Stitch Fix Stock Jumps on Strong Quarterly Results

Shares of Stitch Fix (NASDAQ: SFIX) jumped on Tuesday after the company reported blockbuster quarterly results for the fiscal third quarter. The figures beat Wall Street’s expectations, and Stitch Fix offered investors an optimistic outlook going forward.

This was the first earnings release since CEO and founder Katrina Lake announced that she was stepping down as CEO and handing the reins to Elizabeth Spaulding, who will become chief executive officer effective Aug. 1.

As of 12:20 p.m. EDT, the stock was up 11%.

People are buying clothes again

Total revenue in the fiscal third quarter increased 44% to $535.6 million, easily beating the consensus estimate of $510.8 million in sales. That resulted in a net loss of $18.8 million, or $0.18 per share, which was better than the $0.26 per share in red ink analysts were modeling for. Adjusted EBITDA came in at $11.6 million.

Active clients jumped 20% to 4.1 million, with Stitch Fix bringing in net revenue per active client of $481. The company said that strong demand for its Fix service resulted in the second highest client additions ever on a sequential basis. Stitch Fix said that it added 234,000 clients during the quarter.

Stitch Fix recently launched a Shop by Category feature that helps existing clients browse by specific departments, brands, or trends, with the algorithmically powered platform providing personalized recommendations.

“Over the last decade, we’ve delighted millions of clients and formed lasting relationships and feedback loops that underpin our unrivaled personalization capability,” Lake commented on the conference call with analysts. “Our radically different client experience is built on getting to know every client and gathering feedback around their detailed preferences, resulting in our rich and highly differentiated data model.”

Stitch Fix has been adversely impacted by the COVID-19 pandemic, although not as badly as brick-and-mortar apparel retailers. Apparel demand was weak throughout 2020, as people don’t buy clothes as frequently when they’re staying at home. Conditions are improving as the United States makes progress in battling the virus.

“With vaccination rates increasing and COVID restrictions easing, we are seeing the overall market for apparel beginning to rebound as more consumers can leave their homes to eat out, attend social gatherings and return to the office,” Spaulding said.

Looking ahead

Guidance for the fiscal fourth quarter also came in strong, with revenue forecast in the range of $540 million to $550 million. Compare that outlook to the $534.7 million in sales that analysts are expecting this quarter. That should result in adjusted EBITDA of $15 million to $20 million and bring revenue for fiscal 2021 to $2.07 billion to $2.08 billion.

Stitch Fix reiterated its long-term financial targets for several key metrics:

MetricLong-Term Target
Gross margin45% to 46%
Advertising expenses as a % of revenue9% to 11%
Operating margin10% to 12%
Adjusted EBITDA margin11% to 13%
Data source: Stitch Fix

The incoming chief executive added that Stitch Fix has been aggressively hiring stylists over the past year to continue differentiating the company from the competition, and those employees play a critical role in training Stitch Fix’s machine learning models.

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Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Stitch Fix. Millennial Money is part of The Motley Fool network. Millennial Money has a disclosure policy.

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