(Photo credit: Jamel Toppin for Forbes)
Stitch Fix shares rose on their first day of trading on Friday, with the e-commerce company raising $120 million in a downsized initial public offering that fell below expectations.
The San Francisco-based start-up, which selects clothing for women by harnessing data science and an army of human stylists, saw shares open at $16.90. This was 13% above the initial pricing of $15 per share announced on Thursday evening.
However, Stitch Fix had initially set a range of $18 to $20 apiece and also lowered the number of shares it wanted to sell from 10 million to eight million.
The initial pricing gives Stitch Fix a valuation of roughly $1.4 billion. That’s leaps and bounds above the $300 million valuation it fetched as of its last funding round, according to Pitchbook. The company has been somewhat rare in demonstrating stretches of profitability and financial prudence, raising just $47 million since it was founded in 2011.
Katrina Lake, 34, started the company to make it easier for women to buy new clothes. The service works by asking a shopper to identify their preferences on size, style and price, then selecting five items to put in the mail. A customer can try on the clothing and accessories at home and send back anything they don’t like. A $20 styling fee is charged for each "fix," which can be ordered one at a time or via a subscription, and is applied as a credit toward any merchandise the customer keeps.
"I founded Stitch Fix to take on a very human problem: How do I find clothes I love?" wrote founder and CEO Lake in a letter to investors. "Spending a day at the mall, or devoting hours of time to sifting through millions of products online is time consuming, overwhelming and neither effective nor enjoyable. I knew there had to be another way."
(Photo credit: Stitch Fix)
The company recorded sales of nearly $1 billion in its latest fiscal year, according to a regulatory filing. It posted a minor loss in that period but was profitable in the previous two years, pocketing $33 million in 2016 and $21 million in 2015.
Stitch Fix follows other high-profile companies like Snap and Blue Apron to go public in 2017, both of which have faced a rocky road on the public markets and are trading well below their IPO prices. Despite these stumbles, the IPO market has rebounded after a lackluster 2016, with companies raising some $27 billion in their U.S. public debuts this year, according to an EY report that tracked activity through the end of September. That’s up 89% from the previous year.
Investors will be watching to see whether Stitch Fix can weather competition from traditional retailers as well as e-commerce companies like Trunk Club and MM.LaFleur that allow a consumer to try items on at home before they buy. Amazon has also been investing in its fashion business. Stitch Fix has acknowledged that it must "successfully gauge apparel trends and changing consumer preferences."
It has sought to set itself apart as a tech company that leverages data science not only to make selections for customers, but to forecast purchase behavior and demand, optimize inventory and design new apparel. In short, as it reads in the company’s regulatory filing: "Our data science capabilities fuel our business."
Stitch Fix plans to use the proceeds to increase its capitalization and financial flexibility, for general corporate purposes and potentially for acquisitions. It has clarified that it doesn’t currently have plans to purchase another company.
Its largest outside investor going into the public offering was Steve Anderson’s Baseline Ventures, with a 28% stake in the company. Benchmark Capital followed with a 25.6% stake, while founder Lake has held onto 16.6% of the company.
Stitch Fix listed its stock on the Nasdaq under the ticker symbol SFIX. Goldman Sachs and J.P. Morgan were lead underwriters on the deal.