Why Stitch Fix (SFIX) Shares Are Plunging Today
What Happened:
Shares of personalized clothing company Stitch Fix (NASDAQ:SFIX) fell 17.7% in the morning session after the company reported second-quarter results that missed analysts' revenue estimates. The weak topline performance was impacted by a decline in active clients, which fell below expectations ( -17% year on year). Revenue per active client also came in weak (-3% year over year).
The bigger concern is the underwhelming guidance as the company lowered full-year revenue and adjusted EBITDA guidance. FY'24 revenue is expected to come in at $1.29 billion - $1.32 billion (vs. previous guidance of $1.30 billion - $1.37 billion), and adjusted EBITDA is expected to be within $10 million - $20 million ( vs. previous expectation for $10 million - $30 million). Management attributed the reduced growth outlook to "the current trends we are seeing in active clients." The company also noted it had stopped operations in the UK, which reduced its footprint.
Lastly, Stitch Fix continued to burn cash, and its key profitability metrics, including EPS, EBITDA, and operating income, were much worse than expected during the quarter. Overall, the results were weak.With the results and the stock move, there are surely questions about the long-term viability of the business and long-term product-market fit for the core product.
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What is the market telling us:
Stitch Fix's shares are very volatile and over the last year have had 74 moves greater than 5%. But moves this big are very rare even for Stitch Fix and that is indicating to us that this news had a significant impact on the market's perception of the business.
Stitch Fix is down 27.4% since the beginning of the year, and at $2.61 per share it is trading 51.8% below its 52-week high of $5.42 from March 2023. Investors who bought $1,000 worth of Stitch Fix's shares 5 years ago would now be looking at an investment worth $91.94.
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