Update: This story was changed to include earnings per share incorporating a tax benefit.
Stitch Fix on Monday reported second-quarter net revenue rose 24.4% to $295.9 million (from $237.8 million a year ago and beating the FactSet analyst expectation cited by Marketwatch for $291 million), and $18.2 million in adjusted earnings before interest, taxes, depreciation and amortization, according to a press release.
Shares fell late Monday as profit of $3.6 million or 2 cents per share fell short of FactSet's forecast cited by Marketwatch for 6 cents per share. Including a benefit from last year's Republican tax bill, the company's earnings came to 7 cents per share.
From the second quarter last year, the subscription apparel company grew its active client count by 588,000 or 30.6% to 2.5 million as of Jan. 27, according to a letter to shareholders.
Stitch Fix is still growing its client base, using technology and marketing to attract new customers and hang on to existing ones. Executives noted that two new initiatives — Style Pass, which offers unlimited styling for an annual membership fee, and Extras, add-on essentials like underwear and socks — are mostly untested.
Extras in particular is an important way to keep shoppers at Stitch Fix rather than turning to other apparel retailers for such basics, founder and CEO Katrina Lake told analysts on Monday. The company launched the option two weeks ago, offering subscribers the option to add as many "Extras" to their "Fix" before their five items are styled, including as many bras, undies and socks as they think they need. After scheduling a Fix, clients are now prompted to view Extras selected for them based on their style preferences, a spokesperson told Retail Dive.
"[I]t's really too early to tell," Lake said about Extras, according to a transcript from Motley Fool. "These aren't necessarily huge market opportunity items, but what it does is 1. It covers categories that clients would like the convenience of having in their fixes; 2. It also prevents clients from having to look elsewhere for those item types, which they would have had to do six or 12 months ago."
It appears to be a good defensive play, considering the competition in lingerie. While Victoria's Secret is failing to shift toward new consumer preferences, American Eagle's Aerie brand, along with Gap and a slew of online upstarts, have lingerie assortments that are resonating with customers, according to analysts at Jane Hali & Associates. "'Sexy' is no longer a well-received message," Jane Hali told Retail Dive. "Consumers are looking for intimates that are comfortable and fit properly. Women are seeking comfort and to feel comfortable in their own bodies. Stitch Fix seems to be in the right direction by using Hanky Pany and Free People intimates, all pretty and comfortable."
Stitch Fix also announced the appointment of Vail Resorts EVP and chief marketing officer Kirsten Lynch as the sixth member of its board of directors. Lynch has nearly three decades of strategic marketing experience as an executive at strong, global consumer brands, including PepsiCo and Kraft Foods, according to a company press release. Along with Lynch and Lake, the board includes Steve Anderson, founder of Baseline Ventures; Bill Gurley, general partner of Benchmark Capital; Marka Hansen, former president of Gap North America and Banana Republic; and Sharon McCollam, former CFO of Best Buy.