Can Stitch Fix (SFIX) stock, which now trades at its historical lows on every valuation metric, turn things around?
Shares of the online personal styling company have been punished over the past year, plunging almost 20% in thirty days, while falling 71% over the past six months. Not only has the stock lost 40% of its value year to date, but if you’ve bought and only held the shares over the past twelve months you are likely down close to 90% on your investment. But ahead of its second quarter fiscal 2022 earnings results after the closing bell Tuesday, investors want to know if the company can sew up enough confidence to keep its stock from further unraveling.
Questions have been raised about the company’s ability to not only grow user engagement, but do so profitably. Aside from fears of competitive pressures, investors have become concerned about Stitch Fix’s ability to sustain profitability over time. In the first quarter, the company issued revenue guidance that suggests flat growth, which sent the stock spiraling lower. While fundamental issues still remain, Stitch Fix has improved its profitability metrics as it engages in new product offerings like Freestyle, which helped drive engagement and volumes and saw benefits related to product costs and improving partnerships with key vendors.
This trend suggests Stitch Fix no longer has to grow its active client base in order to grow revenues and profits. The company’s newly-unveiled product offerings could enable Stitch Fix to secure a larger share of the retail total addressable market. 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 January, Wall Street expects the San Francisco-based company to lose 29 cents per share on revenue of $515.12 million. This compares to the year-ago quarter loss of 20 cents per share on revenue of $504.09 million. For the full year, ending July, the loss is projected to be 94 cents per share, compared to the loss of 8 cents a year ago, while full-year revenue is projected to rise 8.3% year over year to $2.28 billion.
Decelerating revenue growth, which triggered revising guidance lower, has been the main driver for the stock’s punishment. It appears Wall Street has become even more bearish. Since the start of the quarter, the full year projected revenue growth has been cut in half, dropping from a prior forecast for a rise 16% year over year to $2.44 billion. Meanwhile, the bottom line lost has also widened from prior forecast of 72 cents per share. But has the market gotten too bearish?
As noted, the company recently launched its Freestyle service to help drive engagement and volumes. This service allows any customer the experience of shopping directly for the brands that they love, then allowing Stitch Fix to customize their clothing selection which are personalized and styled just for them. This has the potential to boost key metrics such as user engagement, average revenue per user, as well as expanding the company’s overall customer base.
In the first quarter, the company showed higher engagement from its active clients which grew 11.8% year over year which currently stands at 4.18 million. Revenue per active client was $524, rising 12% year over year and 4% sequentially. But as noted, the downbeat guidance sent the stock plummeting 20%. But to reverse the stock’s decline, on Tuesday the market will want to see revenue growth acceleration, along with improved profit margins.
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