4 Stitch Fix Analysts Unpack Q4 Report As Stock Plunges

Online personal styling company Stitch Fix Inc SFIX reported Tuesday afternoon with fourth-quarter results that were highlighted by a return of double-digit organic sales growth, but a muted outlook for the start of the new fiscal year.

Here's how the Street reacted. 

The Stitch Fix Analysts: Wells Fargo analyst Ike Boruchow maintains an Equal Weight rating on Stitch Fix with an unchanged $18 price target.

Piper Sandler analyst Erinn Murphy maintains a Neutral rating on Stitch Fix's stock with an unchanged $22 price target.

Needham analyst Rick Patel maintains a Buy rating on Stitch Fix's stock with a price target lowered from $36 to $34.

KeyBanc Capital Markets analyst Edward Yruma maintains an Overweight rating with a price target lifted from $28 to $32.

Wells Fargo's Q4 Takeaways: Stitch Fix's report showed a return to double-digit organic sales growth at 11% year-over-year versus negative 9% in the prior quarter, Boruchow said in a note.

The analyst's key takeaways from the report are as follows:

1. A significant pullback in marketing during the COVID-19 pandemic will result in fewer repeat customers and a headwind to revenue in the first half of the new fiscal year. First-quarter 2021 sales are likely to rise by a mid-to-high-single digit versus the Street's estimate of 11%.

2. Despite guidance for adjusted EBITDA margin expansion next year, Wells Fargo's talks with Stitch Fix point to a challenging margin environment in the first quarter.

3. Direct buy notably outperformed expectations in the quarter, with strong retention rates, as nearly two-thirds of customers returned for a second purchase.

4. "First Fix" shipments were up 50% in July, and the momentum carried over into August.

5. Capex spending growth will accelerate from around 2% of sales to 3% to 4% of sales. This could impact the company's ability to generate free cash flow.

Piper Sandler On What's New From Stitch Fix: Stitch Fix execs discussed a "bigger picture" narrative during the post-earnings conference call and highlighted two encouraging trends to support the outlook, Murphy said in a note.

First, the broader apparel and fashion industry will benefit from $30 billion in new revenue as consumers move from in-store to online shopping over the next 12 to 18 months.

Second, online apparel spending is growing three times faster compared to pre-COVID-19 levels, the analyst said.

Stitch Fix didn't provide any formal guidance for the full fiscal year, although the company said sales momentum will build throughout the year while EBITDA — excluding stock-based compensation — will leverage in the back half of the year.

Needham On Stitch Fix's Stock Reaction: Stitch Fix's stock moved lower following its earnings release, although three factors need to be kept in mind, Patel said in a note.

First, repeat customers fuel future quarters, and lower marketing spending from March to May naturally lowered active client count. Second, Stitch Fix's guidance reflects a certain degree of conservatism after strong trends were observed in new Fixes in July and August.

Third, the recent acceleration of new Fixes and clients suggest accelerating growth in future quarters and the back half of fiscal 2021 will be more in-line with management's growth plan than the first half.

KeyBanc Says Stitch Fix Uniquely Positioned For Growth: Stitch Fix is uniquely positioned to take advantage of the weakness in department stores and specialty retailers, Yruma said in a note. Stitch Fix offers customers a unique experience, as it focuses on personalization, the analyst said.

The company deserves credit for expanding the business to generate new purchase opportunities and expand the total addressable market, he said.

Most notably, the "Trending For You" feature saw a 30% growth in orders, while return rates are estimated at a "mere" 25%, according to KeyBanc.  

SFIX Price Action: Shares of Stitch Fix were trading down by 16.14% at $26.32 at last check Wednesday. 

Related Links:

10 Stocks Moving In Tuesday's After-Hours Session

Recap: Stitch Fix Q4 Earnings

Photo courtesy of Stitch Fix.