Stitch Fix Inc (SFIX) Faces Revenue Decline but Improves Gross Margin in Q2 Fiscal 2024
Net Revenue: $330.4 million, down 18% year-over-year.
Active Clients: 2,805,000, a decrease of 17% year-over-year.
Gross Margin: Improved by 250 basis points to 43.4% year-over-year.
Net Loss: $35.0 million from continuing operations.
Adjusted EBITDA: $4.4 million from continuing operations.
Free Cash Flow: Negative $26.1 million in Q2.
Liquidity: Ended the quarter with $229.8 million in cash, cash equivalents, and investments.
On March 4, 2024, Stitch Fix Inc (NASDAQ:SFIX) released its 8-K filing, detailing the financial results for the second quarter of fiscal year 2024, which ended on January 27, 2024. The company, known for its personalized styling services, reported a decrease in net revenue and active clients but showed an improvement in gross margin, reflecting better inventory health and transportation leverage.
Company Overview
Stitch Fix Inc offers personalized styling services for men and women, combining data science with human judgment to deliver customized apparel, shoes, and accessories. The company's service, known as A FIX, provides clients with hand-selected items tailored to their preferences and needs. Stitch Fix operates across various categories and price points, catering to a diverse clientele including Women's, Petite, Maternity, Men's, and Plus sizes.
Performance and Challenges
The reported 18% year-over-year decline in net revenue to $330.4 million and a 17% decrease in active clients reflect ongoing challenges in the retail sector. The company's net revenue per active client also saw a 3% decrease. These declines are significant as they suggest a contraction in the company's customer base and spending per customer, which are critical for revenue generation in the retail-cyclical industry.
Despite these challenges, Stitch Fix Inc achieved a gross margin of 43.4%, a notable increase from the previous year. This improvement is a crucial indicator of the company's ability to manage costs and optimize its supply chain effectively. However, the company reported a net loss from continuing operations of $35.0 million, with a diluted loss per share of $0.29.
Stitch Fix Inc's adjusted EBITDA from continuing operations stood at $4.4 million, reflecting disciplined cost management. The negative free cash flow of $26.1 million during the quarter was anticipated due to the timing of inventory purchases. The company's liquidity remains strong with $229.8 million in cash, cash equivalents, and investments, and no bank debt.
Financial Outlook
Looking ahead, Stitch Fix Inc provided a financial outlook for the third quarter of fiscal 2024, projecting net revenue from continuing operations to be between $300 million and $310 million, which would represent a 19% to 22% year-over-year decrease. The adjusted EBITDA from continuing operations is expected to range from a loss of $5 million to break-even.
For the full fiscal year 2024, the company anticipates net revenue from continuing operations to be between $1.29 billion and $1.32 billion, marking a 17% to 19% year-over-year decline. Adjusted EBITDA from continuing operations is forecasted to be between $10 million and $20 million.
Analysis and Future Prospects
Stitch Fix Inc's efforts to reimagine the client experience and strengthen the company's foundation are crucial for its long-term growth. CEO Matt Baer expressed confidence in the strategic priorities set to drive sustainable, profitable growth. The company's decision to cease operations in the UK and focus on continuing operations indicates a strategic shift to consolidate and optimize its core markets.
While the company faces headwinds with declining revenues and active clients, the improved gross margin and disciplined cost management demonstrate resilience and an ability to adapt to challenging market conditions. Investors and potential members of GuruFocus.com should monitor how Stitch Fix's strategic initiatives unfold in the coming quarters, as these will be pivotal in determining the company's ability to return to growth and profitability.
For a more detailed analysis of Stitch Fix Inc's financials and strategic direction, visit GuruFocus.com for comprehensive reports and investment insights.
Explore the complete 8-K earnings release (here) from Stitch Fix Inc for further details.
This article first appeared on GuruFocus.
