Stitch Fix Soars After Company Easily Beats Profit Estimates

(Bloomberg) -- Stitch Fix Inc., the apparel company that predicts what customers want, jumped the most in three months after reporting better-than-expected earnings and adding a new product line for kids.

The San Francisco-based firm soared as much as 14 percent to $22.52 in early afternoon trading in New York, its biggest intraday jump since March 5. The company priced its IPO at $15 late last year and the shares climbed as high as $30.07 in late December.

Stitch Fix reported profit of 9 cents a share, easily beating analysts’ expectations. Revenue was $316.7 million, also above Wall Street forecasts. Sales in the current quarter will be $310 million to $320 million, Stitch Fix said, while noting it has 2.7 million active clients, up 30 percent from the same period last year.

Stitch Fix has grown rapidly by convincing more people to try its service. The company asks consumers about their clothing preferences, then uses software and human stylists to select and send them a custom package of apparel. The more data its users share, the smarter the company gets at selecting clothes, leading to higher sales and fewer returns, Stitch Fix says.

The company also announced a new kids line, adding to its women’s, men’s and plus-size categories. The move is a “natural extension” for Stitch Fix because over half of its clients have at least one child, Stifel Nicolaus & Co. analyst Scott Devitt said in a note to clients. Kids should be especially valuable as the retail market heads into the back-to-school season at the end of summer, Piper Jaffray analyst Erinn Murphy said.

But the model has attracted interest from others, most notably Inc. Last year, the e-commerce giant unveiled Prime Wardrobe, which lets users combine items into a shipment, try them on, and then return the unwanted pieces.

Stitch Fix Chief Executive Officer Katrina Lake isn’t too worried about Amazon. The vast majority of clothing purchases are still done in-store at places like Macy’s Inc. or Target Corp., and there’s plenty of room online for multiple players, Lake said.

“We’re not in a place where we’re competing with Amazon head to head for every dollar,” she added.

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