The Class: Shareholder rights law firm Robbins LLP is investigating Stitch Fix, Inc. (NASDAQ: SFIX) and its officers and directors to determine whether they breached fiduciary duties or violated securities laws in making certain misrepresentations regarding its business prospects. Stitch Fix sells apparel, shoes, and accessories through its website and mobile application.
If you would like more information about our investigation of Stitch Fix, Inc.'s misconduct, click here.
What is this Case About: According to a class action complaint filed against Stitch Fix, Stitch Fix initially sold products as a “Fix” box, through which the customer would receive a monthly box of items chosen by a personal stylist. The customer would not know specifically which items they were receiving but would have the option to return whichever items it did not want.
On December 8, 2020, Stitch Fix launched the “Freestyle” program—a new, direct buy program where customers could choose from the outset which items to purchase. In connection with that announcement, Stitch Fix touted the Freestyle program as a way to “expand our addressable market, deepen client engagement and grow wallet share over time.” The Company also stated that Freestyle would “serve as another catalyst as we attract new clients, convert prospective clients and reactivate lapsed clients."
During the class period, defendants touted that the two programs were synergistic, and repeatedly denied claims that the Freestyle program could cannibalize its legacy Fix business. On December 7, 2021, however, Stitch Fix admitted for the first time that the Company had downplayed the magnitude of its transition from the subscription-based Fix model to the retail-based Freestyle model. Stitch Fix further admitted that the Company saw some “short term cannibalization” from new customers who chose to use the new direct-buy Freestyle option rather than the traditional Fix option. In addition, Stitch Fix announced a loss for its first quarter of 2021 and cut its full-year revenue projections. As a result of these disclosures, the price of Stitch Fix stock declined by $5.97 per share, or 24%, from $24.97 per share to $19.00 per share.
Stitch Fix continued to assure investors that this was a short-term problem, claiming that the Company had “been testing client onboarding flows” and that “we see significant new client potential ahead as Freestyle enables us to access a greater share of shopping occasions.” Then, on March 8, 2022, Stitch Fix offered a weak outlook for its third quarter of 2022 and cut its revenue guidance for the full year. In addition, Stitch Fix announced a self-inflicted friction between the Freestyle program and the Fix program. Specifically, Stitch Fix explained that when customers visited stitchfix.com—the primary landing page for customers interested in the Fix—the Company directed them to the Freestyle experience first, and “therefore, in leading clients to the Freestyle experience first, [it] inadvertently created friction” for potential customers interesting in ordering Fix. As a result of this disclosure, the price of Stitch Fix stock declined by 6%, from $11.01 per share to $10.34 per share.
Next Steps: If you acquired shares of Stitch Fix, Inc. between December 8, 2020 and March 8, 2022, you have until legal options. Contact Robbins LLP for more information about your legal rights.
All representation is on a contingency fee basis. Shareholders pay no fees or expenses.
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About Robbins LLP: A recognized leader in shareholder rights litigation, the attorneys and staff of Robbins LLP have been dedicated to helping shareholders recover losses, improve corporate governance structures, and hold company executives accountable for their wrongdoing since 2002. To be notified if a class action against Stitch Fix, Inc. settles or to receive free alerts when corporate executives engage in wrongdoing, sign up for Stock Watch today.
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