How pandemic darling Stitch Fix returned to growth

Could Stitch Fix be on the path to a comeback? 

The clothing subscription service, one of the many pandemic winners that’s struggled to find itself in a post-lockdown world, is back to growth and seeing some early wins from a turnaround strategy that’s just over two years in the making. 

Under CEO Matt Baer, a former Walmart and Macy’s executive who was tapped to helm the business in June 2023, Stitch Fix posted its first revenue growth in 12 straight quarters for the three months ended May 3. It’s now forecasting its second consecutive quarter of top-line growth. 

While the apparel company’s customer file is still shrinking, its average order value has grown for seven consecutive quarters and every client cohort it’s acquired since last summer has stayed with the company for longer, and spent more, it said. 

The company, which charges a $20 styling fee for all “fixes” it sends, saw revenue per active client grow to $542 during its most recent quarter, up 3% from the year-ago period. 

“It’s been really affirming to us that, you know, with this return to growth, with this increase in engagement, with this increase in average order value, that we do have the right strategy,” Baer told CNBC in an interview. “We’ve got the right team and we’re executing against it at a high level as well.”

Stitch Fix hasn’t posted an annual profit since 2019 but for three straight quarters, its year-over-year losses have narrowed. It regularly generates free cash flow and its balance sheet is free of debt.

To be sure, Stitch Fix’s sales growth in its fiscal third quarter was modest, up just 0.7%, but it expects those gains to continue in its current quarter with sales projected to be flat to up 1.7% year over year. 

And the company’s stock price is still down more than 95% from its pandemic high in January 2021. So far this year, it’s up more than 3% as of Friday’s close. 

Between its IPO in 2017 and 2021, the company was able to acquire customers cheaply online and regularly posted revenue growth north of 20%. 

But then the market grew crowded and suddenly, customers found themselves overwhelmed by all of the companies looking to sell them a monthly subscription box, whether it was a package of clothes, beauty products or dog treats.

The pandemic had changed the way customers were shopping for clothes, and Stitch Fix struggled to hang on to the customers it acquired. Some shoppers found the company’s service clunky and confusing, and the assortment started to feel stale and out of style. The company’s main value proposition, its personalized styling service, began to feel generic to some and disconnected from their personalized needs and style. 

Within four years, the company went from an $11 billion buzzy startup to a tiny business that’s now worth just under $600 million.

In January 2023, StitchFix announced that CEO Elizabeth Spaulding would be stepping down and Lake would return to the helm as its interim CEO and lead the search process for a new top executive.

Before joining Stitch Fix, Baer spent four years as a vice president on Walmart’s e-commerce team during a critical phase of its online growth. He later joined Macy’s as its chief customer and digital officer, where he remained until Lake hired him to revive the subscription styling service. 

But Baer’s career in retail started long before that: At 16, he started working in his family business, Baer’s Furniture & Interior Design, a small chain of furniture stores dotted along the Florida coasts and founded by his great-grandfather in 1945. 

“Growing up in a retail family business, when your name’s on the door, it might mean a little bit extra,” Baer said. “At a very young age, I was also front and center with our clients. I was greeting them when they would walk into a showroom. I was asking them what it is that they were looking for. I was able to understand their needs and translate that into an exceptional service that we could provide.” 

Baer said his first order of business after taking over at Stitch Fix was to understand the company’s primary client and how that shopper was experiencing the service. 

Within a few…