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Stitch Fix Stock Unravels as 'Cannibalization' Erodes Forecast

Stitch Fix shares plunge after the online curated shopping experience company cuts its outlook amid 'cannibalization' of customers switching between services.

Stitch Fix  (SFIX) - Get Stitch Fix, Inc. Class A Report shares tumbed on Wednesday, losing nearly a quarter of their value in premarket trading, after the online shopping and styling company cut its financial outlook amid reduced expectations of active customers using its offerings.

Stitch Fix shares were down 25.47%, or $6.36 a share at $18.6 at last check after the San Francisco-based company reported a narrower-than-expected fiscal first-quarter loss and sales that topped analysts’ estimates, but gave a less-than-rosy outlook for future sales growth and adjusted margins.

Specifically, Stitch Fix said it expects year-over-year net revenue growth to come in at a “high single-digit rate,” and adjusted earnings before income, taxes, depreciation and amortization (EBITDA) margin of between 1% and 2%, thanks in part to supply chain issues as well as latitude it is giving its customers in selecting between different products and services -- and the cost that comes with that.

Indeed, Stitch Fix CEO Elizabeth Spaulding told investors and analysts on a post-earnings conference call that while revenue per active client topped $500 for the second straight quarter, the company’s curated “Freestyle” and “Fix” shopping experiences were still impacting the bottom line due to “…impacts of cannibalization.”

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“In the short term, people are making a trade-off between, ‘do I want to try Fix? Do I want to try Freestyle?’ And so that's the learning phase we're in right now, that we see opportunity to get better and better at and really grow the overall net adds with our clients,” Spaulding said.

“But I think in the short term, we anticipate some learnings over the coming quarters to really get that right. And one of the short-term adjustments we've already made there is we know really high-intent clients, such as want to be styled, want to get a Fix, making sure we get that signal and take them directly into that experience. But those are some of the learnings that we've had in the quarter-plus that we've since opened Freestyle.”

For its latest fiscal quarter ended Oct. 30, Stitch Fix reported a net loss of $1.83 million, or 2 cents a share, compared with net income of $9.54 million, or 9 cents a share, a year earlier. Sales grew 19% to $581 million from $490 million a year earlier. Active clients grew 11% to 4.18 million from a year ago, though that number was below consensus forecasts of 4.23 million.

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