Stitch Fix is crashing after its first-ever earnings report

Stitch Fix’s first earnings report is not going well for the company, as its shares went into a tailspin after a significant run up over the past month following its IPO when it delivered its results its most recent fiscal quarter.

Stitch Fix, a personalized apparel company that ships a box of recommended items that users can buy or send back, closed up just 1% on its first day of trading but did not have a good week after it made its public debut. The company downsized its IPO initially, and it looked like things weren’t going well for the company. But in less than a month, the company’s shares swung back and were up more than 50% since it made its debut as bullish sentiment for the holiday season rolled in. Today’s report put the brakes on that and sent the stock into a tailspin.

Prior to the company’s earnings report coming out this afternoon, Stitch Fix shares rose around another 4%, but the chart more or less speaks for itself after today’s report as it looks like its huge run in the back half of the year comes to a halt:

Stitch Fix was the next big consumer IPO following Blue Apron’s massive collapse after it went public. As such, while the company appeared to build a sizable business over the course of a few years, it went public under the specter of Blue Apron and faced an enormous amount of scrutiny. It looks like that scrutiny still hasn’t gone anywhere as investors are looking for more positive signals for the recent IPO.

In particular, investors are probably going to be looking closely at retention, which Stitch Fix COO Mike Smith says the company is deploying data science to begin focusing on re-engaging its customers and getting them to come back to the service if they end up taking a break. As Stitch Fix expands to new markets like Plus and Men’s, it’s going to be looking to bring that to parity with its core business in terms of the number of items people keep, something Smith said the company has been successful in its Men’s business. The company said it has 2.4 million active clients and turned a net income of $13.5 million.

“Generally we feel really good about retention and our ability to re-engage clients when they’ve taken a break from us,” Smith said. “The difference is we’re now looking at better ways to use data science as it relates to optimizing on both acquiring clients as well as looking at re-engagement activities. With all the data we have we think we can be best-in-class for personalized mentions for bringing them back when they have great products.”

Stitch Fix is going to have to be able to address a shifting e-commerce industry, especially in apparel, in addition to trying to dodge comparisons to Blue Apron — the last big consumer IPO. It’s betting big that its data science will be able to create a strong recommendation algorithm for all its emerging businesses, which each increase the total addressable market for the company, as well as find ways to keep users coming back over and over again.

The company’s revenue fell roughly in line with Wall Street’s estimates, which was looking for around $295 million in revenue. That’s a more than 25% jump when compared to the same quarter a year earlier. The company said it expects to bring in between $287 million and $294 million in revenue in the quarter ending in January. Here’s a look at the revenue for the company over the past few quarters:

Smith said Stitch Fix isn’t really a business that centers around the holidays and that the company is countercyclical — and the company doesn’t spend a lot on marketing for the quarter or see a big jump in sales. “We are not dependent on our Q4, we deliver client experiences,” he said.

Snap kicked open the so-called “IPO window” earlier this year, but Snap and Blue Apron both faced an intense amount of scrutiny. Smith said, as you’d expect, that the company doesn’t pay attention to day-to-day swings in its stock and that it’s focused on delivering long-term value for its shareholders. While Stitch Fix could easily be pegged as a successful IPO given its run in the past few months, it’s going to have to figure out ways to ensure that it sells that growth story to Wall Street.

Just on a closing note, there was one comment CEO Katrina Lake made on the earnings call that may raise a couple eyebrows in terms of how the company’s numbers look when it comes to thinking about patterns for Stitch Fix’s business:

“We had a warmer fall, we were selling through that summer product later this year,” Lake said. “We were selling through mostly at full price through September and weeks when you wouldn’t normally see that. We saw some benefits from that.”