Stitch Fix (SFIX) Shares Up 27.7% YTD: What's Driving the Stock?
Shares of Stitch Fix, Inc. SFIX have rallied 27.7% so far this year. The company’s strong product portfolio, business strategies, solid liquidity position and cost management actions amid a tough macroeconomic backdrop seem to have boosted sentiments for the stock.
The San Francisco, CA-based company belongs to the Zacks Retail - Apparel and Shoes industry, which comes under the ambit of the Zacks Retail-Wholesale sector. Stitch Fix has a $451.7 million market capitalization and currently carries a Zacks Rank #2 (Buy).
Year-to-date, the company’s shares have outperformed the industry’s decline of 6.1%. Notably, the S&P 500 and the sector have risen by 15.6% and 13.2%, respectively, during the same period.
Image Source: Zacks Investment Research
Catalysts Behind the Share Price Increase
Stitch Fix has been persistently navigating the ongoing macroeconomic uncertainties and evolving its marketing strategy. The company aims to preserve liquidity and achieve profitability while simultaneously attracting long-term customers to fuel a return to growth.
SFIX remains focused on enhancing its client experience across Fix and direct buy, known as Freestyle. With the rollout of Freestyle, management looks to grow the client base and boost profitability.
The company remains on track with a significant transformation of its business in several areas, including optimization of operations, expansion of offerings and investments in systems and people. It also remains committed to improving client conversion and the overall client experience.
In order to drive personalized shopping experiences for clients, it rolled out Fix Preview to its women's and men's clients across the United States and the United Kingdom markets. It remains optimistic about Fix Preview, which offers the opportunity to view proposed items for clients’ next Fix before it is shipped.
Stitch Fix’s ability to generate healthy cash flows and a strong liquidity position has been impressive. For instance, it ended the third quarter of fiscal 2023 with no debt and cash and cash equivalents of $193.6 million. SFIX’s free cash flow totaled $21.9 million, reflecting positive free cash flow for the second consecutive quarter.
The company’s focus on cost management has also been proving beneficial. In the fiscal third quarter, its selling, general and administrative expenses declined 32.9% year over year to $192.7 million. Also, its advertising costs fell by 52.2% year over year. SFIX’s fiscal third-quarter adjusted EBITDA came in at $10.1 million, higher than $3.18 million reported in the previous quarter. Its cost management actions are likely to boost margins and profitability in the quarters ahead.
Despite the positives, the company has been grappling with a challenging operating landscape with several issues like rising interest rates, tepid consumer demand and recessionary concerns. The persistence of these factors might continue to affect its near-term performance.
Other Key Picks
Some other top-ranked stocks are Urban Outfitters, Inc. URBN, Abercrombie & Fitch Co. ANF and Arcos Dorados Holdings, Inc. ARCO. While Urban Outfitters and Abercrombie & Fitch sport a Zacks Rank #1 (Strong Buy), Arcos Dorados carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Urban Outfitters is a lifestyle specialty retailer that offers fashion apparel and accessories, footwear, home décor and gift products.
The Zacks Consensus Estimate for Urban Outfitters’ current financial-year sales and earnings per share suggests growth of 5.1% and 57.1%, respectively, from the corresponding year-ago reported figures. URBN has a trailing four-quarter earnings surprise of 12.2%, on average.
Abercrombie & Fitch operates as a specialty retailer of premium, high-quality casual apparel for men, women and kids.
The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales suggests growth of 3.4%. Its earnings per share are expected to rise 732% from the corresponding year-ago reported figures. ANF has a trailing four-quarter earnings surprise of 480.6%, on average.
Arcos Dorados operates as a franchisee of McDonald's restaurants. The Zacks Consensus Estimate for ARCO’s current financial-year sales and earnings per share suggests growth of 13.4% and 4.4%, respectively, from the corresponding year-ago reported figures. The company has a trailing four-quarter earnings surprise of 23.5%, on average.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Abercrombie & Fitch Company (ANF) : Free Stock Analysis Report
Urban Outfitters, Inc. (URBN) : Free Stock Analysis Report
Arcos Dorados Holdings Inc. (ARCO) : Free Stock Analysis Report
Stitch Fix, Inc. (SFIX) : Free Stock Analysis Report
