Stitch Fix (SFIX) 1st Quarter Earnings: What to Expect
Things can certainly unravel quickly in today’s stock market. But amid the distress, there’s often opportunities to buy good companies at extreme discounted prices. And I believe Stitch Fix (SFIX) falls into this category.
Stitch Fix is set to report first quarter fiscal 2019 earnings results after the closing bell Monday. And my use of the word “unravel” in the intro was purposeful in describing the year experienced by the online subscription and personal styling company, which in recent months saw its shares slashed in half. One of the hottest IPOs in 2017, Stitch Fix shares surged during the summer of 2018, peaking some roughly 240% above the company’s IPO price. The stock, however, is now some 50% below its 52-week high of $52.44.
Competitive pressures from the likes of Amazon (AMZN) has been cited as reasons why investors have exited their positions. On Monday Stitch Fix CEO Katrina Lake, who has done a solid job growing the company’s active clients base, must convince a skeptical analyst community that the subscription fashion retailer can be profitable. To the extent she can deliver this message, Stitch Fix, I believe, presents a buying opportunity for long-term investors.
For the three months that ended October, Wall Street expects the San Francisco-based company to earn 3 cents per share on revenue of $357.97 million. This compares to the year-ago quarter when earnings came to 4 cents per share on revenue of $295.56 million. For the full year, ending August 2019, earnings are projected to be 22 cents per share, while full-year revenue is projected to rise 23% year over year to $1.51 billion.
Investors were not particularly pleased with how the company ended its fiscal 2018. This is despite the company delivering on many of its stated objectives. Not only did fourth quarter revenue, which rose 23% year over year to $318 million, came in near the top of management’s guidance, the company also delivered adjusted EBITDA of $11.1 million, which beat Wall Street estimates.
The quarter was nonetheless seen as a “disappointment.” Why? Because revenue growth had decelerated from Q3’s 30% growth, while adjusted EBITDA of $12.4 million was also higher. What investors should continue to focus on, however, is that in Stitch Fix — thanks to its collection of extensive data — is already profitable and should not be seen as merely a clothing retailer.
The company’s personalization algorithm, which is improving over time based on consumer feedback, will give it a strong advantage over its competitors. With almost 3 million active customer data being collected, which can be leveraged in new segments, this gives the company various options into new revenue streams beyond years its specialties such as shoes, accessories, and tailoring clothing for harder-to-find sizes.
All told, Stitch Fix can certainly fix what doubters and momentum traders, who focus on a quarter-to-quarter performance basis, are unable to see. Long-term investors, meanwhile, who see the big picture should use the recent decline in share price as a buying opportunity to add to existing positions or establish new ones.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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