Why Stitch Fix, Inc. Shares Dropped 17% Last Month

What happened

Shares of Stitch Fix, Inc. (NASDAQ: SFIX) were heading lower last month, falling 17% according to data from S&P Global Market Intelligence. There was little news out on the company during May, but doubts seemed to be building about the styling service’s prospects as it sold off following presentations at a couple of industry conferences. Investors also looked ahead to the company’s third-quarter earnings report, which came out on June 7.

Image source: Stitch Fix.

So what

Stitch Fix’s highest-volume trading day of the month came on May 16, when shares dipped 1.3% as it presented at the JPMorgan Technology, Media & Communications Conference. In that presentation, CEO Katrina Lake highlighted the way the company innovates and uses data science and algorithms to gain an advantage over traditional retail. She also discussed the role stylists play in the company’s business.

Later in the month, the stock declined 3.5% on May 30 after Lake said at Recode’s Code Conference that the company didn’t see Amazon as a threat even as the e-commerce giant has recently launched Prime Wardrobe, a service that allows customers to pay for clothes that they keep, but notably lacks a stylist. Lake also said her company hadn’t had any “serious discussions” about combining with Amazon, a reflection some have suspected that an acquisition could be in the company’s future.

However, those presentations weren’t enough to convince investors who have had doubts about the stock since its IPO last November.

Now what

The company’s third-quarter earnings report, on the other hand, did much to assuage those concerns as Stitch Fix showed off accelerating revenue growth, with sales increasing 29% in the quarter, and its earnings per share coming in at $0.09, tripling analyst estimates of $0.03. As a result, the stock surged 26.5%.

Stitch Fix also said it was launched a service for kids, a sign of more untapped growth opportunities ahead. As the leader in the growing subscription-clothing-box industry, Stitch Fix appears to have a bright future ahead of it. Following the third-quarter report, it seems like the May sell-off was just a minor speed bump.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jeremy Bowman owns shares of Stitch Fix. The Motley Fool owns shares of and recommends Amazon. The Motley Fool owns shares of Stitch Fix. The Motley Fool has a disclosure policy.

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