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Stitch Fix (SFIX) Up 35.8% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Stitch Fix (SFIX - Free Report) . Shares have added about 35.8% 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 Q4

Stitch Fix reported wider-than-expected loss per share during fourth-quarter fiscal 2020. The figure also compared unfavorably with the prior-year quarter’s reported tally. The bottom-line performance was mainly hurt by the impacts of the coronavirus pandemic. In June, the company’s distribution centers were recovering from major disruptions. At a certain point, 50% of the warehouse nodes were shuttered, hence the company was operating at roughly 30% fulfillment capacity.

However, the company’s sales rebounded in the quarter under review. The metric grew year over year and outshone the Zacks Consensus Estimate after two straight quarterly misses. The company saw impressive first-Fix demand trends in July and August, which are likely to drive active-client growth ahead.

Q4 in Detail

Stitch Fix reported loss per share of 44 cents, which is 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.

Meanwhile, the company recorded net revenues of $443.4 million, calling for 3% increase from the year-ago period. Adjusted for the extra week in the same quarter a year ago, the metric grew 11% year over year. Also, the reported figure surpassed the Zacks Consensus Estimate of $416 million, delivering a beat. This is buoyed by immense strength in the company’s direct-buy facility that has been exceeding management’s expectations, benefiting from expedite client adoption, increased purchase rates per client and higher levels of engagement. The company is also witnessing huge demand in activewear, as women's activewear revenues skyrocketed over 350% year over year on an adjusted basis during fiscal fourth quarter.

Stitch Fix now has 3.5 million active clients, up 9% from the prior-year period. Also, revenues per active client rose 6% year over year to $486, recording the ninth successive quarter of growth. This reflects a rise of 2% year over year on adjusted basis.

In fiscal fourth quarter, gross profit rose 4.6% to $199.1 million with a gross-margin expansion of 80 bps to 44.9%. Notably, gross margin expanded nearly 410 bps on a quarter-over-quarter basis. The metric was mainly driven by a decline in inventory reserve on stable inventory position.

Meanwhile, SG&A expenses increased 13.1% to $213.4 million. Excluding advertising, other SG&A, as a rate of sales, grew 370 bps to 38.3% due to continuous investments in technology talent and the related SBC costs. Stitch Fix’s operating loss was $14.3 million against operating profit of $1.8 million reported in the year-ago period.

Furthermore, the company reported adjusted EBITDA, excluding stock-based compensation, of $11.8 million in the quarter under review, down 33.7% from $17.8 million reported in the year-ago quarter.

Other Financial Aspects

The company ended the quarter with no debt, along with cash and cash equivalents of $143.5 million and shareholders’ equity of $401 million.

Further, the company provided $42.9 million cash from operating activities during fiscal 2020. Also, it reported free-cash flow of $12.7 million for the same period.

Outlook

Going ahead, the company remains committed to cater to the renewed surge in client demand. In first-quarter fiscal 2021, management projects revenues to improve mid-to-high single digit on solid demand trends, offset by reduced subsequent Fix volumes. The metric is likely to partly benefit from the new client growth moving into fiscal second quarter. We note that the company witnessed a revenue growth of 21% in the first quarter of fiscal 2020.

We note that Stitch Fix did not issue a specific guidance for fiscal 2021 on volatile macro backdrop. However, management notified that revenue growth is likely to significantly accelerate in the second half of fiscal as the effect of the pandemic-induced stay-at-home orders subside. For fiscal 2021, management plans to make investments in growth opportunities such as the U.K. category, however, at lower levels than the prior year. It also estimates expense leverage in adjusted EBITDA excluding SBC. Moreover, the company expects increased investments in CapEx for the fiscal in order to improve operating capacity. Historically, CapEx included less than 2% of revenue and the metric is now forecasted to rise by 100-200 bps for fiscal 2021 over the historical levels.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -668.75% due to these changes.

VGM Scores

Currently, Stitch Fix has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. 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 C. 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. It's no surprise Stitch Fix has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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