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Stitch Fix (SFIX) Stock Declines Despite Q4 Earnings Beat

Zacks Equity Research

Stitch Fix, Inc. SFIX reported fourth-quarter fiscal 2019 results, wherein the bottom line surpassed the Zacks Consensus Estimate, while revenues came in line. Despite earnings beat, shares of this San Francisco, CL-based company failed to buoy investor optimism. We note that the stock plunged 10.8% on Oct 2, and is trading close to its 52-week low of $16.05.

The dismal run on the bourses can be attributed to management’s soft view for the first quarter and fiscal 2020. Further, the bottom line declined year over year.

Management now envisions first-quarter revenues in the band of $438-$442 million, indicating an improvement of 20-21% from the year-ago quarter. Meanwhile, the Zacks Consensus Estimate for the same is pegged at $451.3 million, higher than the guided range.

Moving on, fiscal 2020 revenues are estimated in the range of $1.9-$1.93 billion, suggesting year-over-year growth of 20.5-22.5%. However, the mid-point ($1.915 billion) of the projected range is marginally below the Zacks Consensus Estimate of $1.92 billion.

Meanwhile, this Zacks Rank #3 (Hold) stock has plunged 42.1% in the past three months compared with the industry’s decline of 12.2%.

Q4 Highlights

In the quarter under review, Stitch Fix’s adjusted earnings came in at 7 cents per share, which exceeded the Zacks Consensus Estimate of 4 cents. However, the bottom line decreased 58.8% from the prior-year period figure of 17 cents.

Notably, net revenues grew 36% to $432.1 million, which matched the Zacks Consensus Estimate. This marks the eighth successive quarter of revenue growth over 25% for the company. The uptick was driven by growth in Women’s, Men’s and Kids categories. Further, active client improved 18% to 3.2 million, while revenue per client increased 9% year over year on the back of robust performance in women’s category.

Gross profit increased 34.6% year over year to $190.4 million, however, gross margin contracted roughly 30 basis points to 44.1% owing to higher inventory level. Meanwhile, operating income fell to $1.8 million from $8.1 million reported in the year-ago period. Operating margin contracted 210 bps to 0.4% compared with 2.5% reported in the year-ago quarter.

Adjusted EBITDA came in at $6.4 million, down 42.4% from $11.1 million in the year-ago quarter. Moreover, SG&A improved 41.5% to $188.6 million in the quarter under review.

Other Financial Aspects

Stitch Fix ended the quarter with cash and cash equivalents of $170.9 million, long-term investments $53.4 million and total shareholders’ equity of $396 million. Cash flow from operations amounted to $78.6 million in fiscal 2019. The company generated free cash flow $47.8 million during the fiscal year.

Stitch Fix, Inc. Price, Consensus and EPS Surprise

Stitch Fix, Inc. Price, Consensus and EPS Surprise

Stitch Fix, Inc. price-consensus-eps-surprise-chart | Stitch Fix, Inc. Quote

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