Stitch Fix Shares Plummet 30%: 'Q4 Results Did Not Come In As Bulls Had Hoped'

Personal styling company Stitch Fix, Inc. SFIX reported fourth-quarter earnings Monday. The company reported 2.74 million active clients, a 25-percent year-over-year increase, sales of $318.3 million and adjusted earnings per share of 17 cents. 

The Analysts

• Wells Fargo analyst Ike Boruchow maintained a Market Perform rating on Stitch Fix and $30 price target.
• Stifel analyst Scott W. Devitt maintained a Hold rating and $30 price target.
• KeyBanc Capital Markets analyst Edward Yruma reiterated an Overweight rating and lowered the price target from $53 to $45.
• William Blair analyst Ralph Schackart maintained an Outperform rating.

UK Expansion

Stitch Fix plans to launch U.K. offerings of the mens and womens lines by the end of 2019, said Stifel's Devitt.

“Relative to the average consumer in the U.S., shoppers in the U.K are less discount-oriented and spend more on online apparel, making the region an attractive target for Stitch Fix’s first overseas expansion.”

KeyBanc's Yruma said the company’s lower EBITDA guidance for 2019 is mainly driven by the headcount and infrastructure investment in the U.K. product launch, as well as the launch of a kids line in the U.S.

Margin Expansion

William Blair's Schackart outlined the company’s gross margin expansion of 90 basis points year-over-year, which was largely driven by a lower inventory reserve and clearance expense, which led to reduced shrink.

“As a reminder, shipping and freight increases drag on gross margin due somewhat to the growth of Men’s and Plus, which each ship out of three warehouses compared with five for Women’s. As these newer businesses grow and the company is able to scale markups, gross margin expansion may continue.”

Investment Thesis

Wells Fargo's Boruchow said Stitch Fix shares have doubled since its last quarterly report, meaning that investors had "very bullish" views heading into the print.

"Unfortunately, Q4 results did not come in as bulls had hoped — as SFIX sales came in a touch light of Street estimates," the analyst said, with an outlook that projects top-line deceleration and a "dilutive" U.K. launch.

Price Action

Stitch Fix shares were plunging more than 30 percent to $31.20 at the time of publication Tuesday.

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Photo courtesy of Stitch Fix.