Stitch Fix (SFIX) Crashes 20% on a Revenue and Guide Miss, Prompting a Downgrade

Stitch Fix (NASDAQ: SFIX) stock is down 22% in pre-open trading Tuesday after the online fashion company reported weaker-than-expected revenue for the quarter ended January 30.

The company reported a loss of $0.20 per share to top the $0.22 expected from the market analysts. Revenues missed the average analysts’ consensus of $512.2 million, by coming in at $504.1 million.

“This level of demand for our model of personalized discovery and radical convenience positions us well to continue to capture share amidst the ongoing shift in the retail landscape, and gives us confidence in our long-term opportunity,” founder and CEO of Stitch Fix, Katrina Lake, said in a statement.

“The fundamentals of our business are strong, we continue to expand our service in innovative new ways, and we are excited to continue to deliver on our strategy,” she added.

The fashion business blamed shipping delays over the holiday season for weaker revenue. It added 110,000 new active clients to now service around 3.9 million clients globally.

SFIX also missed on the guidance front. Net sales are projected to come between $505 million and $515 million for the quarter. For the full year, revenues are expected to soar between 18% and 20%, which is downgraded guidance compared to 20% to 25% announced earlier. The market consensus in this area was 22.6%.

Following a miss on revenues and FY guidance, Deutsche Bank analyst Kunal Madhukar downgraded the stock to “Hold” from “Buy,” while the price target is left unchanged at $54.00 per share.

Madhukar mentions “potential near term headwinds associated with macro trends and slower growth in revenue per client,” and a “delay in rolling out Direct Buy to non-subscribers” as key reasons behind the downgrade.

“Nevertheless, we do believe that longer-term, Direct Buy and the company's widening breadth of services for clients (i.e., live styling) can unlock more value for consumers and shareholders. That said, we think the relative pace of growth in the near term may be slower than investors previously anticipated and we expect the company to continue investing into the business as they look to round out segment/ product performance and retain/grow their active clients coming out of COVID,” analyst said in today’s note sent to clients.

“We also see a risk in the near term with the supply chain challenges that resulted in reducing gross margins by 190bps during F2Q21 and are expected to persist in the subsequent quarters. Coming out of the print, we revise our estimates downward, noting that Street and our estimates are coming down a sizeable amount for F3Q21 and we print numbers for the quarter and year in line with the updated guidance,” he added.

On the contrary, Needham & Company analyst Rick Patel maintained a “Buy” rating on SFIX and even raised the PT to $60.00 per share from the prior $54.00 on strong client growth.

“Despite the challenges, we see reasons to be optimistic: women’s First Fix growth was the highest in five years, Fix Preview was a success in the U.K. (higher conversion and 10% increase in AOV) and will be rolled out to the U.S., revenue per active client will see easier comparisons in F2H, and Direct Buy penetration is growing and benefiting client lifetime value. Net, we acknowledge headwinds, but see more pros than cons and maintain our Buy,” Patel wrote in today’s note.

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