Dive Brief:

• Stitch Fix may be fixing to jump into the red-hot used apparel market. That's "definitely something that's on our minds as a business," Stitch Fix outgoing CEO Katrina Lake told analysts on a call Monday, though she said there are no specifics to share. "The data advantage that we have can be just as powerful, if not more powerful in the secondhand world than in the firsthand world."

• The company also said net revenue in its latest quarter rose 44% year over year (31% over the less volatile 2019) to $535.6 million. Its number of active clients increased 20% year over year to 4.1 million, and net revenue per active client fell 3% year over year.

• Net loss in the period narrowed to $18.8 million from $34 million a year ago, down from net income of $7 million in 2019. Net inventory was up 73% year over year, per a company press release.

Dive Insight:

Stitch Fix beat most expectations for this period, including its own, and raised its near-term outlook. But as it works to expand its market through a more traditional e-commerce model, many analysts see it heading into a murky future.

"All told, this was a vast improvement from 3 months [ago] (when SFIX missed and lowered), but we expect the story to remain controversial," Wells Fargo analysts led by Ike Boruchow said in emailed comments, adding, "While we admit that [Stitch Fix] is clearly on better footing relative to 3 months ago, we still don't believe the story is necessarily compelling."

The company notched month-over-month improvements and stronger EBITDA. But its 31% revenue increase over 2019 is "not impressive given online apparel dynamics have been much stronger than this," according to Wells Fargo.

Executives fielded a lot of questions about inventory, saying that the steep increases were necessary to prepare the company as it expands the opportunity for customers to buy directly through the site, and not just via curated boxes. The approach, which the company calls "direct buy," involves fulfillment avenues like dropshipping and less input from stylists. Direct buy, however, is one of the uncertainties plaguing the company longer term, according to MKM Partners Managing Director Roxanne Meyer, who said in emailed comments that in the third quarter, "Positives outweighed negatives, but execution uncertainties remain."

Those include the true extent of the opportunity to expand its total addressable market by expanding its direct buy offer; its merchandise and inventory strategy, where specifics "continue to remain elusive;" and to what extent EBITDA will continue to improve "as investments to support Direct Buy likely ramp meaningfully," Meyer said.

Stitch Fix uses customer feedback to inform its algorithms, which are at least as important as its human stylists to its business model. Comments via social media hint at some of its recent stumbles, though sales outpaced inventory in the third quarter, Meyer also said.

"While our ongoing social media checks point to disappointment around inventory availability to style clients, it is clear that new client growth, new initiatives (such as Fix preview), and Direct Buy for existing customers (including a new shop by category feature) were enough to deliver on sales upside in 3Q," Meyer said.