$SFIX
Not just a retail stock…
1. Very innovative company
Curated styling service @ the core. Invested heavily in data science and algorithms to help
stylists choose the close and what to buy. But they do a lot more, with new shit coming out
all the time.
When they IPOd 3 yeas ago, the business model was based around shipping boxes of five
items to customers, at regular intervals where clients get to see everything and pick what
they want (and ship back what they dont)
They have a very solid set of recommendation algorithms, given that the business hinges
on data gathering and analytics to deliver the right fit and style that each client is looking
for. These improvements contributed to the highest rate of successful first Fixes for clients
in five years, with nearly 80% of new clients purchasing at least one item in their first Fix.
The rate of successful first Fixes is a key metric that management watches, since it is a
reliable indicator of repeat engagement with the service. It’s one reason that management
believes revenue growth will continue to accelerate through calendar 2021.
“In their very first experience with us, these recently acquired Fix customers are
demonstrating both strong purchase behavior and satisfaction,” CEO Katrina Lake said
during the fiscal first-quarter conference call held on Dec.
7.
a) Since IPO they released a new feature called Direct Buy (this summer) which lets clients
choose from a highly curated pool. This has been doing incredible and has accelerated
their revenue growth.
“Since launching to all active clients last quarter, the service has taken off. Stitch Fix saw
robust engagement with direct buy during the fiscal third quarter ending May 2. Its
penetration grew from 5% of women’s clients to 13%. What’s more, revenue from direct
buy more than tripled quarter over quarter. “
Clients like this better than the blind boxes they have been getting before, and leads to
more purchases and higher rate of repeat purchases.
b) Style shuffle (new game that helps SFIX learn about clients tastes) Gamification is good
for retention, and also improves their recommendation algorithms.
c) Trending for you (a personalized recommendation feed). This is based on all of the data
that they collect.
d) Doubling down on the curation model buy hiring more stylists. Currently up to 5500.
E) “Fix Preview”
New product tested in the UK. Before this, customers had little input as to what came in
their box (despite the data that SFIX collects in order to curate the best box for clients).
Fix Preview in the U.K. Fix Preview gives clients a chance to view the items that they’re
supposed to receive before they are shipped, giving the client a chance to engage with a
stylist and have more control over the items he or she gets. Stitch Fix chose to launch Fix
preview and survey prospective clients, which are customers that have filled out a style
profile but haven’t ordered a Fix.
The new feature found that 45% of respondents would order a Fix if they had the ability to
preview what they were gaining.
f) Shop by category (basic, but a new way to buy)
“As management explained in its shareholder letter, “Specifically, we believe this new
category-based shopping experience will provide a compelling gateway for the cold start
experience where we can provide relevant, personalized recommendations to clients as
they enter Stitch Fix for the first time.””
All of these have done great because of a better customer experience (and new revenue
streams)
2. Growth
Forward guidance is above expectations.
With many apparel stores still struggling, SFIX’s hyper-personalized service and datadriven platform could lead to significant market share gains in the short term, which
appears to already be happening based on the recent acceleration in revenue growth.
Number of active clients grew 10% YoY (3.8M), which is an acceleration from last the 8.8%
in previous quarter.
This is good, but at the same time they reported a loss last quarter because expenses rose
amid the pandemic. (Will go back down when everything is stable)
3. Retention
Retention is great. And most of new clients choose to receive their fix on a recurring
schedule. Last quarter 240,000 new clients with repeat purchases.
4. Financials
~ $4B market cap (still very small)
SFIX currently trades at about 10x book value, which is very low compared to other retail
stocks like Wayfair (which trades at 2,800 x book value). SFIX is very nicely positioned
along side other e-commerce stocks like Wayfair and Amazon.
Analysts say revenue will rise by 17% over the next year. If this is correct, SFIX will be
profitable again.
The company’s current outlook calls for fiscal 2021 revenue to increase between 20% to
25% year over year. What’s most impressive is that this guidance implies growth will
accelerate to between 29% to 40% in the second half of the fiscal year.
The company expects to reach $2.1 billion in revenue in fiscal 2021 at the midpoint of the
guidance range, but that’s still extremely small compared to the hundreds of billions spent
on apparel every year. Lots of room to grow here, and if they continue innovating like they
have been, this is very exciting for the stock.