Can Stitch Fix (SFIX) sew up enough confidence to keep its stock from further unraveling? Questions have been raised about the company’s ability not only to grow into its valuation, but do so profitably. But can it provide the answers investors need?
The subscription fashion retailer is set to report first quarter fiscal 2022 earnings results after the closing bell Tuesday. Stitch Fix stock has been punished over the past week, plunging almost 20%, while falling 32% over the past month. The shares are now down 60% year to date, trailing the 22% rise in the S&P 500 index. Valuation concerns, along with fears of competitive pressures have emerged. It also hasn’t helped that the founder stepped down from the CEO role, while there has also been controversy around stylist changes.
But now might be a good time to buy the stock on the pullback. The company’s newly-unveiled product offerings could enable Stitch Fix to secure a larger share of the retail total addressable market. In the most-recent quarter, Stitch Fix reported $571 million in revenues which beat consensus estimates by over $23 million. The online clothing personalization specialist has a loyal customer base evidenced by the 18% rise in active clients to 4.165 million. Just as importantly, it grew the net revenue per active client to $505 by the 4%.
This trend suggests Stitch Fix no longer has to grow the active client base in order to grow revenues. It also underscores the effectiveness of the company’s decision to adopt a direct-buy model. Given its data trove and personalization capabilities in the apparel industry, the company appears uniquely positioned to offer customized products in a way that no other retailer can. That said, to reverse the decline in the stock, on Tuesday the market will want to see revenue growth acceleration, along with improved profit margins.
For the three months that ended October, Wall Street expects the San Francisco-based company to lose 14 cents per share on revenue of $570.49 million. This compares to the year-ago quarter when earnings were 9 cents per share on revenue of $490.42 million. For the full year, ending July 2022, the loss is projected to be 72 cents per share, compared to the loss of 8 cents a year ago, while full-year revenue is projected to rise 16% year over year to $2.44 billion.
At the onset of the pandemic, which sparked lockdowns and accelerated store closures, Stitch Fix’s direct-buy concept was seen as a significant competitive advantage amid the stay-at-home restrictions. Analysts saw the pandemic as an opportunity for Stitch Fix, driven by its data-centric business strategy, to expand its addressable market, which has largely gone unrecognized. Given the slowdown in revenue, investors have begun to question whether the company still live up to the high expectations and amid increase competitive threats pressures.
In the fourth quarter, revenue rose 28.8% year over year to $571.16 million, easily beating consensus estimates by more than $23 million -- albeit this was on the back of easier year-over-year comparisons. Sequentially, it was also impressive, compared to the $535.6 million revenue in Q3. On the bottom line, Stitch Fix earned 19 cents per share (adjusted), easily beating the 12 cent loss analysts expected.
That said, the company issued guidance for was revenue at $560 million to $575 million, suggesting growth of about 15%. This would be a slowdown of almost 50% from the prior quarter. For the stock to reverse the trend on Tuesday the company must show sustained revenue growth acceleration. Investors will closely monitor the company’s active clients total, along with its international expansion efforts to assess long-term growth prospects and profitability.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
Read Richard's Bio