What happened

Shares of Stitch Fix (NASDAQ:SFIX) were looking threadbare today after the stock took a dive following its fourth-quarter earnings report. The quarter itself was solid as the company beat earnings estimates and essentially matched top-line expectations. However, the market seemed to be turned off by underwhelming revenue guidance for the first quarter.

As a result, the stock was trading down 10.4% as of 10:13 a.m. EDT.

A sample of a Stitch Fix box that includes an orange top and brown sandals.

Image source: Stitch Fix.

So what 

For the quarter past, Stitch Fix delivered another round of steady growth as revenue jumped 35.8%, assisted by an extra week in the quarter, to $432.1 million, slightly lower than the $432.3 million Wall Street had expected.

The company grew its business both from adding new clients and increasing average revenue per customer on the platform. Active clients increased 18% to 3.24 million from a year ago, and average net revenue per client was up 9% to $488. 

On the bottom line, adjusted earnings per share fell from $0.17 to $0.07, topping estimates for $0.04. Increased costs associated with its recent launch in the U.K. helped drive down profits in the quarter, though the market had expected that.

Touting the company's performance, CEO Katrina Lake said, "In our second year as a public company I'm proud of how much we've accomplished, and the opportunities we've created for future growth across categories and geographies. We have built a personalization engine with incredible potential, and I'm excited to expand on our platform in new and innovative ways." 

Now what 

Despite an otherwise solid performance, the market found fault in Stitch Fix's first-quarter guidance as the company called for revenue growth of 20%-21% to $438 million-$442 million, significantly below estimates at $451 million. Management explained the slower growth by saying that it had found success with lower-priced clothes in the summer and it had scaled back marketing at the end of the fourth quarter, which cooled off growth to start the first quarter. It also forecast an EBITDA loss of $4 million-$7 million.

However, the company's revenue guidance for the full year, at an increase of 23%-25% based on a 52-week calendar, to $1.90 billion-$1.93 billion, was in line with analyst expectations for $1.91 billion, making the sell-off look shortsighted.

Wall Street believes the first-quarter forecast is more accurate than the full-year one as the company has less insight into the year ahead, but nonetheless the sell-off seems surprising given that the company's long-term growth remains on track.