Back to top

Image: Bigstock

Stitch Fix (SFIX) Robust on Direct-Buy Tool & Client Growth

Read MoreHide Full Article

Renowned online personal styling retailer Stitch Fix, Inc. (SFIX - Free Report) is benefiting from its efforts to improve client experience. Management continues to invest in digital capabilities and the ‘direct buy’ facility is worth a mention. The company’s innovation in fix and direct-buy offerings is garnering a positive response from customers. Apparently, the company has been witnessing continued growth in its active client base. These positives are expected to keep supporting the Zacks Rank #3 (Hold) company.

Impressively, the company’s shares have appreciated 132% in the past three months, crushing the industry’s 57.6% rally. Encouragingly, analysts look optimism about Stitch Fix too. The Zacks Consensus Estimate for company’s fiscal 2021 sales currently stands at $2.10 billion, suggesting improvement of more than 22% year over year. Also, the consensus estimate for fiscal 2021 is pegged at a loss of 25 cents, suggesting narrower loss than the loss of 66 cents reported in the last fiscal. Moreover, the company has a long-term expected earnings growth rate of 15%, ahead of that of the industry’s 11.3%. This coupled with a Growth Score of A further speaks of the stock’s inherent potential.

Let’s Dig Deeper

As e-commerce activities are hogging the limelight amid the pandemic, the ‘direct buy’ facility is acting as a catalyst for Stitch Fix. Launched in June 2019, the integrated facility allows clients to shop and select products directly from the company’s website or mobile app with highly personalized recommendations. In order to make the facility an important client-acquisition tool, management introduced ‘Trending For You’ in June 2020, which enhances feed-based shopping experience. In July, the company also came up with an algorithmic recommendation engine solely for its ‘direct buy’ clients, which more widely caters to clients’ preferences.

In earlier developments, the company introduced a feature named Shop Your Looks, which forms part of its ‘direct buy’ facility. Markedly, the company’s direct-buy penetration continued to grow across men's and women's client base. As the company continues to expand its ‘direct buy’ facility, it expects to generate stronger margins and client outcome. It has also started collecting client feedback data on shipped ‘direct buy’ items, which will further reinforce the company’s personalized recommendation. It has also been leveraging the usage of Style Shuffle for collecting data.

Going forward, management is on track to launch new enhancements in fiscal 2021 to expand product discovery. These investments are likely to strengthen digital capabilities and in turn boost overall sales. Markedly, active clients rose 10% year over year to 3.8 million in the first quarter of fiscal 2021. Sequentially, the company’s active clients went up by more than 240,000. Management highlighted that this marks the company’s highest sequential client additions.

Meanwhile, Stitch Fix is on track with its efforts to boost assortments. Markedly, the company expanded its Women's athleisure assortment, as a percent of women's inventory, by more than 150% in first-quarter fiscal 2021 when compared to pre-COVID levels. As a result, the company was able to suitably cater to the rising demand for such products. In Kid’s business, the company put in place a rapid sourcing model to speed up replenishment. Additionally, the company expanded its assortments to include more affordable products across categories.

Wrapping Up

However, higher cost of investment toward digital initiatives has been driving overall costs. This may strain the company’s margins in the near term. Nonetheless, the company’s well-knitted endeavors will continue to drive the top line, which increased 10% in the fiscal first quarter. For fiscal 2021, the company had earlier anticipated revenues in the band of $2.05-$2.14 billion, which suggests 20-25% growth year on year. For the fiscal second quarter, management projected revenues in the range of $506-$515 million, suggesting improvement of 12-14% year on year, fueled by growth in the active client base.

Given the ongoing dislocation in the brick-and-mortar retail space due to the pandemic coupled with Stitch Fix’s online capabilities and personalization model, the company looks well poised for sustainable growth.

Key Picks in Retail

Target (TGT - Free Report) has a trailing four-quarter positive earnings surprise of 52.4% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
L Brands (LB - Free Report) , also a Zacks Rank #1 stock, has a long-term earnings growth rate of 13%.

Dollar General (DG - Free Report) has a long-term earnings growth rate of 13.7%. Currently, it carries a Zacks Rank #2 (Buy).

Zacks Names “Single Best Pick to Double”

From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.

You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.

Free: See Our Top Stock and 4 Runners Up >>