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Stitch Fix (SFIX) Q4 Earnings: Active Clients a Key Catalyst

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Stitch Fix, Inc. (SFIX - Free Report) is slated to release fourth-quarter fiscal 2018 results on Oct 1, after market close. The California-based company has delivered positive earnings surprises in the trailing two quarters. Moreover, the company witnessed year-over-year growth in the top and the bottom lines in the last reported quarter. Let’s see how things are shaping up prior to the upcoming quarterly results.

Growth in Active Clients to Boost Revenues

Stitch Fix’s top line has been steadily gaining from increasing active clients base. During the third quarter of fiscal 2018, the company’s active client base grew 30% year over year. This led to revenue expansion of almost 29% from the prior-year period. During the second quarter, the company’s active client base grew 31%, which boosted revenues by 24%. Consistently rising customer base indicates that the company’s strategies to boost offerings and efforts related to customer engagement have been yielding.  Apart from this, strong Women’s and Men’s categories have been augmenting top-line. Going ahead, we expect such aspects to contribute to the top line.

Innovation & Other Strategic Efforts

Expanding into new categories through product launches is a vital part of Stitch Fix’s strategic roadmap for growth. Progressing along these lines, the company recently launched Stitch Fix Kids category. Further, the company is on track with launches under the Men’s and Plus size categories. Most of these innovations are carried out by the company through well-chalked market studies, which helps it meet customer needs efficiently. Additionally, the company is on track with boosting relationships with existing clients through improved customer engagement.

Driving cost efficiencies is another strategic arrow in Stitch Fix’s quiver.  The company strives to enhance operational efficiencies across categories and supply chain operations through the implementation of advanced technological capabilities. In this respect, changes made in picking processes have enhanced efficiency in house locations, which have resulted in cost savings.

Moreover, the company’s gross margin has been gaining from improved inventory management. In fact, gross margin during the third quarter improved 60 basis points as a result of lower inventory reserve costs. This also offset the negative impacts of increased shipping and freight.

Estimates for Q4 Bode Well

We expect Stitch Fix’s robust measures to drive sales and profitability to continue yielding in the impending quarterly results. In fact, management expects fourth-quarter revenues in the range of $310-$320 million, depicting growth of almost 20-24% year over year. Encouragingly, the Zacks Consensus Estimate for fiscal fourth-quarter revenues is pegged at $319 million and is within management’s predicted range.

Further, the consensus mark for earnings for the quarter under review stands at 4 cents per share. The estimate has remained unchanged in the past 30 days.

Zacks Model

Our proven model does not show that Stitch Fix is likely to beat estimates in this quarter. For this to happen, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Stitch Fix carries a Zacks Rank #2, its Earnings ESP of -8.33% makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks Poised to Beat Earnings Estimates

Here are other companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat:

Urban Outfitters, Inc (URBN - Free Report) has an Earnings ESP of +2.09% and a Zacks Rank #1.

Tractor Supply Company (TSCO - Free Report) has an Earnings ESP of +0.49% and a Zacks Rank #2.

Target Corporation (TGT - Free Report) has an Earnings ESP of +0.20% and a Zacks Rank #2.

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