Stitch Fix jumps 9 percent after launching kids clothing service, bullish analyst call

  • Stitch Fix Kids will include eight to 12 items per delivery, or "fix," in either one-, two- or three-month increments, and each piece will cost between $10 and $35.
  • KeyBanc Capital Markets expects the service to add at least 12 cents a share to the company's bottom line over the next three years.
Source: Stitch Fix for Kids

Shares of online clothing subscription company Stitch Fix jumped more than 9 percent on Tuesday after launching a clothing service for children.

Stitch Fix Kids will include eight to 12 items per delivery, or "fix," in either one-, two- or three-month increments, and each piece will cost between $10 and $35. Customers will be able to return the items they do not want for free, while paying for the ones they keep, as with its adult clothing service.

“Our new Stitch Fix Kids offering is a testament to the scalability of our platform,” said Stitch Fix founder and CEO Katrina Lake on the company's fiscal third-quarter earnings release on Saturday.

Stitch Fix was also riding high after analysts at KeyBanc Capital Markets initiated coverage of the stock with an overweight rating and a price target of $38 per share. The price target implies a 22.1 percent increase from Monday's close of $31.12. The stock traded above $34 on Tuesday.

"In our over 15 years of covering consumer stocks, a common thread among our strongest companies is the ability to inspire and create desire. In many regards, Stitch Fix serves as the modern archetype of the heyday department store —helping consumers understand what is new and interesting, offering a wide selection, and offering a very personalized edit," Edward Yruma, analyst at KeyBanc, said in a note.

"The rapid additions of men’s, plus, extras, and now kids should drive sustained 20% revenue growth. We believe the kids opportunity could drive $0.12+ in EPS over the next three years," Yruma wrote.

Stitch Fix went public in November 2017 and has more than doubled in value, rising about 123 percent since then.