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Shares of Stitch Fix, Inc. (SFIX - Free Report) declined nearly 10% in after-hours trading on June 9, following soft fiscal Q3 2022 results. Stitch Fix reported wider-than-expected loss per share. The loss per share was also wider than the year-earlier quarter’s loss. Although the top line slightly came above the consensus mark, the metric fell year-over-year. Active clients also decreased year-over-year.

Stitch Fix witnessed delays in receipts due to shipping delays and persistent supply-chain issues. Soft quarterly results and a bleak view for the next fiscal quarter hurt the stock, as well.

Shares of this Zacks Rank #3 (Hold) stock have decreased 35.2% in the past six months compared with the industry’s 11.6% decline.

Quarter Details

Stitch Fix posted a loss of 72 cents a share, which is wider than the Zacks Consensus Estimate of a loss of 57. This quarterly loss per share is wider than the loss of 18 cents a share that was recorded in the prior-year quarter.

Stitch Fix, Inc. Price and Consensus

Stitch Fix, Inc. price-consensus-chart | Stitch Fix, Inc. Quote

Stitch Fix recorded net revenues of $492.9 million, reflecting a decrease of 8% from the year-ago quarter’s figure. The metric came ahead of the Zacks Consensus Estimate of $491 million. Continued strength from the expansion of the 'Freestyle' capability fueled the top-line performance.

Stitch Fix has active clients of 3,907,000 as of April 30, 2022, down 5% from the prior-year quarter’s level. Revenue per active client, or RPAC, reached $553, increasing 15% year-over-year.

This is driven by the 'Fix Plus Freestyle' usage by clients and gains from the keep rates with 'Fix Preview.' Freestyle revenues rose 13% year-over-year with strength in categories like special occasion and social wear. Freestyle revenues from dresses increased above 75% year-over-year, which is more than five times the growth rate of dresses and fixes.

Margins & Costs

In the fiscal third quarter, gross profit tumbled 55.3% to $210.1 million, with the gross margin contracting 340 basis points (bps) year-over-year to 42.6%. Higher transportation costs and tightening product margins hurt the gross margin.

Selling, general, and administrative (SG&A) expenses climbed 6.1% to $287 million. Other SG&A, excluding advertising, was 47.8% as a rate of sales, which increased 640 bps year-over-year. This rise was mainly due to increased fixed labor costs, including stock-based compensation.

Stitch Fix reported an adjusted EBITDA loss of $36 million in the quarter under review compared with the adjusted EBITDA loss of $11.6 million reported in the year-ago quarter. This is mainly due to lower revenues and gross margin, and increased fixed labor costs.

Other Financial Aspects

Stitch Fix ended the quarter with cash and cash equivalents of $137.7 million minus debt and shareholders’ equity of $389.5 million. The company used $94.5 million cash from operating activities during the first nine months of fiscal 2022. Also, Stitch Fix had a free cash flow of $55.8 million during the aforementioned period.

In the reported quarter, Stitch Fix bought back $19 million shares and $30 million in the year-to-date period.

Outlook

For the fourth quarter of fiscal 2022, management projects net revenues of $485-$495 million, indicating a decline of 13-15% from the year-ago reported figure. Stitch Fix expects adjusted EBITDA in the bracket of a negative $25 million to a negative $30 million with a margin contraction of 5-6%.

With respect to the macroeconomic environment, management is persistently navigating the persistent uncertainties, including supply-chain issues, global inflationary pressures, and potential shifts in customer demand.

Key Picks in Retail

We highlighted three better-ranked stocks in the Retail - Wholesale sector, namely Tecnoglass (TGLS - Free Report), Boot Barn Holdings (BOOT - Free Report), and Designer Brands (DBI - Free Report).

Tecnoglass manufactures and sells architectural glass, windows, and aluminum products for the residential and commercial construction industries. TGLS sports a Zacks Rank #2 (Strong Buy).

The Zacks Consensus Estimate for Tecnoglass’ current financial-year sales and earnings per share suggests growth of 21.3% and 28.7%, respectively, from the comparable year-ago period's reported figures. TGLS has a trailing four-quarter earnings surprise of 28.3%, on average.

Boot Barn, a lifestyle retail chain devoted to western and work-related footwear, apparel, and accessories, flaunts a Zacks Rank of 1. BOOT has a trailing four-quarter earnings surprise of 25.2%, on average. You can see the complete list of today’s Zacks Rank #1 stocks here. 

The Zacks Consensus Estimate for Boot Barn’s current financial-year sales and earnings per share suggests growth of 17% and 4.4%, respectively, from the corresponding year-ago period’s reported figures. BOOT has an expected EPS growth rate of 20% for three-five years.

Designer Brands, a national wholesale distributor of industrial and construction supplies, has a Zacks Rank #2 (Buy). DBI has a trailing four-quarter earnings surprise of 102.5%, on average.

The Zacks Consensus Estimate for Designer Brands’ current financial-year sales and earnings per share suggests growth of 6.9% and 16.5% each, from the respective year-ago period’s actuals.