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Stitch Fix (SFIX) Shares Down 18% Despite Narrower Q1 Loss

Stitch Fix's (SFIX) top-line results for first-quarter fiscal 2022 reflect strength across the Women's, Kids and the UK businesses. However, SFIX provides a soft view for certain metrics in the...

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This story originally appeared on Zacks

Shares of Stitch Fix, Inc. SFIX plunged nearly 18% in after-hours trading on Dec 7 despite narrower-than-expected loss per share reported for first-quarter fiscal 2022. Nonetheless, the top line surpassed the Zacks Consensus Estimate and improved year over year. Robust performance across its business in Women’s, Kids and the UK as well as solid gains at Freestyle aided the overall results.

The bottom line of this San Francisco, CA-based company compared unfavorably with the year-earlier reported figure. During the quarter, SFIX witnessed delays in receipts due to shipping delays in the global supply chain. Also, Stitch Fix has been experiencing delays since one to four weeks and anticipates further delays in the fiscal second quarter and beyond. These coupled with a soft revenue outlook for the same period, which lagged analysts’ projection, weighed on investors’ sentiments.

For the second quarter of fiscal 2022, Stitch Fix expects net revenues in the range of $505-$520 million, suggesting growth of 0-3% from the year-ago period’s reported figure. This view fell short of the current Zacks Consensus Estimate of $590.7 million.

 

Shares of this currently Zacks Rank #4 (Sell) Stitch Fix have decreased 21.2% in the past three months against the industry’s 7.9% rise.

- Zacks

Q1 Details

Stitch Fix posted a loss of 2 cents a share, narrower than the Zacks Consensus Estimate of a loss of 13 cents. SFIX delivered earnings of 9 cents per in the prior-year quarter.

SFIX recorded net revenues of $581.2 million, reflecting an increase of 19% from the year-ago quarter’s figure. The metric also outpaced the Zacks Consensus Estimate of $572.3 million. Continued strength across Women’s, Kids and the UK businesses as well as expansion in the Freestyle capability fueled the top-line performance.

Stitch Fix registered net revenue growth of 40% year over year for Freestyle. Management witnessed higher penetration quarter over quarter with gains across both Fixes and Freestyle. SFIX looks to capture more purchase occasions through Freestyle and product categories like footwear, dresses, outerwear, accessories, sleep and loungewear. Markedly, footwear, accessories and dresses categories together registered an above 50% increase from the year-ago period’s tally in Freestyle.

Stitch Fix witnesses steady growth in Fix offering, benefiting from the Fix Preview. Fix Preview is currently rolled out to the US and the UK women’s and men’s client populations. Constant innovations with Fix Preview are driving higher average order value

Management has been enhancing and broadening SFIX’s personalized shopping for a while, offering via Freestyle. Stitch Fix introduced more than 20 brands, mainly including Adidas, DKNY, Vans and Rag & Bone Footwear. It also rolled out product lines like Elevate Black-owned brand grantees and Mohnton Made.

Stitch Fix has active clients of 4,180,000 as of Oct 30, 2021, up 11% from the prior-year quarter’s level. Net revenue per active client jumped nearly 12% year over year to $524, surpassing $500 for the second consecutive time.

In the fiscal first quarter, gross profit increased 24.3% to $272.9 million with gross margin surging 220 basis points (bps) to 47%. Gross margins were at an all-time high on the back of increased product margins and shipping expense optimizations.

Selling, general and administrative (SG&A) expenses increased 15% to $274.8 million. Stitch Fix reported an adjusted EBITDA of $38.2 million in the quarter under review, significantly up from the adjusted EBITDA of $6.9 million reported in the year-ago quarter. The upside was driven by higher revenues along with robust gross margins on higher product margins and efficiency in marketing spend.

Other Financial Aspects

Stitch Fix ended the quarter with cash and cash equivalents of $249.8 million minus debt and shareholders’ equity of $478.6 million.

SFIX generated $141.7 million cash from operating activities during first-quarter fiscal 2022. Also, it reported a free cash flow of $125.3 million for the same period.

Outlook

Throughout fiscal 2022, management intends to add more than 50 brands and continue testing traffic-driving products. Moving forward, Stitch Fix is focused on three areas of priority with respect to the build-out of Freestyle. These areas are improving client experience and technology plus developing marketing-activation channels for new client growth. Management has been enriching the customer experience with product feature enhancements and an expanded inventory selection.

For the second quarter of fiscal 2022, Stitch Fix expects adjusted EBITDA in the bracket of a negative $5 million to a positive $5 million with a margin of down 1% to up 1%. SFIX recorded an adjusted EBITDA loss of $8.9 million in the year-earlier quarter.

For fiscal 2022, management projects a net revenue increase at a high single-digit rate from the year-ago fiscal’s reported figure and an adjusted EBITDA margin of 1-2%. During fiscal 2021, Stitch Fix generated net revenues of $2.1 billion and an adjusted EBITDA margin of 3.9%.

Hot Stocks in Retail

Some better-ranked stocks are Boot Barn Holdings BOOT, Tractor Supply Company TSCO and Target TGT.

Boot Barn Holdings, a lifestyle retailer of western and work-related footwear, apparel and accessories, sports a Zacks Rank #1 (Strong Buy) at present. The stock has jumped 174.1% in the year-to-date period. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Boot Barn Holdings’ current financial-year sales and earnings per share (EPS) suggests growth of 54.4% and 183.3%, respectively, from the year-ago period’s corresponding figures. BOOT has a trailing four-quarter earnings surprise of 35.3%, on average.

Tractor Supply Company, a rural lifestyle retailer in the United States, currently flaunts a Zacks Rank of 1. TSCO has a trailing four-quarter earnings surprise of 22.8%, on average. Shares of TSCO have surged 62.9% year to date.

The Zacks Consensus Estimate for Tractor Supply Company’s current-year sales and EPS suggests growth of 19% and 23.9%, respectively, from the year-ago period’s corresponding readings. TSCO has an expected EPS growth rate of 9.6% for three-five years.

Target, a renowned omnichannel retailer, presently carries a Zacks Rank #2 (Buy). TGT has a trailing four-quarter earnings surprise of 19.7%, on average. The stock has rallied 42.2% in the year-to-date period.

The Zacks Consensus Estimate for Target’s current-year sales and EPS suggests growth of 14% and 39.6%, respectively, from the corresponding year-ago period’s levels. TGT has an expected EPS growth rate of 14.4% for three-five years.



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