As demand for clothing continues to decline, online styling service Stitch Fix Inc. said… on Monday that it is trying to become a “more fun” destination for customers, while ThredUp Inc., the online thrift store, tries to make a bigger push in consignment sales. .
But the two companies said that achieving these ambitions would take time, and that their expectations for the coming months disappointed investors in one way or another.
In this process, Stitch Fix partners with SFIX,
fell 14.7% after hours on Monday, while ThredUp TDUP stock fell,
decline 8.5%
Over the past couple of years, rising prices for basic goods like groceries and gasoline have cut back on spending on less essential items, like clothing, and many retailers have cut clothing prices in an attempt to attract customers. Stitch Fix has dealt with declining sales, recently ending its UK operations last year, laying off staff and shaking up leadership.
On Monday, the company announced second-quarter financial results that were worse than expected. It said it expects fiscal third-quarter sales to be between $300 million and $310 million, below the FactSet forecast of $322 million.
For the full year, which is scheduled to end around the end of July, the company said it expects sales of $1.29 billion to $1.32 billion, down from a previous forecast of $1.3 billion to $1.37 billion and below analyst estimates of $1.35 billion.
In the coming months, the company wants to create a “more fun and visual” experience that is more interactive, CEO Matt Baer said during a Stitch Fix earnings conference call. He added that it will take further steps to deepen relationships between customers looking to try new styles and the Stitch Fix designers who help them do so.
“Our designers play an important role in our value proposition, and our customers have told us they want to get to know the designers behind their repairs,” Baer said, referring to the personalized clothing shipments her customers receive from the designers.
But he added, “Although some of these initiatives will roll out in the coming months, it will take time to accomplish our ambitious plan to significantly evolve the Stitch Fix customer experience.”
Meanwhile, ThredUp said it expects first-quarter sales to range from $79 million to $81 million, just below Wall Street's forecast of $81.2 million. For the full year, the company's sales forecast was between $340 million and $350 million, in line with analysts' expectations of $345 million.
Over the years, the company has tried to attract younger customers. It has largely shifted to consignment sales, where the person selling their clothing can receive compensation after the sale.
This shift began in 2019 in an effort to boost margins. But the company said Monday that its efforts to shift its European business, as well as its business that resells clothing from major brands, to a consignment model will impact sales growth in the near term.
“While these companies' move into shipping should act as a tailwind to gross margins over time, we expect it to mute revenue growth simply because of the accounting treatment,” CFO Sean Sobers said on the company's earnings call.
“As a reminder, consignment payments reduce net revenues,” he said. We expect freight revenue to make up an increasingly larger portion of our business throughout 2024.
On Monday, the two companies emphasized their use of technology, which they said has made the shopping experience better.
ThredUp recently introduced AI-powered search capabilities. Baer, of Stitch Fix, said the company's approach helps ease consumers' frustration when trying to buy clothes in stores — a process he said is often “cumbersome” — as well as the sometimes “overwhelming” experience of trying to buy them online.
“At Stitch Fix, at Day Zero, we know our customers better than many retailers can hope to know their customers over the course of their relationship,” he said.
