Stitch Fix: Revenue Soars, Clients Slide

Online personal styling service Stitch Fix (NASDAQ:SFIX) reported fiscal 2025 second-quarter earnings on Tuesday, March 11, that topped analysts' consensus expectations. An earnings-per-share (EPS) loss of $0.05 came in better than the estimated $0.11 per share loss. Q2 revenue of $312.1 million exceeded predictions of $298 million. Despite these successes, the company saw a 15.5% year-over-year drop in active clients, suggesting continued challenges in client engagement and retention.

Overall, Stitch Fix managed to achieve operational efficiencies but needs to focus on sustaining its client base.

Source: Stitch Fix. Analyst consensus estimates for the quarter provided by FactSet. YOY = Year over year. EBITDA = Earnings before interest, taxes, depreciation, and amortization.

Stitch Fix is a company that blends technology and human expertise to deliver personal styling services. Founded to make fashion refreshing and inclusive, it offers personalized outfits through mail subscriptions. Users fill out a style profile, and the company uses data science and AI to select items for them. Lately, Stitch Fix has emphasized developing advanced AI tools to tailor experiences better, enhancing overall client satisfaction. Success factors include efficient inventory management and gaining consumer insights, both essential for its personalization-driven business model.

Stitch Fix made significant strides in AI-driven personalization and stylistic recommendations, spending substantially on personal stylist connections. Enhanced shopping personalization is aimed at improving client retention. Yet despite advancement in data-driven merchandising, there remains a gap in retaining clients, as shown by the decline in active user numbers.

Quarterly Performance Highlights

In fiscal 2025's Q2, Stitch Fix concentrated on boosting revenue per client while grappling with a retreat in overall active client numbers. The period saw an increase in monetization, evidenced by a rise in net revenue per active client to $537 from $515 the previous year. This was achieved through improved merchandise alignment with client preferences. However, active clients decreased by 15.5% year over year to 2.37 million. The gross margin improved by 110 basis points year over year to 44.5%, demonstrating enhanced cost management and higher product margins.

During Q2, adjusted EBITDA landed at $15.9 million, surpassing management's guidance range of $8 million to $13 million offered up last quarter. This achievement signifies improved operational efficiencies and effective cost-management initiatives. Although its EPS loss improved substantially from the same quarter last year, the net revenue still fell 5.5% from Q2 2024. Market conditions and economic uncertainties influenced consumer discretionary spending, impacting year-over-year revenue comparisons.

Stitch Fix continued working to enhance customer experience through personalization and diverse merchandise, including exclusive styles. These efforts have seen a rise in net revenue per active client by 4.3%. Despite these advances, the company faces challenges maintaining an expanding client base.

Future Outlook

Looking ahead, Stitch Fix management projected fiscal 2025 third-quarter revenue between $311 million and $316 million, foreseeing continued year-over-year declines. However, an adjusted EBITDA target between $7 million and $10 million suggests a continuous focus on operational improvements. For fiscal year 2025, revenue guidance was raised to between $1.225 billion and $1.240 billion, reflecting confidence in bolstering cost efficiencies. Full-year adjusted EBITDA was also raised compared to Q1 guidance.

Management remains committed to boosting client engagement through advanced personalization and new merchandise offerings. However, the decline in active clients presents risks that may affect revenue growth. Investors should monitor ongoing retention and client acquisition strategies to gauge potential future performance impacts. Future quarters will spotlight how effectively Stitch Fix navigates growth impediments and maximizes its technological capabilities to maintain a competitive edge.

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JesterAI is a Foolish AI, based on a variety of Large Language Models (LLMs) and proprietary Motley Fool systems. All articles published by JesterAI are reviewed by our editorial team, and The Motley Fool takes ultimate responsibility for the content of this article. JesterAI cannot own stocks and so it has no positions in any stocks mentioned. The Motley Fool recommends Stitch Fix. The Motley Fool has a disclosure policy.