Shares of Stitch Fix (NASDAQ: SFIX) are down 10% in pre-market trading today, valuing the company at a market cap of $500 million. The small-cap stock has now fallen almost 96% from all-time highs due to its falling revenue and a weak macro environment that triggered a broader market sell-off. Now, let’s see what impacted SFIX stock price today.
Stitch Fix disappoints investors with Q4 results and guidance
Stitch Fix is an online personal styling service. It aims to leverage data science capabilities to deliver apparel, shoes, and accessories that are personalized according to the client's budget and lifestyle.
In fiscal Q4 of 2022 (ended in July), Stitch Fix reported revenue of $481.9 million and an adjusted loss of $0.89 per share. Wall Street forecast the company to report revenue of $489 million with an adjusted loss of $0.62 per share in Q4.
Further, its active clients declined by 9% or 370,000 year-over-year to 3.79 million in Q4. Net revenue per active client, however, rose 8% to $546 in the July quarter.
Stitch Fix CEO Elizabeth Spaulding stated, “This year marked an important moment in Stitch Fix's history. We launched Freestyle, which combined with our original Fix offering, broadens our ecosystem and expands our total addressable market.”
In fiscal Q1 of 2023, Stitch Fix expects revenue between $455 million and $465 million, compared to estimates of $523 million. It also forecasts an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) loss of between $10 million and $15 million.
In fiscal 2023, it forecast sales between $1.76 billion and $1.86 billion, compared to a consensus of $2.1 billion. Adjusted EBITDA losses are estimated between $45 million and $25 million in 2023.
We can see the company’s revenue and earnings miss, coupled with its less than impressive guidance, has dragged SFIX stock lower in pre-market trading today.
What next for SFIX stock price and investors?
The macroeconomic environment remains challenging due to interest rate hikes and red-hot inflation. These factors will lower retail spending in the next year and even trigger a global recession.
Stitch Fix claimed consumer discretionary spending was pulled back in June and July. To navigate these headwinds, the company emphasized it will focus on improving its profit margins and building long-term customer relationships to reignite net active client growth. While still unprofitable, Stitch Fix aims to report break-even margins by the end of fiscal 2024.
Stitch Fix has now reported five consecutive quarters of decelerating revenue growth, making it a high-risk bet right now. Its sales are also expected to fall by 10% year-over-year in fiscal 2023.
Stitch Fix is taking steps to lower its cost structure and reorganize the sales process. But its operating loss widened to $208 million in fiscal 2022, compared to a loss of $63 million in the year-ago period.
However, Stitch Fix will have to return to sales growth and regain investor confidence. In the last two quarters, Stitch Fix lost over 500,000 active clients, representing 14% of its total customer base. In fiscal 2022, it lost around 30% of its total customer base, which is a very distressing signal for the long-term investor.
While the management attributed Stitch Fix’s slump to weak economic trends, supply chain issues, and inflation, the company is struggling to sign-up new customers, weakening its fundamentals in the process.
The final verdict
SFIX stock is trading at less than 0.3x forward sales, which is quite cheap. But the stock is cheap for the above-mentioned reasons. But despite its high-risk profile, analysts remain bullish on SFIX stock and expect its price to surge by close to 50% in the next year.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
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