Stitch Fix (SFIX)

Personalized clothing company Stitch Fix (NASDAQ:SFIX) reported Q4 CY2024 results exceeding the market’s revenue expectations, but sales fell by 5.5% year on year to $312.1 million. On top of that, next quarter’s revenue guidance ($313.5 million at the midpoint) was surprisingly good and 12.5% above what analysts were expecting. Its GAAP loss of $0.05 per share was 55.4% above analysts’ consensus estimates.

Company Overview

One of the original subscription box companies, Stitch Fix (NASDAQ:SFIX) is an online personal styling and fashion service that curates personalized clothing selections for customers.

Thanks to social media and the internet, not only are styles changing more frequently today than in decades past but also consumers are shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some apparel and accessories companies have made concerted efforts to adapt while those who are slower to move may fall behind.

Stitch Fix’s competitors are Trunk Club (owned by Nordstrom, NYSE:JWN), Amazon Prime Wardrobe (NASDAQ:AMZN), and private companies Wantable and Le Tote.

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Stitch Fix struggled to consistently generate demand over the last five years as its sales dropped at a 6% annual rate. This wasn’t a great result and is a sign of poor business quality.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Stitch Fix’s recent history shows its demand remained suppressed as its revenue has declined by 16.3% annually over the last two years.

Stitch Fix also discloses its number of active clients, which reached 2.37 million in the latest quarter. Over the last two years, Stitch Fix’s active clients averaged 17.4% year-on-year declines. Because this number aligns with its revenue growth during the same period, we can see the company’s monetization was fairly consistent.

This quarter, Stitch Fix’s revenue fell by 5.5% year on year to $312.1 million but beat Wall Street’s estimates by 4.4%. Company management is currently guiding for a 2.9% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to decline by 5.7% over the next 12 months. While this projection is better than its two-year trend, it's hard to get excited about a company that is struggling with demand.

Stitch Fix’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging negative 7.2% over the last two years. Unprofitable consumer discretionary companies that fail to improve their losses or grow sales rapidly deserve extra scrutiny. For the time being, it’s unclear if Stitch Fix’s business model is sustainable.

Stitch Fix’s operating margin was negative 2.9% this quarter. The company's consistent lack of profits raise a flag.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for Stitch Fix, its EPS declined by 34.1% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.

In Q4, Stitch Fix reported EPS at negative $0.05, up from negative $0.30 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street is optimistic. Analysts forecast Stitch Fix’s full-year EPS of negative $0.58 will reach break even.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Stitch Fix has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.8%, lousy for a consumer discretionary business.

Stitch Fix burned through $19.44 million of cash in Q4, equivalent to a negative 6.2% margin. The company’s cash burn was similar to its $26.07 million of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, indicating it is a seasonal business that must build up inventory during certain quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Stitch Fix’s five-year average ROIC was negative 40.6%, meaning management lost money while trying to expand the business. Its returns were among the worst in the consumer discretionary sector.

Companies with more cash than debt have lower bankruptcy risk.

Stitch Fix is a well-capitalized company with $219.1 million of cash and $85.34 million of debt on its balance sheet. This $133.8 million net cash position is 25.5% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was great to see Stitch Fix upgrade its full-year revenue and EBITDA guidance this quarter. We were also excited its revenue, EPS, and EBITDA outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this "beat-and-raise" quarter featured some important positives. The stock traded up 18.2% to $4.99 immediately after reporting.

Updated: May 19, 2025 at 10:29 PM EDT

When considering an investment in Stitch Fix, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

Stitch Fix falls short of our quality standards. To kick things off, its revenue has declined over the last five years. On top of that, Stitch Fix’s number of active clients has disappointed, and its declining EPS over the last five years makes it a less attractive asset to the public markets.

Stitch Fix’s EV-to-EBITDA ratio based on the next 12 months is 15x. This valuation tells us a lot of optimism is priced in - you can find better investment opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $4.30 on the company (compared to the current share price of $4.20).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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