Stitch Fix quarterly forecast disappoints despite profit beat

Stitch Fix Inc forecast current-quarter revenue below analysts’ estimates on Tuesday after reporting better-than-expected quarterly earnings, as it cut marketing spending and increased technology investment.

Shares of Stitch Fix, which fell as much as 12% immediately after the company reported its fourth-quarter results, were down 3% in volatile trading after rising more than 7% after hours.

The company, which uses algorithms to create personalized clothing curated by experts, said it spent less on marketing during the end of the fourth quarter, resulting in fewer clients contributing to its revenue at the start of the current quarter.

Chief Financial Officer Paul Yee told analysts the company would fund initiatives, including inventory assortment to improve personalization for clients and better data science capabilities.

“We plan to invest more heavily in technology and talent in 2020 to accelerate a momentum,” Yee said.

First-quarter revenue would also be hit by its summer assortment like t-shirts and sleeveless tops, as clients spend fewer dollars on these products, Yee said.

The personal styling service’s fourth-quarter spending on advertising was 9% of net revenue, compared with 9.1% a year earlier.

“This leverage reflected our choice to spend less in July and deploy marketing dollars more effectively at other times of the year,” Yee said.

The company expects to record revenue between $438 million and $442 million in the first quarter, much lower than $451 million forecast by analysts, according to IBES data from Refinitiv.

The company forecast full-year revenue between $1.90 billion and $1.93 billion. Analysts are expecting $1.92 billion.

Stitch Fix has also made its first overseas foray into the UK earlier this year, while broadening its product categories to include kids, maternity wear, and petite and plus sizes.

The company earned 7 cents per share in the fourth quarter ended Aug. 3, surpassing analysts’ estimates by 3 cents.

However, active clients, a keenly watched metric that indicates the total number of users who received a box of clothing in the preceding 12-months, rose 18% to 3.2 million, broadly in line with the estimate of 3.23 million clients, according to analyst polled by FactSet Research.

Quarterly revenue rose to $432.1 million from $318.3 million, slightly lower than the estimate of $432.3 million.