Stitch Fix (SFIX) Exhibits Solid Prospects Despite Headwinds
Stitch Fix, Inc. SFIX has been benefiting from its business growth initiatives, strong product portfolio, healthy liquidity position and cost-management efforts. The company's constant focus on innovation and product diversification enables it to adapt to changing consumer preferences and capitalize on evolving trends.
SFIX remains committed to transforming its business in several areas, including the launch and scale of Fix Preview, investments in systems and people and expansion of shops. It has been constantly leveraging product innovation and evolving assortments, as well as personalized experiences, to gain more clients.
Stitch Fix is also on track with restructuring its business and consolidating its warehouse footprint. It expects to divest its operations in the U.K. market and plans to consolidate from five U.S. warehouse locations to three by fiscal 2024. The divestment decision is in sync with the company’s policy of disposing of non-profitable businesses and directing its resources to its core businesses. It expects a combined annualized cost savings of $50 million related to the closure of the U.K. operation and the U.S. warehouse consolidation.
SFIX’s commitment to generating healthy cash flows allows it to effectively deploy capital for business purposes. For instance, in fourth-quarter fiscal 2023, the company generated a free cash flow of $17.7 million, marking the third consecutive quarter of a positive free cash flow. Stitch Fix ended the fiscal fourth quarter with cash and cash equivalents of $239.4 million and no debt.
However, the company has been subject to a challenging operating landscape with several issues, such as rising interest rates and recessionary concerns. Of late, a higher inflationary environment has been affecting consumers’ spending, which is expected to affect its near-term performance.
Stitch Fix expects challenges in acquiring and retaining active clients to persist and have a negative impact on its net revenues in fiscal 2024. For fiscal 2024, management projects net revenues of $1.30-$1.37 billion, indicating a 14-18% decline from the year-ago reported figure.
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In the past month, the Zacks Rank #3 (Hold) stock has lost 6.1% compared with the industry’s decline of 2.1%.
SFIX has also been grappling with weak margins for a while now. In fourth-quarter fiscal 2023, gross profit declined 15.6% year over year to $162.7 million. Also, in fiscal 2023, its gross profit tumbled 23.9% year over year to $691.5 million. In the fiscal year, the gross margin contracted 160 basis points (bps) to 42.2% primarily due to lower revenues.
Three Solid Picks
A few better-ranked stocks in the same space are Urban Outfitters, Inc. URBN, Abercrombie & Fitch Co. ANF and American Eagle Outfitters Inc. AEO. These three companies currently sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Urban Outfitters specializes in the retail and wholesale of general consumer products. The Zacks Consensus Estimate for Urban Outfitters’ current fiscal-year earnings and sales indicates growth of 83.4% and 6.6% from the year-ago period’s reported figures. URBN has a trailing four-quarter average earnings surprise of 19.2%.
Abercrombie & Fitch is a specialty retailer of premium, high-quality casual apparel. The Zacks Consensus Estimate for Abercrombie & Fitch’s current fiscal-year sales implies growth of 10% from the previous year’s reported number. ANF has a trailing four-quarter average earnings surprise of 724.8%.
American Eagle Outfitters is a specialty retailer of casual apparel, accessories and footwear. The Zacks Consensus Estimate for American Eagle Outfitters’ current fiscal-year earnings and sales indicates growth of 33% and 2.2% from the year-ago period’s reported figures. AEO has a trailing four-quarter average earnings surprise of 43.2%.
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Abercrombie & Fitch Company (ANF) : Free Stock Analysis Report
American Eagle Outfitters, Inc. (AEO) : Free Stock Analysis Report
Urban Outfitters, Inc. (URBN) : Free Stock Analysis Report
Stitch Fix, Inc. (SFIX) : Free Stock Analysis Report
