Cost-Cutting Won't Fix Stitch Fix's Broken Business Model
When the only story a company can tell investors is about cutting costs, you know there's a problem. Shares of Stitch Fix (NASDAQ: SFIX) soared on Wednesday following a quarterly report that shouldn't have impressed anyone. Revenue was down 20% year over year, net income was deeply negative, and free cash flow tumbled.
The online stylist did make progress cutting costs, which was apparently enough to induce a rally in the heavily shorted stock. Selling, general, and administrative costs declined by 33% year over year in the fiscal third quarter, which ended April 29, driven in part by a 20% reduction in its salaried workforce announced earlier this year. The bottom line improved dramatically, from a net loss of $78 million last year to a net loss of $22 million this year.
More cost cuts are coming as the company grapples with plunging demand. Along with its results, Stitch Fix announced that it will be reducing its distribution-center network from five to three. The lease on one distribution center won't be renewed later this year, while another will be closed sometime in 2024. According to the company, this move will provide "greater depth and breadth of inventory available for our stylists to serve clients."
Source Fool.com
