Stitch Fix NASDAQ: SFIX Chief Executive Officer Matt Baer said the online personal styling company’s transformation efforts helped drive fiscal-year revenue growth, higher client retention and record revenue per active client, while positioning the business to invest in future customer growth and artificial intelligence capabilities.
Speaking at a company event after the close of its fiscal year on Aug. 1, Baer said Stitch Fix grew revenue 6.4% during the year, outpacing the 1% growth rate for the broader U.S. apparel, footwear and accessories market cited from Circana data. The company’s fourth quarter marked its sixth consecutive quarter of revenue growth, according to Baer.
He said the company recorded its highest client retention in four years, its highest revenue per active client in company history and its 12th consecutive quarter of average order value growth. Stitch Fix also delivered 10 consecutive quarters with contribution profit above 30%, improved EBITDA margin and generated positive free cash flow, he said. The company ended the period with no debt and more than $220 million in cash.
Focus on assortment, flexibility and client relationships
Baer attributed the performance to a transformation centered on expanding customer engagement, deepening stylist relationships, adding flexibility to its Fix service and strengthening merchandise assortment.
He said Stitch Fix’s service differentiates itself from traditional retailers by collecting information on a client’s style preferences, budget and fit needs, then pairing the customer with a human stylist. Baer said that combination has helped the company gain share as other retailers reduce service and human interaction.
Revenue per active client reached $592 in the fiscal fourth quarter, up nearly 8% from a year earlier, Baer said. It was the 10th consecutive quarter of year-over-year growth in the metric.
Baer said customer feedback early in his tenure indicated that clients wanted to spend more with Stitch Fix but were limited by the prior structure of the service and its narrower assortment. The company has since introduced larger Fixes, themed Fixes and features that allow customers to build an outfit around an item found in its Freestyle shopping channel.
“We actually see an opportunity to triple that over the long term,” Baer said of revenue per active client, citing Circana data on customers’ overall apparel, accessories and footwear spending.
Category expansion and brand additions
Stitch Fix has revised its assortment strategy by exiting certain brands and items, sunsetting some private labels and launching new private brands, Baer said. He said the company’s private-brand portfolio generates margins that are 500 basis points higher than market brands.
The company added more than 80 brands over the past year, including Rhone, Varley, Favorite Daughter, Merrell, Jordan Brand, Nike Golf, Mitchell & Ness, Birkenstock, Baggu and FARM Rio, according to Baer.
He identified activewear, athleisure, footwear and accessories as categories where Stitch Fix has room to increase its share. Applying the company’s share in tops and bottoms to those categories represents a $1 billion “fair share” opportunity, Baer said. In the latest quarter, activewear and athleisure sales rose 21% year over year, while footwear sales increased 14%.
The company is also seeking to increase household spending through family accounts, which allow customers to create profiles for other members of their household. Baer said special-occasion apparel is another potential use case for growth.
AI investments target engagement and efficiency
Baer said Stitch Fix is using artificial intelligence both to enhance customer-facing features and improve internal operations. Its Stitch Fix Vision tool lets clients see AI-generated images of themselves in apparel, accessories and footwear based on customer data, while the newer See It On Me feature enables customers to create outfits and visualize them.
Baer said Stitch Fix has generated more than 22 million Vision images and that the tools have contributed to increased purchases in the Freestyle channel and higher engagement.
Internally, the company identified more than 400 potential AI use cases across functions, including inventory purchasing, online pricing, fulfillment-center staffing and customer service, he said. Baer also said AI has shortened private-brand product development from a process that previously took months to one that can be completed in days, with employees adding final design input.
Consumer trends and client growth
Baer said Stitch Fix’s recurring Fix business has remained resilient amid an uncertain consumer environment, though the company has seen some softness in more discretionary Freestyle and ad hoc purchases. He said performance in the core business has been similar across household income segments.
Active client growth was softer than expected at the end of the fiscal year, which Baer attributed partly to a more expensive customer-acquisition environment. He cited a report indicating that marketwide CPMs were up 43% year over year and said Stitch Fix would have returned to active client growth without elevated customer-acquisition costs.
Baer also highlighted demand from clients undergoing body transformations, including those using GLP-1 medications. He said 20% of new clients responding to an optional onboarding question indicated they were undergoing a body transformation. Stitch Fix has trained its stylists to support those customers and developed targeted marketing and a dedicated landing page, he said.
Looking ahead, Baer said the company plans to continue investing in personalization, customer engagement, assortment and client acquisition while maintaining what he described as an offensive approach despite macroeconomic headwinds.
About Stitch Fix (NASDAQ:SFIX)
Stitch Fix, Inc is an online personal styling company that uses data science, customer preferences and human expertise to recommend apparel and accessories. Customers complete a style profile and can receive personalized selections, known as “Fixes,” featuring clothing, shoes and accessories chosen for their individual preferences, sizes and budgets.
The company also operates Stitch Fix Freestyle, which allows customers to shop directly from a personalized online assortment rather than receiving a curated shipment.
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