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Why Is Stitch Fix (SFIX) Up 23.6% Since Last Earnings Report?

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A month has gone by since the last earnings report for Stitch Fix (SFIX - Free Report) . Shares have added about 23.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Stitch Fix due for a pullback? 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 catalysts.

Stitch Fix Posts Wider-Than-Expected Loss in Q3

Stitch Fix posted dismal third-quarter fiscal 2020 results. The company reported loss per share wider than the Zacks Consensus Estimate with a sales miss. Both the top and the bottom lines deteriorated year over year. Results were mainly hurt by warehouse disruptions from COVID-19.

Q3 in Detail

Stitch Fix reported loss per share of 33 cents, which was wider than the Zacks Consensus Estimate of a loss of 18 cents and compared unfavorably with earnings per share of 7 cents recorded in the prior-year quarter. Lower sales coupled with higher SG&A expenses have weighed on the bottom line.

Meanwhile, the company recorded net revenues of $371.7 million, showing a 9% decrease year over year. Also, the reported figure lagged the Zacks Consensus Estimate of $395 million. This marks the second straight quarterly miss.

Stitch Fix now has 3.4 million active clients, up 9% from the prior-year period. Also, revenues per active client rose 6% year over year to $498, recording the eighth successive quarter of growth.

In the fiscal third quarter, gross profit declined 17.8% to $151.6 million and gross margin contracted 430 bps to 40.8%. Gross margin contraction was mainly due to COVID-19, which resulted in increased inventory reserve along with higher clearance rate on soft sales.

Moreover, advertising costs were $37.8 million, down 25% from the year-ago quarter. Meanwhile, SG&A expenses increased 4.6% to $197.7 million. As a percentage of sales, SG&A expenses increased 700 bps to 53.2%. Stitch Fix’s operating loss was $46.1 million, wider than loss of $4.6 million reported in the year-ago period.

Furthermore, the company reported adjusted EBITDA loss, excluding stock-based compensation, of $20.7 million in the quarter under review. However, the figure compared unfavorably with adjusted EBITDA, excluding stock-based compensation of $8.8 million.

Other Financial Aspects

The company ended the quarter with cash and cash equivalents of $96.8 million and shareholders’ equity of $422.6 million. Further, the company used $20.5 million cash from operating activities during the first nine months of fiscal 2020. Also, it reported negative free cash flow of $39.1 million for the same period.

In early June, management concluded a $90-million revolving credit facility to reinforce the company’s liquidity position.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Stitch Fix has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. 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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