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Stitch Fix's First Earnings Report Since Its IPO Was Not Very Well-Received

Investors seem unsure about the personal styling startup.
Photo: Stitch Fix

Photo: Stitch Fix

When Stitch Fix filed for an IPO last month, it was a pretty big deal, as it was one of the first fashion tech startups to hit that milestone — not to mention, the only female-founded tech IPO this year. While that's exciting, it also seems to mean that investors aren't as confident in its performance. On Tuesday, following the release of the now-public company's first earnings report (private companies aren't obligated to disclose earnings), shares plummeted over 11 percent.

This is a bit surprising when you consider that Stitch Fix's results for the first quarter of fiscal 2018 weren't bad: Revenue increased 25 percent from the previous year to $295.6 million, just above analysts' estimates of $295 million, while profits were $13.5 million, or 4 cents a share, just above analysts' estimates of 3 cents a share. The personal styling startup, which has grown rapidly since its launch in 2011, also saw its active client base grow 30 percent to 2.4 million, likely thanks to expansion into new brands at previously unreached price points and categories like menswear and plus. It projected revenue of up to $1.2 billion for the fiscal year. All pretty good news.

As far as what investors might have perceived as negative, the company's profit margin took a hit due to the aforementioned investment into new categories and unspecified inventory loss (in retail this usually means theft or damage); it also spent a lot on advertising — nearly twice what it spent last year. The company noted that it doesn't experience the holiday-season sales lift that is typical of other retailers because it's more of a self-purchasing than a gifting company. "Seasonality in our business does not follow that of traditional retailers, such as typical concentration of revenue in the holiday quarter," reads its letter to investors. "Historically, we have experienced lower quarter-over-quarter net revenue growth in fiscal Q2 due to slower active client growth during the holiday season."

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Is that what sent shares tumbling? Honestly, it's hard to say. CNBC spoke with two analysts, both of whom said the share drop may not be cause for concern and was in line with the volatility Stitch Fix has seen since its IPO, and will likely continue to see in the near future. Things started pretty slow for the company, which downsized its IPO and saw shares go up only 1 percent on its first day of trading. However, after 10 days on the stock market, its shares were up a whopping 50 percent. Now, clearly they've swung back down. "I didn't see anything wrong with the release," retail analyst Jan Kniffen told CNBC. "This is going to be a volatile stock until we all figure it out and, so far, we haven't figured it out."

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