Stitch Fix Plummets 22% In Pre-Market On Softer FY21 Revenue Outlook


Shares of Stitch Fix were down about 22% in Tuesday’s pre-market session after the online personal styling service lowered its revenue outlook for fiscal 2021 (ending July 2021).

Meanwhile, the company reported 2Q revenues that fell short of analysts’ expectations, while the company’s 2Q loss was narrower than the Street’s expectations.

Stitch Fix (SFIX) reported 2Q revenues of $504.1 million that missed the consensus estimates of $512.2 million, due to shipping delays. The company said that “revenue for the quarter was impacted both by increased cycle times for Fixes, which are largely related to carrier and client delays, as well as direct buy softer than anticipated performance during the holiday period.”

However, the top-line grew 12% year-over-year. Active client count also rose 12% to about 3.9 million, but net revenue per active client declined 7% year-over-year.

Furthermore, the company reported a loss of $0.20 per share, compared with earnings of $0.11 per share in the year-ago period. Analysts were expecting a 2Q loss of $0.22 per share. Gross margins declined 190 basis points to 42.9%, driven by increased shipping expenses and higher inventory reserves.

Adjusted EBITDA loss was $8.9 million in 2Q, compared with the year-ago period’s EBITDA of $30.1 million. Lower EBITDA reflected higher shipping costs and investments in people and operations.

Looking ahead, the company said, “we saw a longer cycle times in Q2 that persisted in February that we believe could impact revenue in the second half of the year.”

For 3Q, Stitch Fix expects to report net sales in the range of $505-$515 million, which represents year-over-year growth of 36% to 39%. For fiscal 2021, the company expects revenues to grow in the range of 18% to 20%, down from its prior growth outlook of 20% to 25%. Analysts expect revenue growth of 22.6% for FY21. (See Stitch Fix stock analysis on TipRanks).

Following the results, Stifel Nicolaus analyst Lamont Williams lowered the stock’s price target to $55 (19.7% downside potential) from $83. In a note to investors, the analyst said, “Longer cycle times for Fixes (due partially to shipping carrier delays), weaker than expected direct buy performance during the holidays, and a slower recovery in the men’s business led to the F2Q revenue shortfall.” He added, “The continued impact of longer cycle times, the later roll out of direct buy for new clients, and continued COVID uncertainty caused Stitch Fix to lower F2H guidance.”

Despite the challenges, Williams maintained a Hold rating on the stock. He said, “we note the company’s long term strategic investment initiatives including (1) enhancements to the Fix offering with previews and live styling (2) continued development of direct buy (3) UK growth and (4) implementation of various inventory models are all showing promising initial results.”

Overall, the rest of the Street has a cautiously optimistic outlook on the stock, with a Moderate Buy consensus rating based on 4 Buys and 6 Holds. The average analyst price target of $59.30 implies downside potential of about 13.5% to current levels. Shares have gained over 200% over the past year.

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