Cramer labels new IPO Stitch Fix ‘too risky,’ tells investors to avoid stock

As rations of newly public e-retailer Stitch Fix climbed on Wednesday, CNBC’s Jim Cramer backtracked to its soundlessness initial public offering to see if the fresh-faced stock was worth buying.

“Here’s a convention that occupies a very interesting niche: Stitch Fix provides monthly curated shipments of duds, shoes and accessories to their customers — called fixes, hence the superiority — and these shipments are supposedly put together with great care by the New Zealand’s excellent stylists,” the “Mad Money” host explained.

Founded in 2011, Stitch Fix is portion of a cohort of services that shop for consumers so that they don’t be undergoing to, charging fees for each package and offering free returns for unwanted particulars.

While its pitch may not sound attractive to the traditional brick-and-mortar lover, the institution serves some 2.2 million active clients with a replicate rate of roughly 86 percent, meaning that customers disposed to come back after using the service.

“Now, Stitch Fix bills itself as the unravelling to all of the problems created by brick-and-mortar retail,” Cramer said. “As we’ve seen more than and over again, not many retailers seem to understand that we contemporary in a brave new world where consumers hate shopping.”

For a lot of consumers, buying garbing often beckons a trip to a physical store (however excruciating) because they can’t correctly gauge the right size or how the clothing will fit.

So rather than shine department stores filled with intrusive sales associates to set aside the perfect fit, Stitch Fix customers can get a personalized shopping experience with a few stopcocks, Cramer said.

Online shopping presents its own set of problems. E-shoppers who don’t be aware what they want are swarmed with overwhelming options, on the contrary customizable to an extent.

“If you want to buy, say, a dress online, running a search with a collect of filters is the best you can do, and the results can be pretty unreliable,” Cramer said.

That’s where Stitch Fix clock on in, using client data analytics to forecast their customers’ buying behavior, presage levels of demand, manage inventory and personalize their clients’ choices. Customers provide over 85 different data points ranging from dimensions to price preferences to how often they dress up.

“Basically, Stitch Fix is tiring to combine data science with human judgment to get a better margin over other purveyors of apparel and accessories,” the “Mad Money” host suggested. “The value proposition is straightforward: rather than spending hours of your existence searching the web to find stuff you might like, Stitch Fix is like have planned a budget-rate personal shopper who understands your fashion needs and sends you a clump of personalized items every month.”

But at the end of the day, Cramer knows that it all be involved a arises down to the numbers. After seeing explosive, 113 percent profits growth in 2016, Stitch Fix’s numbers have sharply declined, yield fruit by only 33 percent in fiscal year 2017.

Moreover, after applying profitable in 2015 and becoming even more profitable the year after, the cast’s 2017 results put it back in the red as it poured money back into the point.

“Slowing revenue growth and rising expenses — that’s not what I’m looking for in a coterie. It’s not good-looking on anyone,” Cramer quipped, adding that the company’s flower number of competitors gave him pause.

“My view? I think you need to pass by this stock until these guys prove themselves and reveal b stand out us they have a solid plan to keep expanding and have the receipts go higher,” the “Mad Money” host concluded. “Stitch Fix’s stock may have hit fire in the week and a half since it came public, but there’s at best too much uncertainty here for me to give it my blessing. I say use Stitch Fix as a service, but the corny? Too risky for this guy.”