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Stitch Fix: Strong Flywheel Effect In Fashion

Jun. 07, 2020 2:55 PM ETStitch Fix, Inc. (SFIX)6 Comments
Stefan Ong profile picture
Stefan Ong


  • Stitch Fix has enjoyed steady customer growth and higher spending from its personalized styling platform.
  • The company has been self-funding its reinvestment in growing into new markets and categories.
  • Stitch Fix appears to be fairly cheap when compared to its previous sales multiples.

Stitch Fix (NASDAQ:SFIX) has steady revenue growth going into the year due to its strong platform and personalized recommendations for customers. The company's data engine has been powering a flywheel effect for its platform, with more customers leading to more data and better recommendations. Potential investors would have to pay a 1.38x price-to-sales multiple for the company, which appears to be fairly cheap compared to the highs of its trading range in the past year. Despite some risks navigating through the current uncertainty, Stitch Fix has been EBITDA positive since 2015 and maintains a strong financial position to withstand any revenue shocks.

Growth has been powered by data science and stylists

Stitch Fix has created long-term relationships with customers by helping them find and personalize apparel, shoes, and accessories. Its customers are motivated to share their personal details with the company, which provides a feedback loop to deliver more successful outcomes for the customers.

With this value proposition, Stitch Fix has grown its active clients from 2.9M to 3.4M year-on-year at a growth rate of 17%. Customers' spending on the platform has also increased over the same period from $463 per customer to $501, representing a growth rate of 8%. These metrics have led to a 22% growth in revenue year-on-year to $452M in Q2 2020.

(Source: Investor Presentation)

The engine that has been driving growth is Stitch Fix's data science. Most of the customers' data are provided directly by the customers through a style profile rather than inferred from their purchasing behavior. Customers also provide feedback after shipments that enhances the accuracy of the algorithm. Stitch Fix also collects extensive merchandise data like inseam, pocket shape, silhouette, and fit. This large data set allows the company to improve its personalization strengths, which helps increase the value proposition to its customers.

This article was written by

Stefan Ong profile picture
Focused on buying high-quality businesses and holding them for the long term. My initial investment strategy was to buy dividend-yielding stocks and REITs to generate passive income. This changed recently as I have more time to study companies. Besides, finding businesses that can reinvest earnings and compound returns at a higher rate is much more rewarding.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (6)

I am in it long term but because of the volatility of the market I think I will get out before earning. That scares me, one wrong thing and it sinks :(
Been in it twice, once from low 20s to $29 pre-Covid and then back in after Covid near the lows. With so many malls and retailers closing or going out of business this might be a good one for years to come. Interesting prop... would a brick and mortar retailer like Macy’s ever consider buying them?
With what money? Or perhaps you would take Macy's shares?
Blevinati profile picture
One of the better value prop analysis I’ve seen on SFIX. The data science feedback loop lightly managed by stylists is a significant barrier to entry for competition. This is in my opinion the most significant part of their bull thesis.
Blevinati profile picture
Long $SFIX by the way, currently up 60%+
Long since when? Its up because it was down the toilet. It's up less than 10% for the last year. Last earning call before pandemic was terrible.
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