call. And I just I think that there's going to be so much that needs to get put into some of those marketing expenses, and the client activations, and acquisition that that's gonna continue to be a near-term headwind for this business.

JULIE HYMAN: Yeah, and the company also has been transitioning more into not just the traditional box business--

BRAD SMITH: Right

JULIE HYMAN: --but also getting people to just buy single items. And the CEO sort of pled for more patience on that transformation. But the patience is gonna have to be extended. And we just showed what the company's forecast is for the first quarter, and sales gonna be well below what analysts had been predicting, so.

BRAD SMITH: Yeah.

JULIE HYMAN: You know.

BRAD SMITH: I mean, just to put some numbers on this, too. The active clients, it was a decrease of 9% year-over-year. Net revenue, decreased 16% year-over-year. And so I mean, looking at these figures, it is a larger question of what that timeline looks like to get back to profitability that investors are looking for right now. And they've launched affiliate networks, influencer networks, that's more marketing spend for client acquisitions.

They're gonna continue to make improvements in the freestyle launch. That's part of the business that you were talking about that allows people to pick one-- just one piece that they want to get or a few pieces, versus having somebody box it up and say, this is what the algorithm says you should wear. Just do this. So it's really just so much of the costs that I think about that they're gonna have to actually put out the door--

JULIE HYMAN: Right.

BRAD SMITH: --in order to just get back to profitability at some point.

JULIE HYMAN: Yeah, well, the stock is certainly reflecting some of that--

BRAD SMITH: Yeah.

JULIE HYMAN: --sense.