Stitch Fix Blows Away Investors At First Fiscal Quarterly Earnings

Stitch Fix has recently emerged as an exciting investment in the world of online clothes shopping, but its data science is where the money is.

Dec. 8, 2020

There is a person who works at MyWallSt through whom all of our data analytics runs. His name is Fabian, and he’s our Head of Data. As a writer, I won’t pretend to understand what Fabian and his hard-working team do (I’m pretty sure they just make what I do look good), but I was very interested to learn more about his favorite stocks.

My assumption was that it would be something like Cloudflare, Atlassian, or Datadog. But no, according to Fabian, a self-proclaimed data lover, his favorite stock is Stitch Fix (NASDAQ: SFIX).

Why, you ask? His answer:

“I like how the company uses data science to revolutionize the clothing industry.”

Stitch Fix, for those of you who are unaware, is a clothing and data science company founded by Katrina Lake, who was also the youngest female founder ever to take a company public and was CEO of the only female-led tech IPO of 2017. 

And it looks like Lake and Stitch Fix are going to continue setting the market alight after reporting its Q3 earnings report last night:

  • EPS: $0.09 versus estimates of a loss of $0.20 per share.
  • Revenue: $490.4 million versus estimates of $481.2 million.
  • Active clients: 3.8 million, up 10.2% from last year.
  • Forecast revenue growth: Between 20% and 25% in 2021.

“I still don’t know what Stitch Fix does?”

Straight from the horse’s mouth:

Stitch Fix is a personal styling service that sends individually picked clothing and accessories items for a one-time styling fee. Customers fill out a survey online about their style preferences. A stylist at the company picks five items to send to the customer.

Simple, right? If you’re not the biggest fan of spending endless hours in retail malls and clothing outlets, why not just tell Stitch Fix what you like, and they’ll send you what to wear.

For many of us, that’s the dream. 

Stitch Fix makes its money in 2 ways:

  1. Styling Fees: With each order, there is a $20 styling fee which, if a customer decides to keep any of the items that are sent, is deducted from the total price of the order itself.
  2. Subscription: Available only to select users who consistently use the service, it costs $49 per year and it guarantees each subscriber unlimited Fixes; waiving the styling fee.

It keeps its ideas fresh by using hundreds of data scientists who work on a broad scale of projects, from rebuy algorithms to trend predictions, which helps the company tailor each user’s shopping experience and take style preferences into consideration. 

I’m starting to see why Fabian likes them so much…

Subscription or recurring revenue is an important factor in modern business, and one of the key requirements for a successful subscription model is knowing your customers. Stitch Fix does this better than anyone, and thus, could be in the early stages of a massive growth opportunity going forward. 

There’s a real belief in Stitch Fix, as evidenced last night upon the announcement that it had also managed to snatch away a big hitter executive from Amazon too, Dan Jedda, former Amazon VP, now Stitch Fix’s CFO. Last I checked, its stock was up 33% after-hours.

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MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here