Stitch Fix's Road To Profitability: Analysts Agree On Long-Term Turnaround, Short-Term Struggles

Truist Securities analyst Youssef Squali reiterated a Hold rating on Stitch Fix, Inc. SFIX, lowering the price target to $4 from $4.60. 

Yesterday, the company missed the Q4 earnings estimates, with net revenue of $375.8 million decreasing 22% year over year.

The analyst notes that traffic to the platform has been pressured over the last several quarters, with negative net additions in active clients for the past seven quarters. 

In the fourth quarter, active clients declined 179K sequentially vs. a 98K decline in F3Q.

While the quarterly results were slightly ahead of expectations, the analyst remains cautious on SFIX, given a disappointing F1Q24/FY24 guidance.

The analyst thinks the guidance reflects a business that remains a work-in-progress amidst a challenging macro, ongoing repositioning (back to basics), and execution challenges.

The analyst sees the new management's renewed focus on the core Fix offering, along with actions taken to rightsize opex/inventory to operate at positive FCF, as a rationale in the face of declining revenues and active users.

Squali thinks this should set the company on a path to profitable growth, but not until FY25 at the earliest.

The analyst lowered FY24 revenue estimates to $1.364 billion (-17% Y/Y) from $1.687 billion. Squali lowered adj. EBITDA estimate to $24.3 million from $49.4 million. 

For F1Q24, the analyst expects revenues of $363 million and adj. EBITDA of $5.6 million.

Telsey Advisory Group analyst Dana Telsey is particularly encouraged by the company's confirmation of the U.K. business exit, which lost $15 million in adjusted EBITDA last year. 

The U.K. exit will not only deliver cost savings and improve profitability, it will also allow management to focus on its core market as it looks to stabilize the business near-term, notes the analyst. 

However, the outlook for a return to sustainable subscriber and revenue growth in the U.S. business remains challenging, the analyst cautions.

Telsey keeps a Market Perform rating on the stock, lowering the price target to $4 from $5.

For FY24, the analyst forecasts total sales of $1.33 billion, down from

the prior estimate of $1.61 billion.

On the bottom line, the analyst now looks for FY24 adjusted

EBITDA of $18.4 million, down from $29.7 million.

Price Action: SFIX shares are trading higher by 12.1% to $3.42 on the last check Tuesday.