Stitch Fix (Nasdaq:SFIX) is an online personal styling service that saw unprecedented growth during the pandemic. However, its stock price has plummeted since then, dropping more than 93% over the past three years. Earlier this year, the company got back on track by reshuffling its management team and bringing in a new CEO. Early results are promising, with sales and profits in the most recent quarter beating expectations, providing a bright spot for the recovery to continue.
The company’s shares have risen 65% over the past 90 days and are trading at a significant discount to industry peers. Continued progress could drive the stock price even higher. Investors interested in high-risk, high-reward, value-driven turnaround opportunities may be interested in this news.
Stitch Fix conversion
Stitch Fix is an online personal styling service that offers a wide range of privately-owned clothing, shoes, and accessories. The company faced significant business challenges following the pandemic as changing consumer spending patterns put it at a disadvantage. Stitch Fix’s active client base has declined, with only 2.6 million users using its styling services at the end of its most recent quarter.
To combat the downturn, the company is implementing a comprehensive restructuring that includes a leadership change with the appointment of a new CEO, workforce reductions, the suspension of its UK operations and the closure of two fulfilment centres in an effort to restore profitability.
Stitch Fix’s Recent Financial Performance and Outlook
The company recently announced its third quarter fiscal year 2024 results. The company’s revenue was $322.73 million, beating analysts’ expectations of $306.12 million. However, the company’s net revenue decreased 16% year over year. Similarly, active clients also decreased 20% year over year, resulting in an overall decrease of 655,000 clients.
Despite the decline in active clients and net revenue, Stitch Fix achieved a 2% increase in net revenue per active client (RPAC) year over year to an average of $525. Gross margins also trended upward, increasing 280 basis points year over year to 45.5%, driven by improved product margins and transportation leverage. Reported earnings per share (EPS) were -$0.18, beating analysts’ expectations of -$0.24. The company ended the quarter with $244.5 million in cash, cash equivalents, and investments with no debt.
Management provided guidance for the fourth quarter of fiscal 2024, projecting net revenues of $312 million to $322 million, down 12% to 14% year over year. Adjusted EBITDA is expected to be $5 million to $10 million, reflecting margins of 1.6% to 3.1%.
What is your target price for SFIX stock?
Analysts keeping a close eye on the company are taking a cautious stance on the stock. For example, Canaccord analyst Maria Lips, who has a five-star rating on TipRanks, recently raised her price target to $4.50 from $3.50 but maintained a hold rating. She noted that the company is still in the early stages of its turnaround process. Still, there are signs that things are starting to improve, and if efforts start to yield positive results, that could lead to meaningful growth expansion.
Overall, Stitch Fix is rated a Hold based on recommendations from 7 analysts and their recently assigned price targets. The average price target for SFIX shares is $3.54, indicating a downside potential of 8.76% from current levels.
The stock has rebounded from its all-time lows, rising from the midpoint of its 52-week price range of $2.06 to $5.20. The stock is trading above its 20-day (3.67) and 50-day (3.18) moving averages, indicating strong price momentum. With a P/S ratio of 0.32, the stock is trading at a significant discount to its peers, compared to the average P/S ratio of 2.16 in the Apparel Retail industry.
Overview of SFIX
Stitch Fix is showing signs of recovery after significant challenges. Despite declines in active clients and net revenue, the company reported encouraging results in the most recent quarter, with improved gross margins and EPS. However, the recovery is still in its early stages. Stitch Fix is trading at a significant discount to its peers, suggesting it could be a value-oriented recovery opportunity. However, investors may want to wait until there is further confirmation of positive momentum in the company’s underlying health before taking any action.
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