Why Stitch Fix Stock Slumped on Thursday

What happened

Stitch Fix (NASDAQ: SFIX) investors lost ground to the market on Thursday as shares fell 17% by 1:15 p.m. ET compared to a 0.7% drop in the S&P 500. That move continued a sharp downward trend that shareholders have seen through most of the year. The stock is down nearly 80% since the start of 2022.

The decline came as investors continued digesting the e-commerce specialist's Tuesday earnings report, which showed deteriorating earnings prospects.

So what

Stitch Fix announced on Tuesday afternoon that sales fell 16% in the fiscal fourth quarter, which ended in late July. Customer losses amounted to 9%, year over year, marking an acceleration of losses compared to the prior quarter. Management said demand was hurt by inflation and weakening demand for apparel and e-commerce.

The stock initially rose following the report, potentially because CEO Elizabeth Spaulding and her team are projecting smaller losses to start the new fiscal year. However, Stitch Fix has yet to show that it can find a path back toward sustainable sales growth. Its double-digit sales declines, meanwhile, look weak compared to performances by other established e-commerce retailers such as Nike and Lululemon Athletica.

Now what

Stitch Fix's stock price should remain under pressure until the company can end its streak of losses and stabilize its customer acquisition trends. To date, neither of those metrics is moving in the right direction. The company is aiming to reduce adjusted losses in the current quarter to about 2% of sales from 7% in fiscal Q4, and success there would be a positive sign for the business.

However, most investors will want to look toward other growth stocks while Stitch Fix continues searching for a path back to sustainable revenue gains. There's not enough evidence that this rebound is on the way, so Stitch Fix seems risky given its weak operating trends.

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Demitri Kalogeropoulos has positions in Nike. The Motley Fool has positions in and recommends Lululemon Athletica, Nike, and Stitch Fix. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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