What Happened:
Shares of personalized clothing company Stitch Fix (NASDAQ:SFIX) jumped 36.5% in the morning session after the company announced first-quarter results that blew past analysts' revenue and adjusted EBITDA expectations. Guidance also came in strong as its full-year revenue and adjusted EBITDA guidance came in higher than Wall Street's estimates. On the other hand, its number of active clients unfortunately missed. Despite the decline in customers, sales benefitted from improved monetization as net revenue per active client came in at $525, up 2% year-over-year. Zooming out, we think this was an impressive quarter that should delight shareholders.
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What is the market telling us:
Stitch Fix's shares are very volatile and over the last year have had 64 moves greater than 5%. But moves this big are very rare even for Stitch Fix and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was 3 months ago, when the stock dropped 17.7% on the news that the company reported second-quarter results that missed analysts' revenue estimates. The weak topline performance was impacted by a decline in active clients, which fell below expectations ( -17% year on year). Revenue per active client also came in weak (-3% year over year).
The bigger concern is the underwhelming guidance as the company lowered full-year revenue and adjusted EBITDA guidance. FY'24 revenue is expected to come in at $1.29 billion - $1.32 billion (vs. previous guidance of $1.30 billion - $1.37 billion), and adjusted EBITDA is expected to be within $10 million - $20 million ( vs. previous expectation for $10 million - $30 million). Management attributed the reduced growth outlook to "the current trends we are seeing in active clients." The company also noted it had stopped operations in the UK, which reduced its footprint.
Lastly, Stitch Fix continued to burn cash, and its key profitability metrics, including EPS, EBITDA, and operating income, were much worse than expected during the quarter. Overall, the results were weak. With the results and the stock move, there are surely questions about the long-term viability of the business and long-term product-market fit for the core product.
Stitch Fix is down 4.8% since the beginning of the year, and at $3.40 per share it is trading 33.6% below its 52-week high of $5.11 from July 2023. Investors who bought $1,000 worth of Stitch Fix's shares 5 years ago would now be looking at an investment worth $144.62.
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