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MARKETS LIVE BLOG:

STOCKS RISE, LED BY STELLAR ALPHABET, MICROSOFT EARNINGS

Results from 'Magnificent Seven' duo show cloud revenue boosted by strong AI demand

Stitch Fix (SFIX) Stock Down Despite Q1 Earnings & Sales Beat

Zacks

Stitch Fix, Inc. SFIX reported first-quarter fiscal 2019 results, wherein the top and bottom lines came ahead of the Zacks Consensus Estimate and improved year over year. However, this better-than-expected performance was not enough to placate investors who seem to be let down by management’s expectation of no increase in active subscribers in the holiday quarter. Markedly, shares of the company decreased almost 15% during the after-market trading session on Dec 10.

Also, this Zacks Rank #3 (Hold) stock has lost 43.5% in the past three months, underperforming the industry’s 17.7% decline.

Q1 Highlights

In the quarter under review, Stitch Fix’s adjusted earnings came in at 10 cents per share, which outpaced the Zacks Consensus Estimate of 3 cents. This was the fourth straight quarter of positive earnings surprise. Notably, the bottom line more than doubled from the prior-year period number.

Net revenues grew 24% to $366.2 million and surpassed the Zacks Consensus Estimate of $357.8 million. The uptick was driven by rise in both active client count and net revenue per active client. While active client grew 22% to 2.9 million mainly owing to growth in Women’s, Men’s as well as Kids, revenue per client improved 2% year over year despite the dilutive impact of newer categories.

Stitch Fix, Inc. Price, Consensus and EPS Surprise

Stitch Fix, Inc. Price, Consensus and EPS Surprise | Stitch Fix, Inc. Quote

Moreover, Stitch Fix added new brands across Women’s, Men’s and Kids categories. In Men’s, the company launched bigger sizing, offering up to 3XL and a 48-inch waist as well as short and tall fit options in the first quarter.

While gross profit increased 28% year over year to $165.2 million, gross profit margin expanded roughly 140 basis points (bps) to 45.1%. Meanwhile, operating income improved 14.2% to $10.9 million.

Other Financial Aspects

Stitch Fix ended the quarter with cash and cash equivalents of $173.3 million, long-term investments $83.9 million and total shareholders’ equity of $333.5 million. Cash flow from operations amounted to $51 million in the first three months of fiscal 2019.

Outlook

For the second quarter fiscal 2019, management anticipates net income in the range of $360-$368 million, reflecting year-over-year growth of 22-24%. While adjusted EBITDA is envisioned in the band of $8-$12 million, adjusted EBITDA margin is expected in the 2.2-3.3% range. Overall, Stitch Fix’s goal is to attain top-line growth of 20-25%. However, the company expects lower expenditure on advertisement, and flat active client count quarter over quarter. Also, gross margin is expected to contract in the second quarter.

For fiscal 2019, the company envisions net revenue growth of 21-25% year over year compared with prior view of 20-25%. This revised range signifies net revenues between $1.49 billion and $1.53 billion. Further, the company continues to expect adjusted EBITDA in the range of $20-$40 million, reflecting an adjusted EBITDA margin of 1.3-2.6%.

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Boot Barn Holdings, Inc. BOOT delivered average positive earnings surprise of 15.1% in the trailing four quarters. It has a long-term earnings growth rate of 23% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

L Brands, Inc. LB has a long-term earnings growth rate of 11.5% and a Zacks Rank #2 (Buy).

Foot Locker, Inc. FL delivered average positive earnings surprise of 6.8% in the trailing four quarters. The stock carries a Zacks Rank of 2.

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Foot Locker, Inc. (FL) : Free Stock Analysis Report
 
L Brands, Inc. (LB) : Free Stock Analysis Report
 
Boot Barn Holdings, Inc. (BOOT) : Free Stock Analysis Report
 
Stitch Fix, Inc. (SFIX) : Free Stock Analysis Report
 
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