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8 Jan

Stitch Fix CEO Elizabeth Spaulding Steps Down, Company Cuts

Things have turn into a bit unstitched at Stitch Fix.

Amid a slumping business, Elizabeth Spaulding has relinquished her role as the corporate’s chief executive officer and a member of the board of directors, effective Thursday. As well as, Stitch Fix said it is going to cut 20 percent of its salaried positions.

Founder and former CEO Katrina Lake has been named CEO, effective Thursday, and can serve in an interim capability for six months or until her successor is appointed, unless otherwise agreed by Lake and the board of directors.

“I sit up for stepping back in to steer the business and dealing closely with the board of directors to discover a successor going forward,” Lake said. “My fellow board members and I thank Elizabeth for her service to Stitch Fix, especially in the course of the challenges of the last couple years. We wish her one of the best.”

Lake sent an email to the corporate’s employees Thursday, noting two significant changes. She said she was sharing the difficult news that they might be reducing the dimensions of the Stitch Fix team by about 20 percent of salaried positions. As well as, it’s closing its Salt Lake City distribution center, where the team can even be impacted.

“We might be losing many talented team members from across the corporate, and I’m truly sorry,” Lake wrote.

Katrina Lake

Courtesy photo

She noted that departing employees will receive at the least 12 weeks pay, which increases with tenure, and health care might be supported through April and mental wellness support as much as the top of April, which also includes counseling, self help tools, legal and financial services in addition to online work-life balance advice. In her email, she also noted that Spaulding might be stepping down and that she would turn into interim CEO.

“Despite the difficult moment we’re in straight away, the board and I still deeply imagine within the Stitch Fix business, mission and vision. We all know due to labor and foundation laid by this team that there’s an incredible future available for this company and we’re committed to getting the corporate on a path to realize it,” Lake wrote.

Layoffs at Stitch Fix are occurring at same time as other tech firms, comparable to Amazon and Salesforce, which revealed plans to scale back their staffs. Amazon has revised its previously announced layoffs from 10,000 to 18,000 employees, while Salesforce said it’s cutting 10 percent of the worldwide workforce, or around 8,000 jobs.

Lake founded Stitch Fix and served as the corporate’s CEO from its inception in 2011 until July 31, 2021, growing it to a business with annual revenues of $1.7 billion. She has been a member of the board of directors because the company’s founding. Lake took the corporate public in 2017 and in doing so was the youngest woman on the time to ever take an organization public.

In January 2020, the San Francisco-based Stitch Fix brought in Spaulding as president, and in August, 2021, she became CEO when Lake stepped aside to assume the post of executive chair of the corporate. Earlier, Spaulding had been the worldwide head and founding father of Bain & Co.’s digital practice.

“Stitch Fix continues to embark on an ambitious transformation and within the immediate term, the main target for the team is squarely on making a leaner, more nimble organization to set the corporate up for a return to profitability. First as president after which as CEO, it has been a privilege to steer in an unprecedented time, and to chart the course for the longer term with the Stitch Fix team. It’s now time for a recent leader to assist support the following phase,” Spaulding said. “I’m pleased with the brand new leadership team we now have built, the evolution in culture we’ve created and the products we’ve shipped. Greater than anything, it’s a privilege to serve our clients and create many delightful moments of their lives.”

The corporate, whose stock ended its first day of trading in 2017 at $15.15 on the Nasdaq stock exchange, closed Thursday at $3.50, up 9.37 percent from Wednesday’s close.

Stitch Fix has been challenged by higher costs for marketing, staffing, a highly competitive landscape and other issues, in addition to belt tightening by consumers, who’re purchasing fewer clothes.

Last month, Stitch Fix reported larger-than-expected losses and a revenue miss for the primary fiscal quarter of 2023, eyeing a lower projected forecast.

The style company posted revenue of $455.6 million, which was not only in need of the $459.4 million analysts had estimated but marked a 22 percent year-over-year decline. Its quarterly net loss clocked in at 50 cents a share, exceeding the 47 cents a share expected, with lively clients of three.7 million showing a decline of 471,000 or an 11 percent drop in comparison with last yr, as reported.

Reached for comment Thursday, Neil Saunders, managing director of GlobalData, told WWD, “I feel at Stitch Fix there’s a way that the corporate has lost its way and is attempting to get back on target.” He said within the last quarter, there was numerous weakness and “there are only a few signs that the pressure goes to ease any time soon.”

He noted that the buyer environment has modified, apparel has been under pressure, and individuals are less inclined to purchase right into a service like Stitch Fix. “The price of running a business is far heavier, as they’re for all firms.” He noted that Spaulding didn’t cause all these issues, “but they did occur under her watch.”

He said the introduction of Freestyle (where customers can immediately buy items, moderately than in a curated box), didn’t bear fruit and will have cannibalized the core service. “With Katrina coming back, the corporate could return to its roots and her leadership may instill more confidence with the board and the investors,” Saunders said.

In a research note, Tom Nikic of Wedbush wrote, “We imagine Ms. Spaulding was given the CEO seat to spearhead the transition of the business model away from one focused on the legacy ‘Fix’ offerings (a ‘mystery box’ sent to a consumer sight unseen), and toward a business model diversified between ‘Fix’ and the newer “Freestyle” offering (more akin to a conventional e-commerce model, with more personalization). Nevertheless, the transition has been very rocky, as a consequence of each macro aspects and internal missteps. During Ms. Spaulding’s time as CEO, fundamentals have deteriorated rapidly, with revenue growth decelerating for six consecutive quarters (including a pointy 22 percent decline last quarter), 4 straight quarter of net customer declines, an expected [calendar year 2022] adjusted EBITDA lack of over $110 million, versus a profit of $115 million in [calendar year 2021]. Given these developments, we expect a change within the CEO seat is sensible.”

Nikic noted that that is the second round of layoffs for Stitch Fix within the last six months as the corporate let go of 15 percent of salaried employees last June, while also cutting the variety of stylists on the roster. In July, it had 3,400 stylists versus 5,700 stylists a yr earlier.

William Blair analyst Dylan Carden said in a research note in regards to the CEO change, “The announcement isn’t surprising given Stitch Fix’s difficult performance under Spaulding’s tenure as CEO, including the corporate’s failed strategy around its direct business, which never appeared to get off the bottom as Freestyle penetration has stalled out at around 25 percent of female customers for a while.

“The transition also comes during a critical change in strategy for the corporate, which now appears more focused on profitability, moderately than growth in any respect costs,” Carden said.

He said that as discussed in the primary quarter earnings call last month, marketing dollars are slated to say no as much as 50 percent within the back half of this yr, “while the top-line impact from such a major cut in marketing spending stays to be seen (and we expect to see greater volatility in consequence).”

Elaine Hughes, CEO of executive search firm E.A. Hughes, a division of Solomon Page, said Spaulding has an “incredible pedigree.”

“It’s confusing to me as to the resignation of Elizabeth Spaulding, unless the explanation is one other compelling opportunity. Katrina Lake pioneered this apparel subscription model, which parallels the concept of reoccurring revenue. The investment community could be very excited by the model which is difficult to initiate in fashion. Given Elizabeth’s a few years at Bain and her knowledge of the digital world, she will need to have made a major contribution at Stitch Fix,” Hughes said.

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