Stitch Fix Still Growing, Adding Kids

The styling service saw 30 percent growth in active clients in the fiscal third quarter.

Stitch Fix Inc. is still heating up.

The online styling service grew faster than expected in the third quarter — expanding its active client count by 30 percent — and founder and chief executive officer Katrina Lake is jumping into kids styles and bringing on more marketing expertise to help keep up the momentum.

Investors have been watching the tech-fashion hybrid closely since its December initial public offering, checking for signs it will be able to keep bringing in new shoppers and gain additional scale.

So far, the answer seems to be yes.

Stitch Fix specializes in sharpening the choice of human stylists with the help of artificial intelligence — an expertise that’s catching on and is being used or tested by others, including Amazon and Poshmark.

In an interview with WWD, Lake saw the fact that others are using combinations of the two as “an important signal of validation.”

“This company was predicated on really embracing technology,” Lake said. “What I’ve seen historically about people using data science in their business is that they use it in their business retroactively. What they’re not necessarily always doing is using it to drive their business. In our model, we live and die by recommendation. We’re kind of forced to be the best in the world at that.”

Stitch Fix raked in fiscal third-quarter net profits of $9.5 million, or 9 cents a share, marking improvement from losses of $9.6 million, or 38 cents, a year earlier.

Earnings per share came in 6 cents ahead of the 3 cents analysts projected, with Lake attributing the result to Stitch Fix’s general performance, including the development of the men’s and plus-sized businesses, and a shift in timing for marketing expenditures.

Revenues for the three months ended April 28 increased 29.2 percent to $316.7 million from $245.1 million.

That top-line growth came as more people logged on to Stitch Fix’s service. The company registered 2.7 million active clients during the quarter, picking up 200,000 clients since the end of the second quarter in January.

Stitch Fix started in women’s and expanded into men’s in 2016, and then plus sizes and contemporary looks last year and intimates this year. (Men spend about 80 percent of what women do through the service, more than the industry average of 50 percent).

The kids category is a natural extension for Stitch Fix, bringing the service to the whole family and getting more out of the company’s existing infrastructure and business model.

And adults who use Stitch Fix are the decision makers for their kids, creating a natural audience.

Kids fixes will operate a little differently. Where adults get five items per fix as a baseline, kids will get eight to 12. Lake said the service caters to kids ages two to 14 and features leggings as low as $12 and occasion dresses for $35.

The service creates individual profiles so the Stitch Fix system can tune each user’s preferences.

“These kids have remarkably strong opinions,” Lake said, referring to research leading up to the service. “One little boy said, ‘I just want clothes to make me fast.’”

To keep ahead, and fend off the likes of Amazon, Lake will also have to stay fast.

Ears perked up last month when Lake, speaking at the Code Conference, said she hadn’t had “any serious discussions about combining” with Amazon. The ceo declined to clarify just what types of discussions she has had with the e-commerce giant, but said, “We feel we should be a standalone company.”

Lake also noted that Stitch Fix and Amazon have very different business models. “Amazon solves very different problems. [They are] cheapest and fastest and easy delivery. We’re solving around the discovery.”

The seven-year-old company has 6,300 employees, the newest being Deirdre Findlay, who joined as chief marketing officer.

Findlay will oversee marking, creative and communications initiatives and comes to the company from Google, where she was senior director of global hardware marketing. Prior to that she was senior vice president at Digitas, working with companies such as eBay, Whirlpool Brands, Allstate Insurance, MillerCoors, and Kaiser Permanente.

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