William Blair Remains Bullish On Stitch Fix After Q2 Earnings Beat, Client Growth

Stitch Fix Inc SFIX, an online subscription shopping service, reported second-quarter results that reinforce the bullish case for owning the stock, according to William Blair.

The Analyst

William Blair's Ralph Schackart maintains an Outperform rating on Stitch Fix's stock.

The Thesis

Stitch Fix's top-and-bottom line beat in its earnings report wasn't the only notable highlight from the quarter, Schackart said in a Tuesday note. (See the analyst's track record here.)

Schackart's other takeaways from the online retailer's quarterly report include:

• Active clients grew 31 percent year-over-year and accelerated from the prior quarter.
• The sequential net additions of active clients of 112,000 exceeded an estimate of 50,000.
• EBITDA upside in the quarter came from a better-than-expected shift in operating expenses from the second quarter, and likely explains why 2018 EBITDA guidance didn't move at the midpoint.

Stitch Fix's stock did sell off immediately after the earnings report, but is still higher by more than 50 percent since its November 2017 initial public offering, the analyst said.

The sell-off could be attributed to concerns over the 190-basis point compression in gross margin levels, along with expectations for a move higher in EBITDA guidance at the midpoint. Nevertheless, the stock is trading at a 1.5x multiple on fiscal 2019 revenue estimate, which is a discount versus a 2.3x multiple for a group of comparable companies.

Price Action

Shares of Stitch Fix were up by 0.12 percent at $24.09 at the time of publication Tuesday morning. 

Related Links:

From IPO To CEO, Here Are 6 Things To Know About Stitch Fix

The Pros And Cons Of Stitch Fix, According To Barclays

Photo courtesy of Stitch Fix.