Stitch Fix IPO sees orders coming in under range

Stitch Fix IPO sees orders coming in under range

Online personal shopping company Stitch Fix is likely to price its IPO below its targeted $18 to $20 range and roughly $1.8 billion valuation, the Wall Street Journal reported on Thursday. It is more likely to price the IPO at $15 to $16 a piece.

Stitch Fix founder, Katrina Lake, will no longer sell $1 million of her shares in the offering, the news service added.

The company did not have an immediate comment.

The underwhelming IPO highlights the challenges e-commerce companies face going public in the wake of poor performances from Snap and Blue Apron. It was also a disappointing debut for the newest breed of online shopping companies, which includes Warby Parker and Rent the Runway.

The main concern for investors was its continued ability to stay profitable, a source familiar with the situation. This concern was exasperated in the wake of troubles at Blue Apron and Snap. Both went public with losses on the promise of growth, only to see their stocks crater amid disappointing performance.

Stitch Fix is a variant on the popular e-commerce “subscription box” model, in which customers pay to have regular — often monthly — shipments of goods. These models are popular because companies can predict revenue, but many have struggled to balance those sales against the steep marketing costs they require.

They also require companies to give away product at a highly discounted cost. That model works best if customers buy other full-price goods a company offers. It does not work, as often the case, if it faces steep competition and frequent product returns.

Amazon recently tweaked its own version of subscription based apparel, Prime Wardrobe, finding the costs of discounts and returns too cumbersome.

Stitch Fix had touted its ability so far to scale while focusing on profitability. That ability has waned. In fiscal 2017, the company reported $61 million in earnings before interest tax depreciation and amortization, down from $73 million in 2016. That was off $977 million in sales in 2017, up from $730 million the year prior.

Going forward, it’s expected to face even steeper challenges. The company acknowledges that while it has largely been able to rely on word of mouth, it will need to pay more in the future to bring in new clients.

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