Stock Update: Stitch Fix
SFIX really is tearing at the seams…
Good morning, investors!
Today, we’ve got a stock update for you: Stitch Fix.
If this is your first time with us, feel free to subscribe here. If you enjoy today’s newsletter, please hit the heart button at the end of the report.
Without further ado…
Stitch Fix (SFIX)
In our August Due Diligence report of Stitch Fix, we asked a playfully worded but semi-serious question:
Is Stich Fix tearing at the seams?
Well, it certainly seems like it is based on its share price performance over the last four months.
Since August 20, shares of SFIX are down 54%. Woof.
Let’s start with the good (because, believe it or not, there is some good news).
September: Within the company’s Q4 earnings release (its fiscal year ends in July), it announced that net revenue increased 29% to $571.2 million; active clients increased 18% year-over-year to 4,165,000. On top of that, earnings exceeded expectations — SFIX even reported a profit in its final quarter of 2021.
September: Stitch Fix announced an upgrade to its direct buy platform features, launching Freestyle. In case you don’t recall, Stitch Fix became renowned for its “Fixes,” which are essentially mystery boxes of apparel that are periodically delivered to customers. However, it has since dipped its toes into more conventional retail, offering on-demand shopping options through its website or app (without the mystery).
December: The company’s 1Q22 earnings release also shed light on some positive results. Net revenue was up 19% year-over-year to $581.2 million, while active clients were up 11% to 4,180,000. Compared to Q4 of 2021, obviously, these numbers aren’t nearly as impressive. But it was still positive growth. (Again, earnings surprised analysts.)
But good news doesn’t matter if it isn’t perceived as good enough. And, of course, investors are forward-looking, concerning themselves with future performance rather than recent results.
That’s why shares promptly tanked by 27% after Stitch Fix reported 1Q results — and revised its general guidance for FY22. In September, management expected FY22 revenue to increase by 15% or more year-over-year. By early December, management was less optimistic, downgrading their already vague guidance to “the high single digits.”
CEO Elizabeth Spaulding attributed the revision to (1) reduced marketing spend (meaning less new clients) while the company optimizes its new Freestyle feature and (2) supply chain issues:
While we continue to add selection throughout the quarter, we did experience delays in receipts primarily due to shipping delays in the global supply chain. We are currently experiencing delays from one to four weeks, and we expect these delays to continue in Q2 and beyond.
No one is safe from the pandemic’s ongoing supply chain issues.
Naturally, Wall Street has significantly lowered its consensus price target for SFIX, which now registers at $25. It was $62 in August.
Thanks for reading. Don’t forget to hit the heart button if you enjoyed today’s report.
If you haven’t subscribed already, you can do so here.