Market Overview

Stifel Stays Neutral After Stitch Fix's Q3 Beat

Stifel Stays Neutral After Stitch Fix's Q3 Beat

Stitch Fix Inc (NASDAQ: SFIX) reported Thursday afternoon with fiscal third-quarter earnings that beat expectations — but the results weren't compelling enough to turn Stifel bullish on the stock.

The Analyst

Stifel's Scott Devitt maintains a Hold rating on Stitch Fix's stock with a price target lifted from $25 to $26.

The Thesis

Stitch Fix's Q3 report was highlighted by a 29-percent increase in revenue to $317 million, which beat both consensus estimates and Stitch Fix's guidance, Devitt said in a Friday note. Active customers in the quarter rose 29.6 percent and 180,000 net active clients were added.

Revenue per client was nearly flat in the quarter, which does mark an improvement from a 4.7-percent year-over-year decline in the prior quarter, the analyst said. Yet revenue per client on an annual basis was down 2.5 percent year-over-year due to an expansion into the mens and plus-sized categories and lower price point products, he said. 

While the key sales metric is likely to fall in the coming quarters after Stitch Fix announced an expansion into kids, it will be partially offset by "Style Pass" and "Extras," Devitt said. Nevertheless, an expansion into kids is a "natural extension" of the business, as more than 50 percent of current customers have at least one child, the analyst said. 

The Q3 print shows management is executing well in running a public company, and investments in its business will grow the addressable market, even at the expense of near-term metrics, the analyst said. Stitch Fix continues to focus on generating operational efficiencies through automation and proprietary data analytics and enhancing its core platform to generate increased engagement, he said. 

Stifel's $26 price target is based on a discounted cash flow model that assumes a 3.5-percent terminal growth rate and 12-percent discount rate.

Price Action

Stitch Fix shares were rallying 8 percent off the open at the time of publication Friday. 

Related Links:

Stitch Fix's 'Unique' Business Model Isn't Enough To Make Buckingham A Bull

William Blair Remains Bullish On Stitch Fix After Q2 Earnings Beat, Client Growth

Photo courtesy of Stitch Fix. 

Latest Ratings for SFIX

Oct 2019Initiates Coverage OnOutperform
Oct 2019Initiates Coverage OnOutperform
Oct 2019MaintainsOutperform

View More Analyst Ratings for SFIX
View the Latest Analyst Ratings

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