Stitch Fix Stock Unravels on Weak Guidance

Stitch Fix’s fourth-quarter earnings were strong … but the company lowered its guidance going forward. 

On Tuesday, Stitch Fix reported its fiscal fourth-quarter earnings after the closing bell. The company’s quarterly earnings were pretty solid, but investors weren’t happy about the pace of the company growth. As a result, the stock fell 11% on Wednesday morning. 

Here’s an overview of how the company’s earnings stacked up during the fourth quarter:

  • Earnings per share: 7 cents per share, as opposed to the 4 cents per share forecasted
  • Revenue: $432.1 million, as opposed to the $432 million forecasted

What Happened During the Fourth Quarter?

Overall, Stitch Fix’s earnings during the fourth quarter were pretty strong. The company exceeded its revenue and earnings guidance. And its active client base grew 18% year over year. 

Not only is Stitch Fix’s revenue up 36% from a year earlier, but the company also managed to increase its revenue per active client. This led to a 9% growth year over year. 

But the company’s expenses were higher than it had originally anticipated. Stitch Fix spent $679.9 million, as opposed to the $493 million expected. This is because the company has been investing more in its marketing and advertising campaigns in hopes of reaching new customers. 

Over the past year, Stitch Fix has focused on finding new ways to get customers to increase their spending. The company grew its kids and men’s lines and offered customers the option of buying a la carte items outside of their usual monthly shipment. 

But here’s where the disappointment really hit … when Stitch Fix released its guidance for the first quarter in fiscal 2020. The company expects its sales to fall between $438 million and $442 million, which would be a growth rate of around 20%. However, Wall Street expected the company’s sales to reach $451 million. 

In a letter to investors, management explained why they’re calling for softer guidance during the first quarter. This was partly because the company has had great success with its summer apparel, which comes with a lower price tag. Plus, the company spent less on marketing during the previous quarter so there will be fewer new customers.

What’s Next for Stitch Fix?

Most analysts are pretty positive when it comes to Stitch Fix, and the company is considered a moderate buy. The average price target is $26.89, which represents an upside of more than 50%. 

Still, many investors are concerned that the company’s growth seems to be slowing. And the company’s spending has increased substantially from a year earlier. 

However, the company has done a good job of increasing its active client base. And it should be able to continue this growth by launching new product offerings and encouraging current customers to continue to spend more. 

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