• support@madhedgefundtrader.com
  • Member Login
Mad Hedge Fund Trader
  • Home
  • About
  • Store
  • Luncheons
  • Testimonials
  • Contact Us
  • Click to open the search input field Click to open the search input field Search
  • Menu Menu

Stitching Your Way to Profits

Tech Letter

If you are looking for an opportunistic trade in an up and coming tech growth story, then look no further than Stitch Fix (SFIX) which is a product of an algorithm meeting a stylish wardrobe.  

This online personal styling service offering denim, dresses, blouses, skirts, shoes, jewelry, and handbags for men, women, and kids under the Stitch Fix brand is a first of a kind.

This company is a technology company because the underlying business deploys data science to work with personal stylists and machine learning (AI) for personalized recommendation.

Let’s take a peek at how they do it.

They send individually picked clothing and accessories items for a one-time styling fee.

Customers fill out a survey online about their style preferences then an in-house stylist chooses five items to send to the customer.

Human stylists pick items according to a customer's survey answers and any access the customer gives them to their social media profiles such as Facebook.

The customer schedules a date to receive the shipments, which is referred to as a "Fix".

Once the shipment is received, the customer has three days to choose to keep the items or partially return the order or send it all back.  

If the customer keeps at least one item, the initial styling fee is credited towards the cost of the item.

In addition to the styling fee being credited, if the customer decides to keep all five items, the customer receives 25% off the total cost of the items.

Customers choose the shipping schedule, such as every two weeks, once a month, or every two months.

The company also supports integration with Pinterest boards, allowing customers to add photos of fashion looks that appeal to them.  

Developing around the importance of client relationships is the heart and soul of the business.

There were many financial highlights in the second quarter that provide more color on how Stitch Fix manages the business and continue to drive this sustainable long-term growth.

In the second quarter, they generated a net revenue of $370 million blowing away guidance and representing 25% year-over-year growth.

The 25% growth year-over-year is exceeding the believed guidance of 22% to 24% growth.

Q2 gross margin was 44.1%, 110 basis points higher than last year's Q2 reflecting a higher sell-through rate combined with lower inventory reserve expense and lower clearance activity year-over-year.

Stitch Fix delivered $12 million in net income and $19.2 million in adjusted EBITDA which also exceeded guidance.

The firm grew active client count to 3 million as of the first month of 2019, an 18% increase year-over-year.

These results show the deep commitment to delivering long term growth while making significant investments in future categories and capabilities.

More proof of the robust growth projections can be understood with healthy projections for the upcoming quarter, for Q3 2019, Stitch Fix expects net revenue between $388 million and $398 million dollars, representing growth of 22% to 26% year-over-year.

The last quarter of 2019 should be even better with revenue growth accelerating, for Q4 2019 specifically, projected net revenues is between $410 million to $430 million, representing growth of 29% to 35% year-over-year.

If the company can hit the upper limit of growth and register 35% year-over-year growth in Q4, then shares will easily surpass $40 barring any black swan catastrophes from the geopolitical scene.

Marketing is another lever Stitch Fix made use of.

In the past, for instance, they chose to market more aggressively with men or less with plus-sized clients depending on the available inventory at each product group.

The sales and marketing provide Stitch Fix with the flexibility to manage growth and ensure they can deliver a positive experience to all clients.

Putting this framework into context, in Q2, Stitch Fix had higher than anticipated demand from existing clients.

This was proven by the year-to-date repeat rate of 88%.

As a result of this increased demand, repeat clients is good for the inventory in the quarter.

Hammering down on that technology advantage that is turning out to be the difference maker, Stitch Fix launched a new inventory optimization algorithm to more effectively allocate inventory across the customer base.

Historically, Stitch Fix has optimized inventory allocation one client at a time based on which client was first in line.

But this new algorithm gauges the preferences of a broader universe of clients in the queue, to determine which inventory should be made available to Style as they start for each client.

This guarantees suitable inventory to meet each client's style preferences regardless of the client's position and our style in queue.

Early signs from this new algorithm demonstrated increases in client satisfaction and engagement.

Stitch Fix believes this superior algorithm will enable them to effectively serve a growing client base over time while also driving efficiencies across styling, inventory management and operation.

Stitch Fix is also expanding abroad with a local U.K. team and investing in the ground operations.

The company is leveraging data science capabilities to serve the unique preferences of UK fashion.

They are on track for a Q4 U.K. launch and hope to capitalize on an expanded U.S. and UK addressable market of over $430 billion.

The latest financials make it hard to slap on anything other than a buy rating.

As many tech companies are experiencing a drain of decelerating growth to their models, Stitch Fix is still in their sweet spot and shares should reap the rewards for this type of execution.

Giving what the market wants is never a bad idea.

 

 

 

Share this entry
  • Share on Facebook
  • Share on X
  • Share on WhatsApp
  • Share on Pinterest
  • Share on LinkedIn
  • Share by Mail
https://www.madhedgefundtrader.com/wp-content/uploads/2019/06/active-clients.png 662 668 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2019-06-12 10:02:192019-07-11 14:09:54Stitching Your Way to Profits
You might also like
December 8, 2021
October 13, 2021
June 12, 2019
Strike While the Iron is Hot with Clothes Tech
A Head-Scratcher in Silicon Valley
July 27, 2022

tastytrade, Inc. (“tastytrade”) has entered into a Marketing Agreement with Mad Hedge Fund Trader (“Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’s brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade and/or any of its affiliated companies. Neither tastytrade nor any of its affiliated companies is responsible for the privacy practices of Marketing Agent or this website. tastytrade does not warrant the accuracy or content of the products or services offered by Marketing Agent or this website. Marketing Agent is independent and is not an affiliate of tastytrade. 

Legal Disclaimer

There is a very high degree of risk involved in trading. Past results are not indicative of future returns. MadHedgeFundTrader.com and all individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, strategies, columns, articles and all other features are for educational purposes only and should not be construed as investment advice. Information for futures trading observations are obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the trading observations is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. You must assess the risk of any trade with your broker and make your own independent decisions regarding any securities mentioned herein. Affiliates of MadHedgeFundTrader.com may have a position or effect transactions in the securities described herein (or options thereon) and/or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies.

Copyright © 2025. Mad Hedge Fund Trader. All Rights Reserved. support@madhedgefundtrader.com
  • Privacy Policy
  • Disclaimer
  • FAQ
Link to: June 12, 2019 - Quote of the Day Link to: June 12, 2019 - Quote of the Day June 12, 2019 - Quote of the Day Link to: June 12, 2019 Link to: June 12, 2019 June 12, 2019
Scroll to top