Apparel subscription service Stitch Fix Inc. SFIX reported above-consensus fiscal first-quarter results Monday that were at the high end of the company's guidance. Notably, revenue increased 24 percent year-over-year to $336 million and active clients grew 22.3 percent year-over-year to 2.93 million.
The Analysts
- Stifel analyst Scott W. Devitt maintained a Hold rating on Stitch Fix and lowered the price target from $30 to $28.
- Barclays analyst Ross Sandler maintained an Equal Weight and $26 price target.
- Wells Fargo analyst Ike Boruchow maintained a Market Perform and lowered the price target from $30 to $25.
Expanding Product Line, Market
Stitch Fix's specific and unique business model should provide long-term catalysts, as it remains the leader in subscription-based retail services, said Wells Fargo's Boruchow.
“As the company continues to grow sales and active users, its total addressable market is also expanding. While the women’s business remains the pillar of the SFIX business, as the company continues to enter new business segments, new target demographics are broadening their TAM and ultimate revenue opportunities.”
The retailer has added a new product category each year, and maternity, petite, men's plus size and kids options are now available, the analyst said.
“The company now has a product for everyone in the household, which should encourage incremental sales growth under the same roof; SFIX experienced some of this growth after adding its men’s category in homes where men and women lived together.”
On a near-term basis, Barclays' Sandler sees pressure on the stock as the result of key metrics and results in the quarter.
“Zooming out, SFIX is executing well and should continue to see stable low-20s top-line growth over the foreseeable future with steady gross margin expansion through efficiencies in the inventory supply channel, as well as improvements in automation/fulfillment.”
Future Growth
Stifel's Devitt remains encouraged by Stitch Fix’s execution in light of increased wallet share, improved satisfaction rates and cost efficiency advancements.
“The number of items purchased per fix among women’s clients reached a record level in Q1 due to improving personalization” the analyst said.
Stitch Fix is integrating automation at its Phoenix fulfillment center, which should lead to labor savings of 1.5 percent per fix, according to Stifel.
"Despite these ongoing improvements and our expectations for further efficiency gains over the coming quarters, we remain Hold-rated given the limited visibility into Stitch Fix's core, domestic active client growth over the intermediate term.”
Price Action
Stitch Fix shares were plunging 27.47 percent to $18.84 at the time of publication Tuesday.
Related Links:
Why Stitch Fix Uses Artificial Intelligence To Understand Consumer Habits
Photo courtesy of Stitch Fix.
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