Corporate Deathwatch Sat Jan 7 . . . Stitchfix is deep in debt, bleeding cash and likely to die

And another one

Stitch Fix is one of those companies that, probably not “laughably bad” in concept just is not likely to make it as a large scale company except during an era free money.

As one writer put it

When it launched, the company’s goal was to have personal stylists provide people with clothing choices that met their specific needs. The idea, from founder Katrina Lake, was to make having a stylist something that more people could afford.

The problem is that while that sounds like a good idea “everyone can have a personal stylist,” the reality was very different. . .

Most people are not going to use a professional stylist or fashion consultant and, outside an incredibly small niche, those who do will likely once or twice and then shop and buy their clothes wherever they like.

To make the concept work the companied needs either to
A.) charge high fees for the fashion consultant or
B.) charge a VERY high price for the first few clothes orders.

Both of those are contrary to the company concept and neither one is likely to succeed at all except in a temporary atmosphere of helicopter money.

  • The company grossed $2 B last quarter (down 20% vs last year).
  • It’s losing $250 million per year (about 80 cents for each $3.60 share)
  • It has $178 million in debt, which is 60 times more than it net worth

On the hopeful side a lot of its debt is long term and a lot if its assets are liquid assets so . . . if the returning CEO Katrina Lake can figure something out they have the tools to survive. Still, the concept appears to be a failed one. The company is more likely to survive if Lake uses to liquid assets to totally remake it into a make up company or a hair products company or something.

:point_up: :point_up: This is the kind of company that, if the share price drops a little more, would have been a takeover target during the “corporate raider” era.

The needed change would be a radical change, but it has been done before. Wrigley’s chewing gum was originally a baking soda company that offered a free stick of chewing gum with every purchase.

Stitchfix was a motley fool recommended buy too, I believe last year or maybe 2020. Glad I didn’t follow that recommendation.

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Good thing you didn’t buy. (Obviously)
I hesitated about putting Stitch Fix on “deathwatch” because they still have enough current assets to keep going more than one year. But the concept obviously does not work (on anything like the scale they tried.)

Firing the CEO and laying off 20% of the staff is major. They need to repurpose the whole company while they still have current assets left to do so.

Morgan truck bodies (you’ll see the logo everywhere once you start looking for it) used to make covered wagons.