Stitch Fix Churn, Prime Wardrobe Threat Keep Piper Analysts On The Sidelines

There’s a tear in Stitch Fix Inc SFIX’s user base — a devaluing rip that may warrant a push to the back of the closet.

The Rating

Piper Jaffray analysts Erinn Murphy, Eric Johnson and Christian Yonkoski maintained a Neutral rating on the stock but cut their price target from $31 to $23.

The Thesis

Piper Jaffray’s fall 2018 women’s survey indicated a churn rate of about 73 percent — well above the 60-percent seen throughout the entire millennial base.

“Assuming that churn has been ~70% historically, this would imply that SFIX has already engaged with ~13M consumers since 2014,” the analysts wrote. “To put this in perspective, Nordstrom has ~33M active consumers and Kohl's has ~40M. Bottom line, SFIX has already addressed more than 30 percent of the customer base to comparable national retail chains.”

Just 39 percent of Piper Jaffray’s respondents were aware of Stitch Fix, and of those so informed, 56 percent had tried the service and 27 percent confirmed they will still be subscribed in a year. By comparison, Amazon.com AMZN Prime Wardrobe boasts a 42-percent awareness rate with 87 percent of those women having tested the service.

The women’s survey ultimately reaffirmed conclusions from Piper Jaffray’s millennial and teen surveys.

“In general, results indicate: 1) substantial customer churn; 2) Amazon is a significant competitive threat; and 3) a relatively low usage frequency per year,” the analysts wrote.