It has been about a month since the last earnings report for Stitch Fix (SFIX Quick QuoteSFIX - Free Report) . Shares have lost about 29.6% 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 its most recent earnings report in order to get a better handle on the important drivers.

Stitch Fix Reports Q2 Loss and Trims Sales View

Stitch Fix reported soft second-quarter results and trimmed sales outlook for fiscal 2021. The company posted loss per share in the reported quarter while revenues missed the Zacks Consensus Estimate.

The company reported loss of 20 cents per share, narrower than the Zacks Consensus Estimate of a loss of 22 cents. The company reported earnings of 11 cents in the prior-year quarter.

Meanwhile, the company recorded net revenues of $504.1 million, reflecting an increase of 12% from the year-ago quarter.  However, the metric lagged the Zacks Consensus Estimate of $512 million. Moreover, the top-line results fell short of management’s guided range of $506-$515 million. Management believes revenues would have been within the guided range on adjusting for the impact of the increased cycle times.

Q2 Details

Within the company’s Fix offering, first Fix shipments in the reported quarter rose to the highest level in five years. However, carriers faced uncertain volumes during the holidays owing to the pandemic. Consequently, the company saw increased cycle times and was unable to recognize revenues from Fixes shipped in the fiscal second quarter.

Nonetheless, with respect to such delays, management has made adjustments in the ship planning process to meet the promised delivery dates. Also, the company is undertaking actions to diversify its outbound carrier mix and is also partnering with its primary carrier, the United States Postal Service, to process returns effectively.

First Fix shipments grew nearly 50% year over year in the fiscal second quarter, up from more than 25% in the prior-year period. This marks the company’s highest growth rate since 2016. Strength in the women’s category mainly fueled the improvement.

Stitch Fix has roughly 3.9 million active clients as of Jan 30, 2021, reflecting growth of 11.8% from the prior-year quarter’s level. Sequentially, the company’s active clients went up by 110,000.

However, net revenue per active client declined nearly 7% year over year to $467. This was mainly due to surge in new clients, whose spending has been comparatively low.

In the fiscal second quarter, gross profit rose 7% to $216.3 million. However gross-margin contracted 190 basis points (bps) to 42.9% owing to higher shipping expenses and inventory reserves.

Meanwhile, selling, general, and administrative (SG&A) expenses increased 32.5% to $256.7 million. Excluding advertising, other SG&A, as a rate of sales, increased 760 bps to 42.6% due to increased compensation and benefits expense, including higher wages at fulfillment center. Also, elevated marketing expenses and COVID-related costs caused the rise. Moreover, the company’s operating loss was $40.4 million against operating profit of $8.5 million reported in the year-ago quarter.

Furthermore, the company reported adjusted EBITDA loss of $8.9 million in the quarter under review against adjusted EBITDA of $30.1 million in the year-ago quarter. The decline reflects lower revenues, increased shipping costs, and investment in people and operations in the reported quarter.

Other Financial Aspects

Stitch Fix ended the quarter with no debt along with cash and cash equivalents of $140 million and shareholders’ equity of $433.5 million.

Further, the company provided $5.7 million cash from operating activities during the six months of fiscal 2021. Also, it reported negative free cash flow of $8.2 million for the same period.

Outlook

For fiscal 2021, management projects net revenues in the band of $2.02-$2.05 billion, suggesting an increase of 18-20% from the year-ago period. However, the latest revenue forecast is lower than the prior guided range of $2.05-$2.14 billion.

For the fiscal third quarter, Stitch Fix expects net revenues in the range of $505-$515 million, which suggests year-over-year growth of 36-39%. Adjusted EBITDA is envisioned in the bracket of negative $9 million to $5 million or negative 1.8% to 1.0%.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -160.64% due to these changes.

VGM Scores

Currently, Stitch Fix has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. 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 D. 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.