Stitch Fix posted another profitable quarter with revenue of $296 million that beat analyst expectations, but the most interesting company development received just a passing mention in the earnings announcement for the second quarter of its 2018 fiscal year.
Stitch Fix made a big addition to its business that won’t show up in its Q2 financial results
The new feature — called Extras — signals where the company is headed.
Asa Mathat
Jason Del Rey has been a business journalist for 15 years and has covered Amazon, Walmart, and the e-commerce industry for the last decade. He was a senior correspondent at Vox.
That’s because the new Stitch Fix feature, called Extras, just launched three weeks ago so it hasn’t yet impacted the company’s financial performance. But its existence points toward the ambition the personal styling company has to grab more of the money its customers spend on clothing outside of their relationship with Stitch Fix.
Let’s back up for a second. Stitch Fix’s core offering uses a mix of personal stylists and algorithms to select five clothing and accessory items to ship to a customer at a time. Customers pay for and keep what they want, send back what they don’t. But they aren’t selecting what goes in their own box from the start.
The new Extras feature, however, allows customers to choose from an assortment of undergarments like bras and underwear to add to each box of five items their stylist has chosen for them. This might seem like a subtle addition, but it signals a big move by the company to supplement its main business built around discovery and serendipity with a more traditional retail shopping experience.
“By forcing them to go to another retailer to buy socks, there’s a chance they can be lured to buy other things at that retailer,” Stitch Fix CEO Katrina Lake said by way of explaining part of the rationale of the offering to Recode on Monday.
Lake didn’t specifically call out Amazon as “another retailer,” but that e-commerce giant happens to be one of the online companies that has gotten very, very good at selling apparel basics like socks and underwear. And Amazon also has been showing off its ambition in fashion beyond basics by unveiling a wide variety of in-house brands hawking everything from denim to women’s workwear. They are a threat.
Lake cautioned that the “personalization and ... the surprise” at the core of Stitch Fix’s offering won’t be going anywhere. But it’s clear the company is thinking hard about the right way to balance the model on which it built its success with the model that will allow it to grab as much market share as possible.
And for good reason. A study from the research firm Second Measure found that Stitch Fix customers actually spend more at other top fashion retailers like Macy’s and Nordstrom in the 12 months after they become a Stitch Fix customer than they did in the 12 months prior.
For the second quarter of its fiscal year, Stitch Fix net revenue grew 24 percent to $296 million, beating out analyst average estimates of $291 million. The company also beat estimates on adjusted Ebitda, but its net income came in below expectations thanks to a one-time tax hit related to the Trump tax plan as well as the re-measurement of preferred stock.
Stitch Fix also issued sales guidance for its full fiscal year of $1.19 billion to $1.22 billion in net revenue; analysts were expecting around $1.2 billion. It also said its full-year Ebitda would come in at $45 million to $55 million; analysts were estimating $51 million for the full year.
Stitch Fix went public at $15 a share in November; as of Monday morning, its stock price had risen 52 percent since its IPO.
This article originally appeared on Recode.net.
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