KeyBanc On Stitch Fix: Direct Buy Will Be Important Long-Term Growth Driver

Although Stitch Fix Inc’s SFIX new Direct Buy initiative is still in its nascent stages, it would allow consumers to engage beyond the traditional format and drive incremental sales, according to KeyBanc Capital Markets.

The Analyst

KeyBanc’s Edward Yruma maintained an Overweight rating on Stitch Fix with a price target of $34.

The Thesis

Stitch Fix seems to have achieved the right balance between growth and profitability, while the Direct Buy initiative could become an important driver of long-term growth, Yruma said in the note.

Although Direct Buy could eat into Fix format revenues to some extent, ultimately it would drive sales higher and could become a significant contributor to total revenue, the analyst said. He explained that Direct Buy would drive engagement and purchases during periods between fixes and should also help target customers who do not want to shop in the traditional Fix format.

Meanwhile, Stitch Fix continues to widen its competitive gap in data analytics versus traditional apparel retailers, Yruma mentioned. He further wrote, “Inventory reserves for obsolescence continue to decline, which is particularly impressive given the overall softness in the apparel retailing environment.”

The Men’s segment should continue to generate margin expansion with distribution efficiencies, the analyst said. He added that ongoing disruption in the kid’s apparel space represents an opportunity for Stitch Fix to gain market share in the medium term.

Price Action

Shares of Stitch Fix had spiked 6% to $19.93 at the time of publishing on Friday.

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