Why Stitch Fix Stock Was Up 15% on Tuesday


What happened

Stitch Fix (SFIX 12.55%) investors beat the market on Tuesday as the stock gained 15% by 12:45 p.m. ET, compared to a 1.4% increase in the S&P 500. The rally was sparked by encouraging news on the economy and retail industry.

That rally didn’t remove much of the recent losses that investors have seen in the e-commerce apparel retailer, though. The stock is still down by over 70% so far in 2022.

So what

Fresh government statistics showed a slowing pace of price increases for the month of October, which marked another data point suggesting that inflation might have peaked. That news helped push the wider market higher on Tuesday, and Stitch Fix benefited from that rising economic optimism.

The more direct factor behind the stock’s jump was good news from Walmart (WMT 6.88%). The retailing giant said in a pre-market earnings announcement that comparable-store sales rose 8% in the core U.S. market, including a 16% boost in e-commerce sales. Customer traffic was up, and so was average spending through late October.

Those metrics suggest that consumer spending is holding up well as we approach the core holiday shopping season. Stitch Fix’s sales had been pressured by slowing economic growth and by inflation pressures, so the stock is likely to react favorably to news showing a potential weakening of these issues.

Now what

Stitch Fix’s operating results might still get worse before they improve. In late September, management projected that sales would decline by at least 20% in the fiscal Q1 period that runs through late October. For context, revenue declined 16% in the Q4 period.

Investors will be watching Stitch Fix’s next announcement in early December for signs of slowing declines in key metrics. The active client metric will be critical to follow, as declines there are currently compounding slower order volumes among existing customers.

The company might have more positive things to say in its short-term growth projections, especially if stronger consumer spending is supporting its business. But it will likely still be several quarters before Stitch Fix is on a clear path toward positive sales and earnings.



Read More: Why Stitch Fix Stock Was Up 15% on Tuesday

2022-11-15 10:13:00

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