Stitch Fix falls 2.5% on earnings beat, client decline
Personal styling company beats estimates but active customers drop 3.5% in Q2, raising turnaround questions
Stitch Fix shares fell 2.5% in after-hours trading Wednesday after the personal styling company reported second-quarter fiscal 2026 results that topped Wall Street expectations but revealed a troubling decline in active customers that analysts warn could undermine its ongoing turnaround strategy.
The San Francisco-based company posted an adjusted loss per share of 2 cents, narrower than the loss of 3.7 cents analysts had expected, representing a 46.2% improvement over estimates. Revenue reached $341.3 million, beating consensus by 2.6% and rising 9.4% from the same quarter last year, according to the company's SEC 8-K filing.
However, the number of active clients on Stitch Fix's platform dropped 3.5% year-over-year to 2.28 million, a metric that investors watch closely as an indicator of the company's long-term growth potential. The decline in active customers comes despite Stitch Fix reporting a 7.4% increase in revenue per client, suggesting the company is generating more spending from its existing customer base even as it struggles to attract new users.
"Stitch Fix is proving it can squeeze more revenue from current clients, but the active client decline is concerning for a business that depends on growth to justify its valuation," said analysts at TipRanks in a recent earnings preview. The company faces intense competition from e-commerce giants and new entrants in the personalized fashion space.
On the positive side, Stitch Fix returned to positive adjusted EBITDA of $15.9 million and generated free cash flow of $3.4 million in the quarter, marking a significant improvement from the same period last year. The company maintained its full-year fiscal 2026 revenue guidance of $1.33 billion to $1.35 billion, representing 5% to 6.5% year-over-year growth.
The mixed results highlight the challenges facing Stitch Fix's turnaround efforts under its leadership team. The company has been working to streamline operations, improve its styling algorithm, and expand into new categories such as kids' clothing and menswear to revive growth after years of sluggish performance. The 9.4% revenue growth this quarter represents the company's strongest quarterly increase in recent periods, suggesting those efforts may be gaining traction.
"The return to positive adjusted EBITDA is a meaningful milestone in Stitch Fix's turnaround," noted MarketWatch in its earnings coverage. "However, until active client growth returns positive, investors will remain skeptical about the company's long-term trajectory."
Stitch Fix's financial health appears more stable than earlier in its turnaround. The company reported a gross profit of $567.5 million over the trailing twelve months and has been working to reduce operating expenses to improve profitability. With 92.8% institutional ownership, major shareholders will be closely watching whether the company can reverse the client decline in coming quarters.
The stock, which closed at $3.38 on Wednesday, remains well below its 52-week high of $5.94 and has lost significant ground over the past year. Analysts currently have a median price target of $4.75 on the shares, according to MarketBeat data, suggesting potential upside if the company can demonstrate sustainable client growth.
Looking ahead, Stitch Fix management emphasized on the earnings call that they remain focused on improving the customer experience and expanding personalization features to attract new clients while deepening engagement with existing ones. The company's ability to balance profitability improvements with client acquisition will be the key metric to watch in the second half of fiscal 2026.