This story originally appeared on Zacks
Actions of Stitch Fix, Inc. SFIX plummeted nearly 18% in after-hours trading on December 7 despite a lower-than-expected loss per share reported for the first quarter of fiscal 2022. However, the top line exceeded the Consensus Estimate of Zacks and got better year after year. Strong business performance in women, children and the UK, as well as strong earnings in Freestyle, helped overall results.
The bottom line for this San Francisco, CA-based company compared unfavorably to the figure reported the previous year. During the quarter, SFIX witnessed receipt delays due to shipping delays in the global supply chain. Additionally, Stitch Fix has experienced delays ranging from one to four weeks and anticipates further delays in the second fiscal quarter and beyond. This, coupled with a soft income outlook for the same period, which lagged analysts’ projection, weighed on investor sentiment.
For the second quarter of fiscal 2022, Stitch Fix expects net income in the range of $ 505- $ 520 million, suggesting 0-3% growth over the figure reported for the prior year period. This view fell short of Zacks’ current consensus estimate of $ 590.7 million.
Shares of this currently Zacks Rank # 4 (Sell) Stitch Fix are down 21.2% in the last three months versus a 7.9% rise in the industry.
First quarter details
Stitch Fix posted a loss of 2 cents a share, narrower than the Zacks consensus estimate of a loss of 13 cents. SFIX posted a profit of 9 cents for each quarter of the prior year.
SFIX posted net income of $ 581.2 million, reflecting a 19% increase over the prior year quarter figure. The metric also beat the Zacks consensus estimate of $ 572.3 million. Continued strength in the women’s, children’s and UK businesses, as well as expansion in freestyle capacity, boosted front-line performance.
Stitch Fix posted 40% year-over-year net income growth for Freestyle. Management witnessed increased penetration quarter over quarter with gains in both Fixes and Freestyle. SFIX seeks to capture more shopping opportunities through Freestyle and product categories such as footwear, dresses, outerwear, accessories, sleepwear, and loungewear. Notably, the footwear, accessories, and apparel categories together posted an increase of more than 50% over the prior-year period count in Freestyle.
Stitch Fix is witnessing a steady growth in the Fix offering, benefiting from Fix Preview. Fix Preview is currently rolling out to the US and UK male and female customer populations. Constant innovations with Fix Preview are driving higher average order value
Management has been improving and expanding SFIX custom shopping for a while now, offering through Freestyle. Stitch Fix featured more than 20 brands, primarily Adidas, DKNY, Vans, and Rag & Bone Footwear. It also launched product lines as the beneficiaries of the Elevate Black and Mohnton Made proprietary brand.
Stitch Fix has 4,180,000 active customers as of October 30, 2021, 11% more than the prior-year quarter level. Net revenue per active customer increased nearly 12% year-over-year to $ 524, topping $ 500 for the second time in a row.
In the first fiscal quarter, gross profit increased 24.3% to $ 272.9 million and gross margin increased 220 basis points (bps) to 47%. Gross margins reached an all-time high thanks to increased product margins and shipping cost optimizations.
Selling, general and administrative (SG&A) expenses increased 15% to $ 274.8 million. Stitch Fix reported Adjusted EBITDA of $ 38.2 million in the quarter under review, significantly higher than Adjusted EBITDA of $ 6.9 million reported in the prior year quarter. The advantage was driven by higher revenues coupled with strong gross margins on higher product margins and efficiency in marketing spending.
Other financial aspects
Stitch Fix ended the quarter with cash and cash equivalents of $ 249.8 million less debt and equity of $ 478.6 million.
SFIX generated $ 141.7 million in cash from operating activities during the first quarter of fiscal 2022. Additionally, it reported free cash flow of $ 125.3 million for the same period.
During fiscal 2022, the administration intends to add more than 50 brands and continue to test products to generate traffic. Moving forward, Stitch Fix focuses on three priority areas with regard to Freestyle development. These areas are improving customer experience and technology, as well as developing marketing activation channels for new customer growth. Management has been enriching the customer experience with enhancements to product features and an expanded inventory selection.
For the second quarter of fiscal 2022, Stitch Fix expects Adjusted EBITDA in the range of negative $ 5 million to positive $ 5 million with a margin of between 1% and 1% more. SFIX posted an adjusted EBITDA loss of $ 8.9 million in the prior year quarter.
For fiscal year 2022, management projects an increase in net income at a high single-digit rate over the prior fiscal year reported figure and an adjusted EBITDA margin of 1-2%. During fiscal 2021, Stitch Fix generated net revenue of $ 2.1 billion and an Adjusted EBITDA margin of 3.9%.
Hot stocks in retail
Some top-ranked stocks are Boot Barn Holdings BOOT, Tractor supply company TSCO and objective TGT.
Boot Barn Holdings, a lifestyle retailer of Western and work-related footwear, apparel and accessories, currently has a Zacks # 1 (Strong Buy) rank. The stock is up 174.1% so far this year. You can see today’s complete list of Zacks # 1 rank stocks here.
Zacks Consensus Estimate for Current Financial Year Sales and Earnings Per Share (EPS) for Boot Barn Holdings suggests growth of 54.4% and 183.3%, respectively, over corresponding figures for the period from the previous year. BOOT has a surprise four-quarter earnings of 35.3%, on average.
Tractor Supply Company, a rural lifestyle retailer in the United States, currently boasts a Zacks Rank of 1. TSCO has a surprise four-quarter earnings of 22.8%, on average. TSCO’s shares are up 62.9% to date.
The Zacks Consensus Estimate for Current Year Sales and Tractor Supply Company EPS suggests growth of 19% and 23.9%, respectively, over corresponding readings for the prior year period. TSCO has an expected EPS growth rate of 9.6% over three to five years.
Target, a reputable omnichannel retailer, currently has a Zacks # 2 (Shop) Rank. TGT has a surprise earnings in the four quarters of 19.7%, on average. The stock has recovered 42.2% in the year-to-date period.
The Zacks Consensus Estimate for Target’s current-year sales and EPS suggests growth of 14% and 39.6%, respectively, from corresponding levels in the prior-year period. TGT has an expected EPS growth rate of 14.4% over three to five years.
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