Stitch Fix sinks back near offer price in disappointing IPO

Stitch Fix initially soared before sinking back near its offer price in a downsized $120 million initial public offering that fell about a third short of its target.

The online personalstyling service backed by Benchmark jumped almost 24 percent in its trading debut Friday. After then dropping as much as 1.3 percent below the $15 offer price, the shares closed up 1 percent in New York. Before its IPO for 8 million shares, Stitch Fix had marketed up to 10 million of them for $18 to $20.

While Stitch Fix is unusual among newly public companies in that it has posted a profit and has a clean balance sheet, Chief Executive Officer Katrina Lake said investors may not have been willing to pay the initially marketed valuation because the business differs from traditional retailers and e-commerce companies.

“It’s not an obvious or easy story to tell,” Lake said in an interview. “People were trying to understand how the data science fits into the business. While we are disappointed, we are totally motivated. We’re happy to prove ourselves.”

Stitch Fix collects information on customers’ style, price and size preferences and, with the help of stylists, sends five pieces of clothing for a $20 fee. Users can keep and pay for the items or return them.

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Lake believes she can continue to validate the company’s business model in the eyes of investors by continuing consistent, prudent revenue growth while expanding its offerings of premium brands as well as plus-size and men’s clothing.

Human stylists

During the IPO roadshow, Lake fielded investors’ questions about whether using human stylists was an impediment to growth. She doesn’t think so -- she said she’s had no problem hiring good clothing curators.

What separated Stitch Fix’s IPO from those of most online retailers was that it had already racked up substantial profit. While the company lost $594,000 on net revenue of $977 million for the year ended July 29, it posted net income of $33 million on revenue of $730 million the previous year.

Founded in 2011, the San Francisco-based company had about 2.2 million active clients as of July 29, according to a regulatory filing. The company started with a focus on women’s apparel and has moved into petite sizes and maternity clothing.

Like companies across industries from food delivery to transportation, Stitch Fix’s promise of a technology-enabled way to better serve customers lured venture capital. IPOs of some of those companies have led to disappointing results, including Blue Apron’s 70 percent drop since going public in June.

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Benchmark, along with Baseline Ventures and Lightspeed Venture Partners, hold a combined 65.5 percent of Stitch Fix, according to a filing.

The stock is trading on the Nasdaq Global Select Market under the symbol SFIX. Goldman Sachs and JPMorgan Chase led the offering.