Stitch Fix (NASDAQ:SFIX) is an online personal styling service that enjoyed unprecedented growth during the pandemic. However, the stocks have sharply plummeted since then, shedding over 93% in the past three years. At the beginning of the year, the company reshuffled leadership positions and brought on a new CEO to correct course. Early results have been hopeful, with recent top-and-bottom-line beats for the most recent quarter providing a positive outlook for this turnaround trend to last.
The stock has rallied, climbing 65% in the past 90 days, while trading at a significant discount to industry peers. Ongoing progress would likely catalyze more share price upside. Investors interested in high-risk, high-reward, value-oriented turnaround opportunities might find this interesting.
Stitch Fix’s Turnaround
Stitch Fix is an online personal styling service offering a wide array of clothing, shoes, and accessories under its brand. Post-pandemic, the company hit a rough patch amid changes in consumer spending patterns, resulting in considerable business challenges. Stitch Fix’s active client base has been dwindling, with only 2.6 million users taking advantage of their styling service as of the most recent quarter-end.
To combat this downturn, the company is undergoing a comprehensive reorganization, including leadership changes with the appointment of a new CEO, downsizing of employees, halting operations in the UK, and closing two fulfillment centers as it strives to bounce back to profitability.
Stitch Fix’s Recent Financial Results & Outlook
The company recently announced financial results for Q3 FY2024. The firm delivered revenue of $322.73 million, outperforming analysts’ expectations of $306.12 million. However, the company saw a 16% year-over-year decline in net revenue. Similarly, active clients also dipped by 20% from the previous year, resulting in an overall decrease of 655,000 clients.
Despite the decline in active clients and net revenue, Stitch Fix witnessed a 2% year-over-year increase in net revenue per active client (RPAC), attaining $525 on average. An upward trend was also seen in the gross margin, rising by 280 basis points year-over-year to 45.5% due to enhanced product margins and transportation leverage. The reported earnings per share (EPS) of -$0.18 surpassed analysts’ forecast of -$0.24. The company finished the quarter with $244.5 million in cash, equivalents, and investments without debt.
Management has given guidance for the final quarter of fiscal 2024, projecting net revenue between $312 million and $322 million, marking a year-on-year decrease of 12% to 14%. The forecast for adjusted EBITDA stands between $5 million and $10 million, reflecting a margin of 1.6% to 3.1%.
What Is the Price Target for SFIX Stock?
Analysts following the company have taken a cautious stance on the stock. For instance, Canaccord analyst Maria Ripps, a five-star analyst according to Tipranks ratings, recently raised the share price target from $3.50 to $4.50 while maintaining a Hold rating. She stated the company’s early days in the turnaround process. Still, there are signs that things are starting to improve, which could lead to meaningful growth expansion if initiatives begin to yield positive results.
Overall, Stitch Fix is rated a Hold based on seven analysts’ recommendations and price targets recently assigned. The average price target for SFIX stock is $3.54, representing a potential -8.76% downside from current levels.
The stock has rebounded from all-time lows, climbing to the middle of its 52-week price range of $2.06 – $5.20. It demonstrates strong price momentum, trading above its 20-day (3.67) and 50-day (3.18) moving averages. With a P/S ratio of 0.32x, the stock trades at a significant discount to industry peers, with the Apparel Retail industry sporting a P/S ratio average of 2.16x.
SFIX in Summary
Stitch Fix has seen encouraging early signs of recovery following significant challenges. Despite declining active clients and net revenue, the company has reported promising financial results in the most recent quarter, with improved gross margins and EPS. However, the turnaround is still in its early stages. SFIX trades at a substantial discount compared to industry peers, which suggests its potential as a value-oriented turnaround opportunity. However, investors may want to wait for further confirmation of positive momentum in the company’s underlying health before taking action.
