Stitch Fix Lays Off Hundreds, Q3 Downturn

·5 min read

After a difficult quarter, Stitch Fix reported earnings Thursday under the pall of other tough company news: The online fashion platform just revealed new layoffs excising hundreds of staffers.

The company plans to shave off 15 percent, or roughly 330, of its salaried roles, mostly in nontech positions across corporate and styling leadership.

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“In light of our recent business momentum and an uncertain macroeconomic environment, we’ve taken a renewed look at our business and what is required to build our future,” Elizabeth Spaulding said in a note to staff that published on the company’s blog. “While this was an incredibly difficult decision, it was one we needed to make to position ourselves for profitable growth.”

As pandemic-era online spending shifts for once-homebound consumers, companies of varying stripes are clocking the change in momentum. Once essential platforms like streaming service Netflix and video conference provider Zoom are bearing the brunt of the transition.

Stitch Fix, which offers online styling and fashion subscriptions, or “fixes” — believes it knows “what we need to do to return to profitable growth,” Spaulding said.

So far, that remains to be seen.

In its third financial quarter ending April 30, the company reported dips in both sales and users. With a total of 3.9 million clients in the latest quarter, traction fell short of analyst expectations of 3.99 million clients, amounting to a loss of 200,000 clients year-over-year.

Meanwhile, the company’s net loss soared compared to the year-ago quarter, to a loss of $78 million, or 72 cents a share, versus $18.8 million, or 18 cents a share, during the same period in 2021. Overall, revenue dropped from $535.6 million at that time last year to the current $492.9 million.

Analysts expected to see a net loss of 56 cents per share on revenue of $493.3 million.

Lowered guidance didn’t help matters. Analysts predicted a net loss of 50 cents a share on revenue of $494.1 million in the fourth quarter. Stitch Fix pegged revenue ranging between $485 million to $495 million.

Shares of the stock have experienced a nauseating plunge of close to 60 percent since the start of the year, putting its value now at less than $1 billion.

E-commerce’s loss may be physical retail’s gain, as people look to get out of the house and visit brick-and-mortar stores. Meanwhile, Stich Fix faces what many other retailers are struggling with right now. Though the company ordered early and didn’t deal in excessive inventory, which mitigated some supply chain challenges, it still faced higher costs for things like marketing, staffing and other issues — including a potential tightening of the belt by consumers.

Spaulding noted that the company is “continuing to see inflationary pressure for the broader U.S. consumer and U.K. consumers that we serve, and that we know that typically heading into what many are predicting as a recessionary period that we may see an impact,” she said on the earnings call with analysts.

The company is also facing higher costs. The cuts come months after Stitch Fix slashed its forecast for the full year and said its active client count was below expectations.

Shares of the company cratered Thursday, falling from $7.78 at close and even further after-hours to $6.56 — a marked difference from the boom last year, when the stock ticked over $68.

The layoffs will help Stitch Fix save between $40 million and $60 million this year, according to the company, which will help offset expenses related to restructuring and other costs, which are expected to hover around $15 million to $20 million. That reporting should be reflected in the next quarter’s earnings.

In her letter to staff and during the earnings call with analysts, Spaulding seemed confident that she knew how to fix the company’s woes. She aims to double down on technology, focus on experience and broaden Stitch Fix’s offerings. On the call, it was clear that the plans included features, like the recently launched personalized search and building out the Freestyle offering.

One critical area for improvement, as the company has mentioned in previous earnings calls, is onboarding new customers. Stitch Fix still believes that Freestyle — the direct buy, “no subscription necessary” shopping feature — can be a pipeline for customer acquisition, though it hasn’t quite materialized the way the company seemed to envision it. At least not yet.

Spaulding framed this stage in the company’s evolution “as a period of transformation from a fixed-only business to a fixed-plus-freestyle ecosystem.”

The company’s return to profitability may hinge on that, among other things. According to Dan Jedda, chief financial officer, this transformation will “come from net active client growth with the client experience that we’re investing in and also the optimization of our cost structure.” He didn’t offer a specific timeline on that, but believes that “Q4 is our trial on profitability, and we believe that FY 2023 at some point we can return to profitability.”

As such, Spaulding and Jedda plan to update the guidance over time. What’s less clear is how much runway will be left by then.

FOR MORE ON STICH FIX FROM WWD.COM, SEE: 

Stitch Fix Earnings Dogged by Inability to Stitch Up Active Clients

Stitch Fix Thrives on Hybrid of Personalization and the Human Touch

Stitch Fix Introduces Its First Elevate Collection

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