Stitch Fix (SFIX)

Personalized clothing company Stitch Fix (NASDAQ:SFIX) reported Q1 CY2025 results beating Wall Street’s revenue expectations, but sales were flat year on year at $325 million. On top of that, next quarter’s revenue guidance ($300.5 million at the midpoint) was surprisingly good and 4.3% above what analysts were expecting. Its GAAP loss of $0.06 per share was 45% 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.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Stitch Fix struggled to consistently generate demand over the last five years as its sales dropped at a 5.6% annual rate. This was below our standards and suggests it’s a low quality business.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Stitch Fix’s recent performance shows its demand remained suppressed as its revenue has declined by 13.6% annually over the last two years.

Stitch Fix also discloses its number of active clients, which reached 2.35 million in the latest quarter. Over the last two years, Stitch Fix’s active clients averaged 16.7% year-on-year declines. Because this number is lower than its revenue growth during the same period, we can see the company’s monetization has risen.

This quarter, Stitch Fix’s $325 million of revenue was flat year on year but beat Wall Street’s estimates by 3.3%. Company management is currently guiding for a 6% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to remain flat over the next 12 months. Although this projection indicates its newer products and services will spur better top-line performance, it is still below the sector average.

Stitch Fix’s operating margin has risen over the last 12 months, but it still averaged negative 6.9% over the last two years. This is due to its large expense base and inefficient cost structure.

Stitch Fix’s operating margin was negative 3% 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.

Stitch Fix’s earnings losses deepened over the last five years as its EPS dropped 24.5% annually. We tend to steer our readers away from companies with falling EPS, where diminishing earnings could imply changing secular trends and preferences. Consumer Discretionary companies are particularly exposed to this, and if the tide turns unexpectedly, Stitch Fix’s low margin of safety could leave its stock price susceptible to large downswings.

In Q1, Stitch Fix reported EPS at negative $0.06, up from negative $0.18 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 $0.46 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 1.5%, lousy for a consumer discretionary business.

Stitch Fix’s free cash flow clocked in at $16 million in Q1, equivalent to a 4.9% margin. This cash profitability was in line with the comparable period last year and above its two-year average.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Stitch Fix’s five-year average ROIC was negative 62.6%, meaning management lost money while trying to expand the business. Its returns were among the worst in the consumer discretionary sector.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Stitch Fix’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Stitch Fix is a well-capitalized company with $234.2 million of cash and $99.26 million of debt on its balance sheet. This $135 million net cash position is 22.2% 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.

We were impressed by how significantly Stitch Fix blew past analysts’ revenue, EPS, and EBITDA expectations this quarter. We were also glad its full-year EBITDA guidance outperformed Wall Street’s estimates. Zooming out, we think this was a solid print. The market seemed to be hoping for more, and the stock traded down 4.6% to $4.59 immediately after reporting.

Updated: June 14, 2025 at 10:14 PM EDT

Before making an investment decision, investors should account for Stitch Fix’s business fundamentals and valuation in addition to what happened in the latest quarter.

Stitch Fix doesn’t pass our quality test. For starters, 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 11x. This multiple tells us a lot of good news is priced in - we think there are better opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $5.06 on the company (compared to the current share price of $4.08).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.