Stitch Fix Stock Rallies Big After Earnings Prove the SFIX Narrative

Stitch Fix (NASDAQ:SFIX) rose overnight after earnings beat expectations. The e-commerce clothing company said it earned $7 million — or 7 cents per share — for the quarter ending in April. The earning comes on net revenue of $408.9 million, a 29% increase year over year. SFIX stock opened this morning up 24%, which has since settled to a more ‘modest’ 16% gain from yesterday’s close.

Stitch Fix Stock Would Be a Winner If Technology Was the Only Concern
Source: Stitch Fix

This monster SFIX stock rally comes after analysts had been worrying about whether the company had enough cash, and the stock had been falling since its previous earnings announcement in March took the shares as high as $34.

The latest news, demonstrating those earlier numbers were not a fluke, should send the shares back to its highs once trading opens June 6.

What Stitch Fix Does Right

Stitch Fix’s business may not seem like the most in-demand idea. SFIX has customers take a style quiz and then sends them clothing based on their size and preferences. Customers can then send back what they don’t want and buy what they do.

But there’s a real demand here. Millions of women find they have no time to shop around and develop their personal style. This is the problem CEO Katrina Lake tries to fix through personalization technology and real stylists, examining not just what customers buy, but what they return.  Customers answer some questions and pay a $20 “styling fee” to start. The data is matched with a company database, which then sends 5 items that can be bought or returned.

The big story for the company in 2019 is its expansion into men’s wear, children’s wear, plus-size wear and the UK market, the success of which drove earnings in the most recent quarter.

In her analyst call ,Lake also credited Style Pass, launched last year, a subscription service that lets regular customers pay $49 per year and get more personal style services.

They Didn’t Believe It

Clothing is a tough e-commerce market, because everyone is different. It’s especially difficult because tastes keep changing.

Online retailers like Amazon (NASDAQ:AMZN) can fill this market, but the vast number of choices offered there make it difficult for people to find clothes unless they go in knowing specifically what they want and what looks good on them. Those customers who don’t know exactly what they want or how things will look, still have to head to a department story like Nordstrom (NYSE:JWN) or similar. Even then, many are on their own when it comes to finding what looks best on them.

Stitch Fix seems to have cracked the code. Some 62% of its roughly 5,500 employees are listed as stylists, meaning they work directly with about 3.1 million clients.

At the company’s present run rate of about $1.6 billion in fiscal 2019 revenue, the $2.3 billion market cap gives it a price-to-sales ratio of just 1.5. That’s high for a retailer but very low for a technology company. Retailers like Walmart (NYSE:WMT) sell for about half their sales. SFIX stock’s ratio is close to that of IBM(NYSE:IBM), which has a $116 billion market cap on about $80 billion in sales. (At the moment, I’d rather own Stitch Fix.)

The Bottom Line on SFIX Stock

Co-founder Lake owns 16% of SFIX stock, but institutions own 66%. Benchmark Capital and its CEO, Bill Gurley, were early backers and Gurley sits on the company’s board.

Having proven its business model works, Stitch Fix would seem to be ripe for acquisition and scaling. Walmart, Target (NYSE:TGT) and Amazon are the most likely acquirers.

If you’re interested in owning SFIX stock, buy your shares before the sale.

Dana Blankenhorn is a financial and technology journalist. He is the author of a new environmental story, Bridget O’Flynn and the Bear , available now at the Amazon Kindle store. Write him at or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.

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