Get smart about fashion companies, and listen to earning calls
If you have ever interned with a bank’s research department, you know that quarterly earning calls from publicly listed companies are a gold mine of information. Usually, the Chief Financial Officer and the CEO attend these and talk about the company’s (financial) performance, significant challenges and innovations, and their vision. Analysts from various investment banks — the Goldman Sachs of this world — ask intelligent questions.
I enjoy listening to earning calls as it’s an excellent way to learn about a company. Where is the company? What is on the CEO’s and CFO’s mind? How do they defend their strategy? If the company is currently struggling, what are their remedies? When analysts fire off tough questions, how do the CEO and CFO react? Do they hold their stand in a sophisticated manner? Do their responses consist of empty phrases, or are they meaty?
Stitchfix’s Q3 FY23 earnings call is the last one I last listened to. As you may know, interim CEO Katrina Lake founded the company in 2011 with Erin Morrison Flynn. I have always admired Katrina’s tenacity and the fact that she raised capital despite most (male) investors’ non-interest in ventures based on a fashion retail idea.
Fast forward to 2023, and the fashion subscription service Stitchfix has bottom-line issues — including stagnant new customer growth, customer retention issues, a “failed” international expansion strategy (expansion to the UK market), and having to lay off nearly 15% of their workforce in 2022, with plans to cut the workforce by another 20% (of the remaining workforce) in 2023. Katrina Lake returned as interim CEO in the summer. I wanted to understand her and CFO David Aufderhaar’s plan. That is why I streamed the Q3 FY23 earnings call in July.
When you first listen to an earning call and don’t have a corporate strategy/consulting background, some of the lingo sounds like it’s part of a foreign language. I encourage you to listen to a couple of earning calls and look up any words you are not familiar with, such as “bottom line,” “adjusted EBITDA,” “network strategy,” “phased approach,” or “globally capable platform.” You will get the gist of it eventually.
Why does it make a difference for you to listen to earnings calls?
If you work as a consultant or project manager, you can demonstrate more in-depth knowledge of the business you serve
- You train your mind in big-picture thinking.
- Your view on fashion expands — you understand it is not all about the following collection, the future of retail idea, the Metaverse opportunity — but the business strategy must make sense.
- You refine your expertise in market sizing, fashion operations, and network (= warehouse) strategy.
- You learn about leadership — how do senior executives such as Katrina Lake and David Aufderhaar communicate in times of significant financial stress?
Back to Stitchfix: The measures proposed make sense to me because I am familiar with cost-cutting pressure from previous consulting assignments. Leadership contemplates ending the international (= UK) expansion. The US warehouse network is getting consolidated. Stitchfix is focusing on what it seems to do best: leverage AI to know its customers’ preferences and try to re-activate “dormant” clients, to name a few. Below, find a list of my favorite questions by the analysts:
Addressable market share: “How should we be thinking about just the way you think about the addressable market as we look at the number of addressable customers?” (Youssef Squali, Analyst, Trust Securities”
- Retargeting customers and defining the customer base: “Like how do we think about potential bottoming of the customer base?” (Tom Nikic, Analyst, Wedbush Securities )
- Retail category management: “ Is there a category realignment that you expect to manage the business on given the reduction in distribution center space that you expect Stitch Fix to be known for?” (Dana Telsey, Analyst, Telsey Advisory Group)
- Leveraging AI more: “I just wanted to dig a little deeper into your comments about investing more around AI, just sort of any incremental color you can share there.” (Lauren Schenk, Analyst, Morgan Stanley).
How motivated are you now that you read the article? Will you research your favorite fashion company, identify whether they are a publicly listed company, and look up the last earnings call and tune in? Have you ever worked for a fashion retail business under duress and what was this experience like? Which fashion leader do you admire and why?
Sources:
BBC, Anne Cassidy: “The Boss: Male investors didn’t get my billion-dollar idea”. Published on 16 March, 2020. Link.
CNN, Parija Kavilanz: “Stitch Fix lays off 20% of workforce and its CEO steps down”. Published on January 5, 2023. Link.
Retail Dive, Daphne Howland: “Stitch Fix CFO to exit as declines persist”. Published on March 8, 2023. Link.
Stitchfix Investor Relations: Q3 FY23 earnings call, downloadable at https://investors.stitchfix.com/
