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Stitch Fix (SFIX) Poised to Ride on Active Clients Growth

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The well-known online personal styling retailer — Stitch Fix, Inc. (SFIX - Free Report) — has been gaining from sturdy growth in its active client base. This indicates that the company’s prudent measures to boost consumers’ shopping experience as well as enhance assortments have been yielding. Markedly, the company expects such upsides to sustain in fiscal 2021 and has, therefore, provided an encouraging top-line view. Encouragingly, shares of this Zacks Rank #3 (Hold) company have more than doubled in the past three months compared with the industry’s rise of 61.2%.

Active Clients Growth to Aid Performance

Stitch Fix kicked off fiscal 2021 on a solid note as exemplified in its first-quarter results. Both the top and the bottom line surpassed the Zacks Consensus Estimate as well as improved year over year. Rise in active clients mainly supported top-line growth. Notably, active clients rose 10% year over year to 3.8 million during the fiscal first quarter. Sequentially, the company’s active clients went up by more than 240,000. Management highlighted that this marks the company’s highest sequential client additions. Moreover, the company’s new clients have been exhibiting encouraging purchasing behavior in first fixes. This signals greater retention and increased value for the long run.

Management expects to keep witnessing sturdy growth in its active client base and has accordingly provided an optimistic top-line view for the second quarter as well as for fiscal 2021. In fact, the company expects its current growth trends to sustain through the second quarter and into the back half of fiscal 2021. Accordingly for second-quarter fiscal 2021, management projects revenues of $506-$515 million, suggesting an improvement of 12-14% year on year. For fiscal 2021, the company anticipates revenues in the band of $2.05-$2.14 billion, which indicates 20-25% growth year on year.

Strategic Efforts to Boost Performance

Stitch Fix remains on track with its efforts to boost assortments. Remarkably, the company grew its Women's athleisure assortment, as a percent of women's inventory, by more than 150% when compared with the pre-COVID levels. In Kid’s business, the company put in place a rapid sourcing model to speed up replenishment. Additionally, it expanded its assortments to include more affordable products across categories.

Stitch Fix has also introduced features such as Shop Your Looks, which form part of its direct buy facility launched in June 2019. Notably, the company’s direct-buy penetration continued to grow across men's and women's client bases. As the company continues to expand its direct buy facility, it expects to generate stronger margins and client outcome. It has also started collecting client feedback data on shipped direct buy items, which will further reinforce the company’s personalized recommendation. The company has also been leveraging the usage of Style Shuffle for collecting data. In June 2020, Stitch Fix rolled out the Trending For You feature, which enhances feed-based shopping experience and will help new Stitch Fix customers to get engaged via direct buy. Management remains on track to launch new enhancements in fiscal 2021 in order to expand product discovery. These investments are likely to strengthen its digital capabilities, and in turn, boost overall sales.

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