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Stitch Fix (SFIX) Down 7.2% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Stitch Fix (SFIX). Shares have lost about 7.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Stitch Fix due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Stitch Fix Reports Narrower Q1 Loss

Stitch Fix posted 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.

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 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.

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

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.

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%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -27.78% due to these changes.

VGM Scores

At this time, Stitch Fix has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Stitch Fix has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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