The Ratings Game: Stitch Fix distances itself from Amazon with new consumer program ‘Shop Your Look’

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Stitch Fix Inc. stock plummeted 10.8% in Wednesday trading after the styling service reported revenue that missed expectations. However, analysts are bullish that a new direct purchase program for consumers, Shop Your Looks, will keep Inc. at bay.

Shop Your Looks allows consumers to buy items directly from the site. Normally, shoppers are given the option to purchase items that are sent to them through the styling program, which chooses items based on a customer’s preferences.

“[U]nlike most e-commerce offerings which choose to show every available product to every visitor, what’s unique about Shop Your Looks is that it’s hypercurated and personalized to every client,” said Chief Executive Katrina Lake on the earnings call, according to a FactSet transcript.

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“The feature is based on items that clients have already purchased from us, but also presents a personalized subset of algorithmically generated items delivered to clients in the form of shoppable styling recommendations for pieces already in their closet.”

After an eight-week test with a portion of the company’s women clients, about 60% bought two or more items.

“We believe these early results suggest that these purchases are incremental, though do admit cannibalization is a key risk in this endeavor,” wrote SunTrust Robinson Humphrey analysts in a note.

Despite the risk, analysts think the program can be “mostly accretive” in time. Moreover, and perhaps more importantly, the program gives Stitch Fix SFIX, -10.84%   one more way to avoid the “Amazon AMZN, -1.29%   effect.”

“We also believe this type of model could be hard for Amazon to replicate, given its current view on selection of the more the better,” analysts said.

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SunTrust Robinson Humphrey rates Stitch Fix stock buy with a $36 price target, down from $44.

KeyBanc Capital Markets analysts also think the program and similar direct-buy programs like “Shop New Colors,” which allows customers to buy new colors and patterns of previously-purchased items, could drive growth.

“This data-driven approach will give customers a significantly larger assortment to select from (as opposed to the traditional five-item Fix) in what we view as a highly-curated manner,” analysts said.

KeyBanc rates Stitch Fix stock overweight, but cut its price target to $34 from $40.

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On the topic of tariffs, Stifel analysts point out that Stitch Fix has been shifting its supply chain away from China in order to lessen the impact.

“Management has expressed confidence in their ability to look at pricing options and pass a portion of tariff-related costs through in ways that are not very impactful, should they be necessary,” analysts said.

Executives say tariffs have been included in the company’s guidance, which is for first-quarter revenue in the range of $438 to $442 million. The FactSet outlook is for revenue of $441.1 million.

Stifel rates Stitch Fix shares buy with a $28 price target.

Stitch Fix stock has gained 4.7% for the year to date while the Amplify Online Retail ETF IBUY, -1.66%   is up 14% and the S&P 500 index SPX, -1.79%   has gained 15.2% for the period.

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