Stitch Fix (SFIX) Beats On Q1 Earnings & Revenues, Stock Gains

Shares of Stitch Fix, Inc. (NASDAQ:SFIX) rallied roughly 12% during the after-market trading session on Dec 9. The stock received a boost, following the company’s better-than-expected results in first-quarter fiscal 2020. This was the fifth straight quarter of positive earnings and sales surprises.

Results were backed by gains from the direct-buy initiative and active client growth. Although its top line continued to improve year over year, the bottom line fell from the year-ago period.

Encouragingly, shares of the Zacks Rank #3 (Hold) company have gained 14.7% in the past three months against the industry’s decline of 2%.

Q1 in Detail

Stitch Fix reported break-even results, comparing favorably with the Zacks Consensus Estimate of a loss of 6 cents. Notably, the company reported earnings of 10 cents in the prior-year quarter. An increase in cost of goods sold and higher SG&A expenses might have resulted in the year-over-year decline in its bottom line.

Meanwhile, the company recorded sales of $444.8 million, reflecting 21% year-over-year rise, backed by increases in women’s and men’s active clients. Also, the figure surpassed the Zacks Consensus Estimate of $441 million.

Stitch Fix now has 3.4 million clients, up 16.6% from the prior-year period. Also, revenue per active client rose 9.5% year over year, recording the sixth successive quarter of growth. Moreover, its direct-buy initiative, wherein customers can directly select and buy items from the company’s website or app, is performing well.

In the fiscal first quarter, gross profit increased 22% to $201.3 million, while gross margin expanded 20 basis points (bps) to 45.3%. Gross margin expansion was driven by lower merchandise costs and improved operational efficiencies, partly offset by rise in inventory level.

Stitch Fix’s operating income was $160,000, down from $10.9 million reported in the year-ago period. Its SG&A expenses rose 30% to $201.1 million. As a percentage of sales, SG&A expenses increased 310 bps to 45.2%.

Other Financial Aspects

The company ended the reported quarter with cash and cash equivalents of $151.8 million, and shareholders’ equity of $408.6 million. Also, it generated free cash flow of approximately $20 million. Free cash flow is expected to remain positive in fiscal 2020.

Stitch Fix, Inc. Price, Consensus and EPS Surprise

Guidance

Management issued guidance for second-quarter fiscal 2020. The company anticipates net sales of $447-$455 million, suggesting 21-23% growth from the prior-year period’s reported figure. The projection reflects year-over-year active client growth almost in line with 17% registered in the quarter under review as well as sustained growth in revenue per client. Further, it anticipates adjusted EBITDA of $10-$15 million for the quarter.

For fiscal 2020, management continues to project net sales of $1.9-$1.93 billion, suggesting a year-over-year increase of 20-22.5%. Moreover, it expects adjusted EBITDA of $18-$32 million.

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