Stitch Fix Earnings: Top Analyst Cautiously Optimistic Into Today’s Print

Online personal styling service Stitch Fix (SFIX) is gearing up to report its earnings today, after market close. Ahead of this key read-out, five-star RBC Capital Mark Mahaney has reiterated his buy rating on the stock, adding that he will adjust his current $23 price target post-print.

Based on model sensitivity work and intra-quarter data points, Mahaney believes FQ3 Street estimates are ballpark achievable. He also sees the Street’s FQ4 estimates (implying -1% Q/Q Revenue decline & a -4% EBITDA margin) as reasonable.

Specifically, Mahaney is looking for FQ3:20 revenue of $425M, coming in above the Street estimate of $418MM. Similarly, his EBITDA projection of ($13.2MM) is also above the Street at ($16.3MM). And while SFIX withdrew guidance on April 8 due to supply side disruptions, Mahaney expects the company to provide a limited FY20 outlook during the earnings call.

Key metrics for investors to look out for include the number of active clients and revenue per client, with Mahaney forecasting 3.5MM active clients, up 12% Y/Y and $501 in Annual Revenue per Client, up 7% Y/Y thanks to the continued momentum in Direct Buy. “Given the COVID disruption, we expect weaker new/infrequent client conversions and the UK rollout to continue be challenged” he wrote.

On the positive side, Google Search trends for Stitch Fix shows a neutral to slightly positive trend in the U.S., the analyst says, while UK displayed a more meaningful uptick into April and May. Encouragingly Ebay (EBAY) also recently disclosed 20% Y/Y GMV growth in April with strength even among discretionary categories like Fashion & Apparel.

Meanwhile SunTrust Robinson analyst Youssef Squali issues a more cautious note and warns that high short-term interest indicates a volatile set-up into the print. He is anticipating SFIX’s F3Q20 results to be shy of Street consensus driven by Covid-induced weakness in new/infrequent customers, and an estimated 2-week backlog from throughput constraints.

Nonetheless, Squali is ultimately retaining a positive stance on the stock, writing: “We remain bullish on the stock however, given SFIX’s strong competitive position in the structurally challenged Retail, robust unit economics, strong growth/margin potential in FY21 and beyond, and compelling valuation.”

Overall, SFIX shows a Moderate Buy Street consensus, with 9 recent buy ratings vs 6 hold ratings. However, the $21 average analyst price target now stands at 18% downside from the current share price. On a three-month basis, shares are trading up 9.5%. “With shares trading at 1x EV/Sales, we view sentiment as close to washed-out” RBC’s Mahaney writes. (See SFIX stock analysis on TipRanks).

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