Stitch Fix, Inc Pops On Results But Wait To Buy
While red flags are being raised elsewhere in the market, Stitch Fix, Inc (NASDAQ: SFIX) has proven two things. Stitch Fix Q4 results prove that trends in retail and eCommerce are still strong and that eCommerce and retail are a winning combination. The results were not only good but good enough to spark massive short-covering which has shares up more than 10% in premarket action. Based on the charts, the results, the outlook, and the 20% short-interest it looks like this stock is in a full reversal. The caveat is that guidance came in a bit on the weak side so we wouldn’t rush into a position. The silver lining is that guidance is calling for positive growth and is compounded by strong demand across all channels so there is a chance the company is just being cautious.
Stitch Fix Has Record-Setting Quarter
The pandemic was nothing more than a blip on the radar for Stitch Fix Inc. The company's position as a pure-play eCommerce retailer of family-oriented fashions set it up perfectly for the pandemic and post-pandemic environment. Not only has the company's business rebounded from the pandemic low’s but quarterly results continue to accelerate and pre-pandemic levels have long since been surpassed. The company's $571.16 in net revenue is up 28.8% over last year, 32% over the past two years, and beat the consensus estimate by 420 basis points to set a company record. This also marks the first year company revenues topped the 2 billion Mark annually.
On a segment basis, the company says it experienced strength in women's fashions, outsized growth in kids apparel, and noticeable strength in the United Kingdom. The company's active clients are up 18% from last year underpinning the gains in revenue and are compounded by a 4% increase in revenue per client. The company also reports record-high levels of engagement and low levels of churn that suggests client quality is trending even higher.
Moving down the report, the company surprised the market with better-than-expected margins and a surprise profit. The gross margin improved 160 basis points to 46.5% of revenue while operating margin came in at 3.6% to reverse a loss in the prior year. On the bottom line, the company's GAAP earnings of $0.19 beat the consensus by $0.31 and helped to drive balance sheet improvements. The company's cash and short-term investments are down marginally compared to the near 100% increase in inventory, total assets are up nearly 12%. The company says it is increasing and deepening its inventory selection in order to meet the man and position itself for future growth. Sounds like a good idea to us.
Stitch Fix Weak Guidance No Deterrent For The Bulls
Stitch Fix provided positive guidance for the year but below the PriceTargets.com analyst consensus estimates. The company is expecting full-year revenue growth greater than 15% compared to the consensus of 17.8%. In our view, greater than 15% could easily be 17.8% or more and we are leading to the more category. Stitch Fix has made efforts to increase its addressable market and client quality and that should help drive outsize results.
The Technical Outlook: Stitch Fix Moves Up From The Bottom
Shares of Stitch Fix hit a 12-month low just days before the Q4 results were released. The move was driven by the heavy short interest that now appears to be in covering mode. With price action up more than 10% shares of Stitch Fix are trading right at the 30-day moving average. If price action can get above the 30-day moving average we would expect to see it continue trending higher. If not, short-sellers may push price-action back down to the recent low and open up a more attractive buying opportunity.
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