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Why Stitch Fix Stock Crashed Today

By Jeremy Bowman - Mar 10, 2020 at 11:53AM

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Shares of online styling service tumbled after it slashed its guidance.

What happened

Shares of Stitch Fix (SFIX 2.66%) were plummeting today after the personalized online styling service slashed its full-year guidance in its second-quarter report. Management cited issues both within the company like a heavy promotional environment in retail and a decision to scale back on marketing in the second half of the fiscal year, as well as macro issues like Brexit and the coronavirus.

As a result, the stock was down 29.6% as of 10:32 a.m. EDT.

A woman holding a Stitch Fix

Image source: Stitch Fix.

So what

Stitch Fix's numbers for the second quarter were actually solid. Overall revenue grew 22% to $451.8 million, slightly below estimates at $452.5 million, as top-line growth was driven by a 17% increase in active clients to 3.5 million and an 8% uptick in revenue per active client to $501.  

On the bottom line, Adjusted EBITDA excluding stock-based compensation rose from $27.3 million in the year-ago quarter a year ago to $30.1 million, and the company reported a generally accepted accounting principles (GAAP) per-share profit of $0.11, down from $0.12 a year ago, but better than estimates at $0.06.

Guidance, meanwhile, was a different story. Management slashed its revenue growth guidance for the full year (based on a 52-week year) to 17%-19% from a previous range of 23%-25%, which indicates growth around 10% for the second half of the year. It also trimmed its full-year Adjusted EBITDA forecast excluding stock-based compensation from $93 million-$107 million to $75 million-$85 million. For the third quarter, it expects revenue growth of just 14%-16%.

Now what

Management said that it was being conservative with its guidance for the rest of the year, and noted lower average order values in the second quarter, which it associates with higher promotional activity in apparel retail industry . Additionally, higher customer acquisition costs in digital channels like Facebook have posed challenges, and it's delaying some marketing spending as it finalizes messaging and product around its promising direct buy program. Furthermore, issues around Brexit and the coronavirus add to the uncertainty. The company said it had to yet see a material impact from the coronavirus, but believes it's reasonable to expect some impact from the outbreak.

The stock hit new all-time lows on the news. While Stitch Fix held on to its long-term revenue growth guidance of 20%-25%, it's understandable that investors are skeptical of that growth target after the guidance cut.

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