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How Stitch Fix (SFIX) is Placed Just Ahead of Q2 Earnings

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Stitch Fix, Inc. SFIX is scheduled to report second-quarter fiscal 2020 numbers on Mar 9, after market close. Notably, this online personal styling service company has a trailing four-quarter positive earnings surprise of 162.1%, on average.

However, the Zacks Consensus Estimate for second-quarter earnings is pegged at 6 cents, which indicates a decline of 50% from 12 cents earned in the year-ago quarter. We note that the consensus mark was stable in the past 30 days. Moreover, the consensus estimate for quarterly revenues stands at $453 million, which suggests an increase of 22.3% from the year-ago quarter’s tally.

Key Factors at Play

Deleverage in SG&A expenses and other costs may show on the company’s second-quarter bottom line. Higher spending on advertising, payroll and stock-based compensation coupled with expansion of fulfillment centers and offices is bumping up costs. Additionally, the company has been witnessing higher cost of goods sold for a while now.

Nevertheless, management projects net revenues of $447-$455 million, which suggests growth of 21-23% year over year. This can be driven by active client growth of about 17% and strength in revenue per client. Moreover, its direct-buy initiative, which allows customers to select and buy items directly from its website or app, is delivering impressive results. Also, the company’s efforts to enhance personalization capabilities bode well. Strength in the women’s and men’s categories is likely to continue. Encouragingly, the Zacks Consensus Estimate for active clients currently stands at 3.46 million, up from 3 million witnessed in the year-ago quarter.

What Does the Zacks Model Say?

Our proven model does not predict an earnings beat for Stitch Fix this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. 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 #1, its Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks With a Favorable Combination

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

G-III Apparel Group GIII has an Earnings ESP of +2.71% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Costco COST has an Earnings ESP of +0.20% and a Zacks Rank #2.

Dollar Tree DLTR has an Earnings ESP of +0.32% and a Zacks Rank #3.

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