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Despite Earnings Miss, Stitch Fix Will Return to Its Winning Ways

Stitch Fix (NASDAQ:SFIX), an online styling service that combines e-commerce and personal curation, disappointed analysts with its fiscal third quarter earnings report. But that’s not to say that SFIX stock is suddenly going out of style.

Source: Sharaf Maksumov / Shutterstock.com

While sales were down thanks to the novel coronavirus, there are strong indicators that the quarterly report is merely a blip. I’m fully expecting Stitch Fix to rebound in the next quarter and continue its winning ways into fiscal 2021.

SFIX Earnings at a Glance

Stitch Fix reported earnings after the closing bell on June 8. Revenue came in at $371.73 million, far below Wall Street’s expectations of $406.66 million. That’s also 9% lower than the company brought in a year ago.

The company posted an operating loss of $46.06 million, compared to its loss of $4.57 million in the same quarter a year ago. That resulted in a diluted loss of $0.33 per share, which was worse than analysts’ expected losses of 40.16 cents.

It’s the first revenue decline SFIX has posted since its initial public offering in 2017. But that’s not because people are turned off by Stitch Fix’s style.

Thanks to the coronavirus shutting down factories and warehouses, Stitch Fix suffered some production pains that forced the company to fall behind on auto-ship orders. U.S. warehouse capacity fell by as much as 70% by the end of March as the company’s backlog doubled.

“Excluding the impact of our warehouse disruptions from COVID, we believe that we would have generated positive year-over-year net revenue growth in Q3,” CEO Katrina Lake told analysts.

The company is now returning to full production capacity and expects to eliminate its backlog by the end of June.

Why Stitch Fix Will Rebound

Stitch Fix combines two powerful trends that will dominate the next few years.

First, there’s e-commerce. Since 2010, according to the Department of Commerce, e-commerce sales grew between 14% and 18% annually. Brick-and-mortar sales in the same period grew only 2% to 5% annually.

In fact, in 2019 e-commerce sales accounted for more than half (56.9%) of the total game for the retail sector. That’s why companies like Amazon (NASDAQ:AMZN) are soaring, while traditional brick-and-mortar retailers such as Macy’s (NYSE:M) and Nordstom (NYSE:JWN) continue to struggle.

SFIX caters to consumers more interested in online shopping than going to brick-and-mortar stores. And that audience is growing. Customers register on the company’s website and pick what style of clothes they like. And while they can pick specific items to purchase, the appeal of Stitch Fix is the personal styling services it offers.

That leads to the second trend that plays into Stitch Fix’s strengths. Stitch Fix customers are assigned personal stylists, who review what kind of clothes their clients prefer and how much they’re willing to spend. Then these stylists package a selection of clothes into what the company calls a “fix” and mails it.

Customers can pay for and keep what they want, and ship back the rest.

That plays into the growing trend of offering over-the-top customer service. According to research by American Express (NYSE:AXP), customers are inclined to spend more money with a company that provides excellent customer service.

The Bottom Line on SFIX Stock

Telsey Advisory Group Dana Telsey reiterated an “outperform” rating for SFIX stock and increased her price target from $20 to $29, saying the company saw “continued commitment from high engagement clients” during the pandemic shutdown.

Now that the pandemic is beginning to loosen and warehouses are back in business, SFIX stock is in a much better position to continue its upward trend. And the company should start seeing improved revenue numbers in for the rest of the year and into 2021.

Stitch Fix is a buy in my Portfolio Grader, where it has a “B” grade right now.

Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.


Article printed from InvestorPlace Media, https://investorplace.com/2020/06/despite-earnings-miss-stitch-fix-will-return-to-its-winning-ways/.

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