Yahoo Sports Stitch Fix’s Belt-tightening Notches Q3 Win
After an extended downturn, Stitch Fix finally appears to be turning things around — or at least stemming the bleed. The company, now back under the leadership of founder Katrina Lake, exceeded expectations with its third-quarter earnings report on Tuesday thanks to a series of cost-cutting measures.
Not that business has picked up, amid economic pressures driving consumer spending down on discretionary items like fashion. Compared to the year-ago quarter, sales revenue plummeted 20 percent, with today’s figure landing at $394.9 million.
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Yet it managed to contain its net loss, with $21.8 million or 19 cents per share faring far better than the $78 million or 72 cents per share in the year-ago quarter.
Analysts expected an improvement, with a net loss of 31 cents per share on revenue of $389 million, so they were thrilled with that part of the results. Stitch Fix also managed to hang onto more of its active clients than predicted. So although active clients shrank 11 percent, to 3.48 million, it didn’t quite fall as far as the 3.45 million expected.
“We continue to focus on delivering profitability and preserving cash flow, and I’m proud of how far we’ve come,” Lake, in her capacity as interim chief executive officer, said in a statement. “This quarter we delivered adjusted [earnings before interest, taxes, depreciation and amortization] of $10.1 million, exceeding our guidance range and significantly expanding our free cash flow.”
Guidance looks a bit soft, as the company predicts the fourth quarter will bring sales of $365 million to $375 million, landing below the anticipated revenue of $379 million. But Wall Street rewarded the company nonetheless, handing it an uptick in shares of 4.4 percent in after-market trading. The upswing stands out, largely because of the dismal performance of Stitch Fix shares over the past year, as it bottomed out 57 percent.
The cost-cutting began under previous CEO Elizabeth Spaulding, with restructuring, rejiggered distribution center plans and layoffs, and it’s clear it will continue under Lake.
In other words, this is the beginning of the belt-tightening, not the end.
According to the online fashion and styling platform, it’s preparing to shelve its Dallas warehouse next year and run out the clock on the lease term at another distribution center.
The business may also contract in other ways, as Stitch Fix considers reversing its U.K. expansion so it can concentrate on the U.S. In its earnings announcement, the company stated, “In addition to a strategic refocusing on our styling-first business in the U.S., and despite ongoing efforts to control costs and increase efficiencies across the company, we have concluded the need to explore exiting the U.K. market in [2024].”
That level of candor is rare, and the move itself would be a notable development, given that executives have often touted the growth and learnings from the U.K. since launching there in 2019. Apparently what it’s learning now is that the price of global expansion is expensive.
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