What happened
Shares of digital fashion company Stitch Fix (SFIX +4.12%) gained 33% in July according to data provided by S&P Global Market Intelligence. While there wasn't any news in the month, investors were probably reacting to the appointment of a new CEO in June and taking advantage of a super-low valuation.
So what
Stitch Fix has been a mess lately. After soaring at the onset of the pandemic, it hasn't been able to sustain any solid performance. Sales have been declining, customer count is decreasing, and it's been posting losses.
The 2023 third fiscal quarter (ended April 29) was a continuation of this pattern. Revenue decreased 20%, and active clients decreased 11%, or by 431,000, to 3.5 million. Net loss was $22 million.
NASDAQ: SFIX
Key Data Points
Despite all of that, there were some notable wins in the quarter. Net loss was a big improvement from $78 million last year, which is the result of successful cost-cutting efforts. It generated $22 million in free cash flow, and it ended the quarter with $244 million in cash and no debt. So while it's experiencing challenges, it's set up to weather the storm at present.
To move forward, it's been looking for a new leader. Founder and former CEO Katrina Lake returned to take the helm of the company in an effort to get it back on track, but the goal was to find a fresh face to lead the company back to growth. In June, Stitch Fix announced the new CEO, Matt Baer, who had previously led digital and consumer services at Macy's and prior to that was head of e-commerce at Walmart. His profile in retail and digital services fits the bill for a candidate to bring Stitch Fix forward, and now investors have to wait and see how it goes.
Now what
Investors were lukewarm on the CEO announcement, but as the stock dropped to new lows, some investors sensed opportunity. Even at this higher price, shares trade at only 0.3 times trailing-12-month sales.
That's not much of a value for a company that has no future, but it could be an incredible deal for a stock that could rebound. Which category Stitch Fix falls into is unclear right now. If the new CEO can revitalize the company, this could be a golden opportunity. Risk-tolerant investors are sensing this, but I would recommend watching what happens before buying Stitch Fix stock.
