Earnings

Stitch Fix (SFIX) Q4 Earnings: What to Expect

Stitch Fix
Credit: Stitch Fix

Shares of Stitch Fix (SFIX) have been punished over the past week, plunging more than 12%, while falling almost 20% in one month. And if you expand that view by six months and on a year-to-date basis, the stock has fallen 40% and 42%, respectively. Is the recent unraveling justified?

The subscription fashion retailer is set to report fourth quarter fiscal 2021 earnings results after the closing bell Tuesday. Investors will want to know whether the company can sew in enough confidence to reverse the decline. Aside from the fact that the online clothing personalization specialist has undergone a change in executive leadership, the company has reportedly lost a large number of its stylists. Then there’s also the perpetual concerns about the stock’s valuation and competitive advantage which has kept new investors at arm's length.

But there are also plenty of attractive qualities. Not only is Stitch Fix’s direct-buy concept seen as a significant competitive advantage, the company is growing revenue at a steady pace, rising over 20% through the first three quarters of fiscal year. What’s more, the company has maintained its gross margins which was 46% of revenue in Q3. Given these factors and the recent decline, I think the reward potential now outweighs any perceived risk.

On Tuesday, the market will want to see revenue growth re-acceleration, along with improved profit margins. Investors will also want on update on the company’s direct-buy business which, in addition to speeding up purchase decisions, was expected to vastly expand its total addressable market. This was a key growth strategy at the onset of the pandemic, which sparked lockdowns and accelerated store closures. If Stitch Fix can deliver a beat-and-raise quarter, with strong net margins, the stock is poised to rebound.

For the three months that ended August, Wall Street expects the San Francisco-based company to lose 13 cents per share on revenue of $548.01 million. This compares to the year-ago quarter when the loss was 44 cents per share on revenue of $443.41 million. For the full year, the loss is projected to be 42 cents per share, compared to the loss of 66 cents a year ago, while full-year revenue is projected to rise 21.4% year over year to $2.08 billion.

Stitch Fix’s goal is to revolutionize the way consumers buy apparel. The company’s data-centric business strategy applies a group of 145 data scientists to build an algorithmically-driven engine to showcase personalized apparel options for active clients not wanting to search throughout the internet and stores to find desired clothing. However, the company’s growth has been moderating, particularly in the face of intense competition from, among others, Amazon (AMZN).

Competitive fears were nowhere to be found in the third quarter as the company beat on revenue, posting sales of $535.59 million. Not only did that figure beat estimates by $25 million, it reflected year-over-year growth of 44%. The company also beat on the bottom line, posting an adjusted loss of 18 cents, which was 8 cents better than expected. Q3 active clients of 4.1 million rose by 689,000 or 20% year over year, while 234,000 clients were added sequentially.

However, net revenue per active client of $481 declined 3% year over year, though it rose 3% quarter over quarter. All told, it was a solid quarter. But if Stitch Fix on Tuesday can continue to show signs of improvement in capturing market share and expand its profit margins the stocks can still be a winner.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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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.

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