The US apparel industry is huge. $332 billion a year. So this should give SFIX plenty of room to grow in.
The question really becomes, do people want clothes mailed to them on a scheduled basis? I know everyone will have their opinion on this so it would be easy to have a huge thread of people saying they would or would not sign up for the idea, but that question may answer whether or not SFIX is anything more than a niche, or if they can continue to grow. Even if they master the machine learning part of it down and provide perfect fitting clothes that you truly like, you still have to sign up for the idea of clothes being shipped to you on a regular basis instead of when you need it.
I couldn’t find the figures off hand, but last time I looked at this, the vast majority of SFIX’ customers were female. They said the same thing on their last earnings call. They are now targeting men to grow revenue. Looking at their earnings transcript, the CEO is very light on revealing numbers. She just makes comments such as “To briefly update you on our kids category, we continue to be pleased with this performance.” She did have a few numbers here: "Altogether, our strategy has resulted in men’s revenue quadrupling and gross margins increasing by more than 1,500 basis points from fiscal 2017 to fiscal 2019. "
But I don’t get a sense of this being a real performance driven company when they just give vague descriptions of how the business is doing.
This is what they had to say about lowering guidance:
Now that we’ve seen a few Company-specific but also macro themes play out in Q2 '20, we’re leaning more conservatively in the back half of 2020 and shifting our full year outlook. First, in Q2 '20, we drove healthy active client growth. However, due we think to the heightened promotional activity across retail, those clients spent less with us in their Fixes in the quarter on average, resulting in lower order values than we anticipated. We think it’s responsible to reflect this trend in our second half forecast. Our strategy to continue to grow our assortment of lower price products to serve a broader universe of clients also impacts this guidance.
From what I read into that, the apparel industy has been competitive lately, so their customers have spent less, and they are now trying to go after lower priced customers.
My thought on this is, these subscription based customers should be least likely to be influenced by short term price competitiveness because they signed up for a subscription and aren’t going to start looking for other clothes elsewhere on top of that. So it doesn’t make sense. And are we to assume this heightened promotional activity is going to continue the second half of the year just because it existed in the first half?
She then went on to say this:
On the demand side, what we said in the call, which is that we don’t see any – it hasn’t impacted our results to date. That being said, it would be reasonable to expect that there’s a lot going in the macro world right now. And definitely, the combination of some of the trends that we talked about in the call, in addition to what we’re seeing in the world, really leads us to take a more conservative approach to guidance. And so, I think long term, we’re still super excited for all the reasons that we talked about. We’re really excited about what’s happening in direct buy. We feel that we’re really well positioned I think in a range of potential external outcomes. But we also felt like we need to acknowledge the short-term state of affairs.
She goes from saying heightened promotional activity in retail caused clients to spend less on Fixes. Then in the QA section says demand side has not impacted their results to date.
I don’t have time to continue to investigate this when we’re getting double talk from management. And I tend to avoid companies reducing their forecast. So this is a pass for me as it has been.
SFIX has, from what I’ve seen though, been subject to huge surprises and disappointments in the past though. So I won’t count them out.