Stitch Fix shares plunged 22.7% Thursday after the online styling company warned that revenue could shrink in fiscal 2027 and projected a sharp drop in adjusted earnings, overshadowing another quarter of improving sales and profitability. The stock closed at $2.18 after finishing Wednesday at $2.82, extending a decline that had already pushed the shares substantially lower heading into the earnings report.
The immediate problem was not Stitch Fix’s fiscal fourth quarter. Revenue rose 4.2% from a year earlier to $324.4 million, only slightly below consensus estimates around $325 million, while an adjusted loss of one cent per share was narrower than the six-cent loss expected by the Zacks consensus. Instead, investors focused on management’s outlook for a business that had spent much of fiscal 2026 showing signs that its multiyear turnaround was gaining traction.
For fiscal 2027, Stitch Fix expects revenue of $1.31 billion to $1.36 billion, compared with $1.348 billion in fiscal 2026. At the midpoint, that would represent roughly a 1% decline and falls about 5% below the $1.40 billion Visible Alpha consensus reported before the results. The first-quarter outlook was weaker still: revenue of $323 million to $328 million implies a year-over-year decline of 4.1% to 5.6%, compared with analysts’ expectation of roughly $352 million.
Profit expectations are also moving lower. Stitch Fix guided to fiscal 2027 adjusted EBITDA of $27 million to $42 million, down from $53.4 million in fiscal 2026. The midpoint of that range, $34.5 million, would represent a decline of roughly 35%, while first-quarter adjusted EBITDA of $3 million to $6 million is well below the $13.8 million Visible Alpha consensus.
Growth Is Coming From Existing Clients, Not More Clients
Stitch Fix entered the new fiscal year with a stronger operating business than it had a year earlier, but its customer base remains the central weakness. Active clients ended the fourth quarter at 2.277 million, down 1.4% both year over year and from the previous quarter. At the same time, revenue per active client climbed 7.8% to a record $592, allowing the company to grow revenue despite serving fewer customers.
That combination helped Stitch Fix produce its sixth consecutive quarter of year-over-year revenue growth, but it also shows how dependent the recovery has become on extracting more spending from the clients who remain. Average order value increased 4.9% during the quarter, while activewear and athleisure sales rose 21% and footwear increased 14%. Management also said retention improved sequentially for an eighth consecutive quarter, suggesting engagement among existing clients remains relatively healthy.
The difficulty is bringing enough new and returning customers into the platform. Management said higher client-acquisition costs weighed on customer growth during the fourth quarter and continued into the current quarter. Stitch Fix plans to respond by spending more rather than pulling back, with advertising expected to equal roughly 10% to 11% of revenue in fiscal 2027 compared with about 9% to 10% during fiscal 2026.
CFO David Aufderhaar said the company still believes customer economics justify the additional marketing expense, but the decision comes with an earnings tradeoff. Stitch Fix also plans incremental technology and artificial-intelligence investments, and management said that without the additional advertising and AI spending, its fiscal 2027 EBITDA margin would have been closer to fiscal 2026’s roughly 4% level.
The weaker outlook therefore does not reflect only deteriorating operating performance. Part of the expected EBITDA decline is a deliberate decision to sacrifice near-term profitability in an attempt to rebuild customer growth. Investors now have to see whether those investments actually produce enough new clients to offset the higher acquisition costs that are already pressuring the business.
Temporary Problems Make the First Quarter Look Worse
Management identified two company-specific issues that will also depress first-quarter revenue. Stitch Fix moved some Fix shipments that would normally have occurred in fiscal 2027 into the fourth quarter of fiscal 2026, effectively pulling revenue forward. The company also made an unintended change to its post-checkout process in August that reduced the number of customers eligible to request another Fix.
Stitch Fix said the checkout issue has been corrected and will not affect results beyond the first quarter. Management indicated that without the shipment timing change and checkout problem, fourth-quarter growth would have been closer to 2% to 3%, while first-quarter performance would have been more consistent with the growth rate implied by the remainder of the fiscal-year forecast.
That provides some explanation for the particularly weak first-quarter guidance, but it does not eliminate the broader concern. Even after those temporary effects disappear, Stitch Fix’s full-year range allows for revenue to fall as much as 2.8%, while the upper end represents growth of less than 1%.
The balance sheet gives management room to make the investment. Stitch Fix finished fiscal 2026 with $220.9 million of cash, cash equivalents and investments and no debt. It generated $19.8 million of free cash flow for the year, more than double the prior year’s $9.3 million, while its annual net loss narrowed to $12.6 million from $28.8 million. Full-year revenue grew 6.4% to $1.348 billion, and adjusted EBITDA improved to $53.4 million from $49.1 million.
Those improvements explain why the new guidance produced such a severe reaction. Stitch Fix demonstrated during fiscal 2026 that it could stabilize revenue, improve spending per customer and generate positive cash flow. Fiscal 2027 now becomes a test of whether that progress can translate into sustainable client growth without giving back too much of the profitability the company spent the past year rebuilding.
The first major checkpoint will be whether client-acquisition costs begin to normalize and active-client trends improve as the temporary first-quarter disruptions clear. If advertising rises while the customer base continues to contract, higher spending per existing client may no longer be enough to support the turnaround.