Stitch Fix (SFIX) Stock Gains On Q2 Earnings & Sales Beat

Shares of Stitch Fix, Inc. (NASDAQ:SFIX) gained almost 5% during the trading session on Mar 11, following better-than-expected second-quarter fiscal 2019 results, wherein both top and bottom lines improved year over year. Also, the company issued outlook for the fiscal third and fourth quarters alongside lifting guidance for fiscal 2019. These may have raised investor’s sentiment.

We note that this Zacks Rank #3 (Hold) stock has surged 31.8% in the past three months, significantly outperforming the industry’s growth of 0.5%.

Q2 Highlights

In the quarter under review, Stitch Fix’s adjusted earnings came in at 12 cents per share, which outpaced the Zacks Consensus Estimate of 5 cents. This was the fifth straight quarter of positive earnings surprise. Moreover, the bottom line soared almost six-folds from the prior-year quarter’s 2 cents.

Net revenues grew 25.1% to $370.3 million and surpassed the Zacks Consensus Estimate of $365 million. According to the company, this marks the sixth successive quarter of revenue growth of more than 20%. The uptick was driven by growth in Women’s, Men’s and Kids’ categories. Further, active client grew 18% to 3 million, while revenue per client improved 6% year over year on the back of robust performance in women’s category.

Gross profit increased 28.1% year over year to $163.1 million, while gross profit margin expanded roughly 110 basis points (bps) to 44.1%. Adjusted EBITDA came in at $19.2 million, up 5.3% from the year-ago quarter.

Meanwhile, operating income decreased 1.3% to $15.4 million in spite of increase in the top line. This may be attributed to rise in SG&A expenses. Also, operating margin contracted 110 bps to 4.2% during the quarter. We note that SG&A expenses were up 32.2% to $147.7 million in the quarter under review.

Other Financial Aspects

Stitch Fix ended the quarter with cash and cash equivalents of $167.5 million, long-term investments of $66.7 million and total shareholders’ equity of $353.3 million. Cash flow from operations amounted to $57.7 million in the first six months of fiscal 2019.

Stitch Fix, Inc. Price, Consensus and EPS Surprise

Outlook

For third-quarter fiscal 2019, management anticipates revenues of $388-$389 million, reflecting year-over-year growth of 22-26%. Adjusted EBITDA is envisioned to be negative $4 million to positive $1 million in the fiscal third quarter. This trend is expected to turn favorable in the fiscal fourth quarter. Adjusted EBITDA in the fourth quarter is expected in the band of $4-$9 million. For the final quarter, revenues are projected to be $410-$430 million, depicting growth of 29-35% year over year.

For fiscal 2019, the company now envisions revenue to be $1.53-$1.56 billion, reflecting year over year growth of 25-27%. This compares with its prior view of $1.49-$1.53 billion. Further, the company expects adjusted EBITDA to be $33-$43 million as compared to its prior view of $20-$40 million.

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