Why Analysts Are Calling a Bottom for Stitch Fix

Stitch Fix Inc. (NASDAQ: SFIX) was absolutely crushed on Wednesday following a less than favorable earnings report, which included an update to guidance. Now the stock is bouncing back after a few analysts have come to its aid. While this stock has been sliding for a while now, it seems that some analysts are calling the bottom.

24/7 Wall St. is taking a quick look at the earnings report, as well as what analysts are saying about Stitch Fix after the fact.

The firm reported its fiscal first-quarter results after the markets closed on Tuesday. Stitch Fix had mixed results, with a better than expected top line and a narrower-than-expected loss per share. Specifically, revenues came in at $581.2 million, versus a $572 million consensus estimate, and a loss of $0.02 per share, versus a consensus estimate calling for a $0.13 loss.

Although the fiscal first quarter looked fine, the outlook for the second quarter paled in comparison. Stitch Fix expects net revenues to be in the range of $505 million to $520 million, which falls well short of the consensus estimate calling for roughly $590 million.

Analysts were quick to jump on this miss and the resulting price dump. Evercore ISI downgraded the stock to an In-Line rating. The firm noted that only 15,000 net adds new customers marked the weakest customer growth quarter, apart from the April 2020 COVID-19 quarter, with the company’s fiscal second-quarter guidance implying a material quarterly decline in active customers — Evercore estimates an 84,000 decline quarter over quarter.

At the same time, Evercore did note that there were positives to the first-quarter results, which included record-high gross margins, a very solid balance sheet and a large installed customer base (4.2 million). Evercore’s call is that Stitch Fix has hit a growth wall.

Canaccord Genuity cut its $50 price target to $38. The brokerage firm noted that Stitch Fix provided weaker-than-expected second-quarter revenue guidance, as near-term customer growth is negatively affected by a promotion from last year with low retention, and Stitch Fix also lowered its fiscal 2022 full-year revenue and profitability outlook as supply chain disruptions are leading to a one to four week delay in receiving inventory. While Canaccord Genuity is lowering estimates to reflect these headwinds, the ongoing rollout of Freestyle is expanding Stitch Fix’s total addressable market and should support a return to double-digit revenue growth next year.

Barclays cut its price target from $37 to $22. The Stitch Fix story is coming up short as it reaches the major milestone of introducing traditional e-commerce (Freestyle) and moving away from its stylist box-club roots, according to Barclays. This overhaul is expected to expand Stitch Fix’s total addressable market but appears to be having some growing pains. The company is experiencing slower client growth, lower conversion rates and now some inventory headwinds related to the supply chain. Ultimately, Barclays thinks the bull case is on hold for now until management can convince Wall Street that the transition is working, and the execution and financials reflect that.

Stitch Fix stock was absolutely crushed on Wednesday, down 23%, but it’s not over yet, shares bounced back 7.5% Thursday morning to over $20. The stock has a 52-week range of $17.92 to $113.76 and a consensus price target of $45.35.

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