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Why Is Stitch Fix (SFIX) Down 5.3% Since Last Earnings Report?

Zacks Equity Research
·4-min read

A month has gone by since the last earnings report for Stitch Fix (SFIX). Shares have lost about 5.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Stitch Fix due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Stitch Fix Q2 Loss Widens & Revenues Decrease Y/Y

Stitch Fix, Inc.  posted dismal second-quarter fiscal 2023 results. SFIX reported a wider-than-expected loss per share and lower-than-expected revenues. Both metrics also deteriorated from the year-earlier quarter’s reported figures. Results were hurt by a tough macroeconomic backdrop and tighter consumer wallet.

Q2 Details

Stitch Fix posted a loss of 58 cents a share, which included restructuring cost and other one-time cost. Adjusting for the above-mentioned costs, Stitch Fix reported adjusted loss of 34 cents a share, wider than the Zacks Consensus Estimate of a loss of 33 cents. The bottom line widened year over year from a loss of 28 cents per share.

SFIX recorded net revenues of $412.1 million which was in line with the Zacks Consensus Estimate. The metric declined 20% from the year-ago fiscal quarter’s figure due to lower net active clients and higher promotional activity.

Margins & Costs

In the fiscal second quarter, gross profit declined to $169.1 million from $232.8 million reported in the year-ago period. Also, the gross margin contracted 400 basis points year over year to 41% mainly due to increased promotional activity and higher product cost.

Selling, general and administrative expenses fell from $263.5 million reported in the year-ago period to $235.8 million in the fiscal second quarter. Stitch Fix reported an adjusted EBITDA of $3.8 million for the fiscal quarter under review compared with the adjusted EBITDA of $10.1 million posted in the year-ago fiscal quarter. The company’s total advertisement spend declined 46% year over year to 5% in the fiscal second quarter.

Other Financial Aspects

Stitch Fix ended the fiscal second quarter with cash and cash equivalents, including short term investments of $222 million, net inventory of $159 million and shareholders’ equity of $255.3 million.

SFIX generated $11 million in cash from operating activities during the second quarter of fiscal 2023. Also, the company had a free cash flow of $15.4 million in the aforementioned period.

Outlook

For the third quarter of fiscal 2023, management projects net revenues of $385-$395 million, indicating a 20-22% decline from the year-ago fiscal quarter’s reported figure. This is due to challenges faced in the highly promotional operating environment. Stitch Fix expects adjusted EBITDA in the bracket of a negative $5 million to a positive $5 million with a margin of minus 1% to plus 1%.

For fiscal 2023, management projects revenues between $1.625 billion and $1.645 billion and adjusted EBITDA between breakeven to a positive $10 million. Management anticipates a gross margin of 42% for fiscal 2023. For the rest of the fiscal year, advertising is likely to be approximately 6-7% of revenues. The company is in line to achieve its target of $135 million in cost reduction in fiscal 2023.

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How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

At this time, Stitch Fix has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Stitch Fix has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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