It has been about a month since the last earnings report for Stitch Fix (SFIX). Shares have lost about 13.3% 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 Q1 Loss Widens & Revenues Decrease Y/Y
Stitch Fix posted dismal first-quarter fiscal 2023 results. SFIX reported a wider-than-expected loss per share and lower-than-expected revenues. Both metrics also deteriorated from the year-earlier quarter’s respective reported figures. Results were hurt by a tough macroeconomic backdrop.
Q1 Details
Stitch Fix posted a loss of 50 cents a share, wider than the Zacks Consensus Estimate of a loss of 44 cents. The bottom line compared unfavorably with earnings of 2 cents a share recorded in the prior-year fiscal quarter.
SFIX recorded net revenues of $455.6 million, down 22% from the year-ago fiscal quarter’s figure due to weak fixed volumes, partly offset by demand in Freestyle. The metric came below the Zacks Consensus Estimate of $460 million.
Stitch Fix has active clients of 3,709,000 as of Oct 29, 2022, down 11% from the prior-year fiscal quarter’s level. Revenue per active client or RPAC reached $525, flat year over year.
Margins & Costs
In the fiscal first quarter, gross profit tumbled 29.7% to $191.8 million. Also, the gross margin contracted 490 basis points (bps) year over year to 42.1% mainly due to higher product costs, increased clearance and adverse transportation costs year over year.
Selling, general and administrative (SG&A) expenses fell 10.2% to $246.9 million. Stitch Fix reported an adjusted EBITDA loss of $7.4 million for the fiscal quarter under review against the adjusted EBITDA of $38.2 million posted in the year-ago fiscal quarter.
Other Financial Aspects
Stitch Fix ended the fiscal first quarter with cash and cash equivalents of $113.3 million minus debt and shareholders’ equity of $294.8 million.
SFIX used $10 million in cash from operating activities during the first quarter of fiscal 2023. Also, the company had a negative free cash flow of $16.2 million in the aforementioned period.
Outlook
For the second quarter of fiscal 2023, management projects net revenues of $410-$420 million, indicating a 19-21% decline from the year-ago fiscal quarter’s reported figure. This is due to continued pressure on net active clients and the promotional holiday period. Stitch Fix expects adjusted EBITDA in the bracket of a negative $5 million to a positive $5 million with a margin of minus 1% to plus 1%.
For fiscal 2023, management projects revenues between $1.6 billion and $1.7 billion, and adjusted EBITDA in the bracket of a negative $10 million to a positive $10 million. Management anticipates a gross margin of 42% for fiscal 2023. It expects advertising as a rate of revenue to be lower than the historic rate owing to the marketing shift. For the rest of the fiscal year, advertising is likely to be approximately 5-6% of revenues.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
The consensus estimate has shifted 20.96% due to these changes.
VGM Scores
Currently, Stitch Fix has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Stitch Fix has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Stitch Fix belongs to the Zacks Retail – Apparel and Shoes industry. Another stock from the same industry, Abercrombie & Fitch (ANF), has gained 6.3% over the past month. More than a month has passed since the company reported results for the quarter ended October 2022.
Abercrombie reported revenues of $880.08 million in the last reported quarter, representing a year-over-year change of -2.8%. EPS of $0.01 for the same period compares with $0.86 a year ago.
For the current quarter, Abercrombie is expected to post earnings of $0.64 per share, indicating a change of -43.9% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.3% over the last 30 days.
Abercrombie has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.
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