Why Stitch Fix Stock Slumped 25% in September

Shares of online clothier Stitch Fix (NASDAQ: SFIX) lost 25% of whatever value they had left in September, according to data provided by S&P Global Market Intelligence, continuing a trend of a declining stock price -- and business. It reported another disappointing round of quarterly financial results, and investors don't see much hope.

A business that didn't take off

Investors were excited when Stitch Fix first came onto the scene. It offers a new take on the personal shopper, an online service where clients receive a monthly clothing "fix" based on a style survey, machine learning algorithms, and a personal shopping service.

However, the hype didn't last too long. Customers can return whatever they want from the fix, and clients weren't buying into the someone-else-picks-my-clothes phenomenon. The company launched a bunch of new ventures to change it up, like fixes at chosen intervals instead of monthly, and the option for customers to select their own items. But business hasn't picked up, and sales continue to fall.

It was a pretty ghastly fiscal fourth quarter (ended Aug. 3). Revenue decreased 12.4% to $319.6 million, or 18.3% adjusted for an extra week in the quarter. Net loss was $35.7 million, and loss per share was $0.29. That was well below Wall Street expectations of $0.19. It ended the quarter with $247 million in cash and equivalents and no debt.

CEO Matt Baer, who's been on the job for just over a year, is trying to transform the company. He says it didn't adapt its service and assortment to meet changing consumer needs. It's now focused on righting that mistake through revamped branding, better customization, a stronger stylist-client relationship, and increased flexibility.

Can Stitch Fix be fixed up?

The odds of Stitch Fix making a comeback don't look so good right now. Management is guiding for revenue of about $1.13 billion in fiscal 2025, a decrease from $1.34 in 2024.

However, there are rays of hope. Active customer count continues to slide, but revenue per active customer is on the rise. It still has more than 2.5 million active customers, so there is a market for its business.

It should also benefit from lower interest rates and a boost in the economy. It has slumped when many retailers have been in a slump, and increased spending overall could give it the oxygen it needs to begin on a path toward renewed growth.

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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool recommends Stitch Fix. The Motley Fool has a disclosure policy.