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Stitch Fix (SFIX) Beats on Q1 Earnings & Revenues, Stock Gains

Zacks Equity Research

Shares of Stitch Fix, Inc. SFIX rallied roughly 12% during the after-market trading session on Dec 9. The stock received a boost, following the company’s better-than-expected results in first-quarter fiscal 2020. This was the fifth straight quarter of positive earnings and sales surprises.

Results were backed by gains from the direct-buy initiative and active client growth. Although its top line continued to improve year over year, the bottom line fell from the year-ago period.

Encouragingly, shares of the Zacks Rank #3 (Hold) company have gained 14.7% in the past three months against the industry’s decline of 2%.

 

 

Q1 in Detail

Stitch Fix reported break-even results, comparing favorably with the Zacks Consensus Estimate of a loss of 6 cents. Notably, the company reported earnings of 10 cents in the prior-year quarter. An increase in cost of goods sold and higher SG&A expenses might have resulted in the year-over-year decline in its bottom line. 

Meanwhile, the company recorded sales of $444.8 million, reflecting 21% year-over-year rise, backed by increases in women’s and men’s active clients. Also, the figure surpassed the Zacks Consensus Estimate of $441 million.

Stitch Fix now has 3.4 million clients, up 16.6% from the prior-year period. Also, revenue per active client rose 9.5% year over year, recording the sixth successive quarter of growth. Moreover, its direct-buy initiative, wherein customers can directly select and buy items from the company’s website or app, is performing well. 

In the fiscal first quarter, gross profit increased 22% to $201.3 million, while gross margin expanded 20 basis points (bps) to 45.3%. Gross margin expansion was driven by lower merchandise costs and improved operational efficiencies, partly offset by rise in inventory level.

Stitch Fix’s operating income was $160,000, down from $10.9 million reported in the year-ago period. Its SG&A expenses rose 30% to $201.1 million. As a percentage of sales, SG&A expenses increased 310 bps to 45.2%.

Other Financial Aspects

The company ended the reported quarter with cash and cash equivalents of $151.8 million, and shareholders’ equity of $408.6 million. Also, it generated free cash flow of approximately $20 million. Free cash flow is expected to remain positive in fiscal 2020.

Stitch Fix, Inc. Price, Consensus and EPS Surprise

 

Stitch Fix, Inc. Price, Consensus and EPS Surprise

Guidance

Management issued guidance for second-quarter fiscal 2020. The company anticipates net sales of $447-$455 million, suggesting 21-23% growth from the prior-year period’s reported figure. The projection reflects year-over-year active client growth almost in line with 17% registered in the quarter under review as well as sustained growth in revenue per client. Further, it anticipates adjusted EBITDA of $10-$15 million for the quarter.

For fiscal 2020, management continues to project net sales of $1.9-$1.93 billion, suggesting a year-over-year increase of 20-22.5%. Moreover, it expects adjusted EBITDA of $18-$32 million.

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