The retailer faced steep challenges because of COVID-19. But CEO Katrina Lake expressed optimism about FY 2021, saying Stitch Fix 'navigated the COVID trough and has emerged even stronger.'

Online apparel subscription retailer Stitch Fix Inc. reported increased online sales compared with a year earlier but swung from profit to a loss in its fiscal year 2020 as it dealt with supply and fulfillment problems resulting from the coronavirus pandemic.

For its fiscal fourth quarter and fiscal year 2020 ended Aug. 1, sales increased 2.6% and 8.5%, respectively, on an unadjusted basis. Sales for Q4 were $443.4 million, up from 432.1 million Q4 2019. Total revenue was $1.71 billion for the year, up from $1.58 billion in FY 2019.

Stitch Fix says year-over-year sales comparisons do not provide an accurate picture of its growth because Q4 2019 consisted of 14 weeks, which stretched FY 2019 into a 53-week year. Excluding the impact of that extra week, year-over-year growth was about 11% for both Q4 and FY 2020, the retailer reported.

Active clients increased to 3.5 million, up about 9% from $3.2 million a year earlier. Stitch Fix defines an active client as one who checked out a Fix box or was shipped an item using its direct-buy functionality in the preceding 52 weeks, measured as of the last day of that period.

The net loss for Q4 was $44.5 million, compared with earnings of $7.2 million in the year-ago period. The fiscal-year loss was $67.1 million, compared with net income of $36.9 million in fiscal 2019.

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Stitch Fix is No. 39 in the 2020 Digital Commerce 360 Top 1000.

COVID-19’s effect

In a Sept. 22 conference call with analysts, Stitch Fix CEO Katrina Lake expressed optimism about FY 2021, saying the retailer “navigated the COVID trough and [has] emerged even stronger,” according to a transcript from Seeking Alpha. She said the merchant is financially healthy and “well-positioned strategically and financially to take market share and play offense in 2021.”

In the second week of March, Stitch Fix closed its facilities in southern San Francisco, Dallas and Bethlehem, Pennsylvania—half of its U.S. warehouses. That meant it could not fulfill orders from those locations and, as a result, it had a backlog of shipments.

The retailer responded by dramatically reducing its customer-acquisition marketing from late March through April and May. It also temporarily turned off a feature that allows shoppers to order their next shipment directly after checkout. Such orders typically comprise nearly 25% of its manual (or not automatic) Stitch Fix box revenue.

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“At one point, half of our warehouse nodes were closed, and we were operating at nearly 30% fulfillment capacity,” Lake said during the Sept. 22 call. By late June, she said, distribution center capacity rebounded.

“Emerging from the peak of the crisis in the spring, we began to play offense,” she said, doing things like realigning its assortment and boosting its marketing spending in June.

Given the pandemic’s continued uncertainty, Mike Smith, the retailer’s president, chief operating officer and interim chief financial officer, declined to offer specific full-year guidance for FY 2021. “However, we do expect year-over-year revenue growth to accelerate meaningfully in the second half of fiscal ’21 as the impact of COVID stay-at-home orders subsides,” Smith said during the call.

An investors’ note from analysts Maria Ripps and Michael Graham at investment firm Canaccord Genuity was optimistic. “Stitch Fix reported Q420 results that came in ahead of estimates across all key metrics,” the note said.

The analysts say Stitch Fix’s Direct Buy feature—which allows consumers to purchase single items and does not require shoppers to buy a box subscription—drives higher engagement. After testing it in previous quarters, Stitch Fix deployed Direct Buy in Q2 2020.

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“We continue to view Stitch Fix’s innovative platform, which incorporates data-based recommendations and personal stylists’ advice, as a bridge for consumers who have yet to find the right solution but who are open to shifting apparel shopping online,” Ripps and Graham wrote.

For the fiscal fourth quarter ended Aug. 1, Stitch Fix reported:

  • Net revenue of $443.4 million, up 2.6% from $432.1 million in Q4 2019. On an adjusted basis, sales grew about 11% year over year.
  • A net loss of $44.5 million, compared with net income of $7.2 million in Q4 2019.
  • Adjusted earnings before interest, taxes, depreciation, and amortization (excluding stock-based compensation) of $11.8 million, down 33.9% from $17.8 million in Q4 2019
  • 3.5 million active clients as of Aug. 1, an increase of about 9% compared with 3.2 million as of Aug. 3, 2019.

For the fiscal year ended Aug. 1, Stitch Fix reported:

  • Net revenue of $1.71 billion, an increase of 8.5% from $1.58 billion in FY 2019. On an adjusted basis, sales grew about 11% year over year.
  • Net loss of $67.1 million, compared with net income of $36.9 million for FY 2019.
  • Adjusted earnings before interest, taxes, depreciation, and amortization (excluding stock-based compensation) of $38.4 million, down 48.6% from $74.8 million in FY 2019.

Percentage changes may not align exactly with dollar figures due to rounding.

 

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