Former Macy’s digital chief Matt Baer, who arrived as Stitch Fix CEO about 90 days ago, said during a conference call with analysts Monday that a key advantage of the subscription model right now is that items end up in a customer’s possession.
“During tough times, when discretionary spend is constrained or when a customer is reducing trips to the mall or resisting opening that addictive shopping app on their phone, we’re still being delivered to our loyal clients’ homes, and our focus remains on that experience,” he said. “Our focus is on winning that wallet share upfront. And we also have that awesome advantage of owning a direct relationship with every single client.”
Under the interim leadership of founder Katrina Lake, who arrived in January on a temporary basis after the abrupt departure of former Bain executive Elizabeth Spaulding, the apparel box e-retailer has maintained the previous year’s focus on slashing expenses. In January, the company said it was laying off about 20% of its salaried staff, and in June announced the closure of two distribution centers and the possible exit from the U.K.
While that has improved the bottom line, the company has yet to fully address its top-line weakness, analysts said. William Blair analyst Dylan Carden warned in a Tuesday client note that “heavy top-line declines could continue into fiscal 2025,” and that a recovery is “complicated by broader macro headwinds, which will limit discretionary spending.”
Carden also noted “lingering uncertainty in the model,” where subscribed customers, at a frequency of their choosing, receive curated boxes of clothing chosen by stylists and the company’s proprietary algorithm. Stitch Fix itself has tinkered with the model, introducing then undoing a host of changes that so far have failed to reverse its downturn.
The company is expecting further erosion, including an 18% to 20% revenue drop in Q1 and a 14% to 18% revenue drop for the new fiscal year. Analysts noted that Q1 would mark the seventh straight quarter with a year-over-year revenue decrease, with Wedbush analysts Tom Nikic and Austin Borina observing that the company’s guidance calls for revenues about 40% below the company’s peak of $2.2 billion, which it achieved in 2021.
To improve margins, Baer said that the company will continue to send more private label items. But so early in his tenure, details are scarce about next steps, and he said he would provide more details about the “long-term strategy in the near future.”
That makes it difficult to know how successful the company’s efforts — whatever they are — will be, Wedbush analysts said in emailed comments.
“It’s hard to call a turnaround here when the top line is under so much pressure,” they said. “While the expense control is impressive, it’s difficult for a retailer to cost-cut their way to prosperity, and eventually they’ll have to figure out a way to get the top line growing again. And in the current macro environment, it’s tough to see what that catalyst [would be].”