Stitch Fix (SFIX 3.69%) reported disappointing third-quarter results for fiscal 2020 after the market close on Monday, June 8.
Shares of the online personalized apparel retailer closed down 5.5% on Tuesday, which we can attribute to both revenue and earnings falling short of Wall Street's consensus estimates.
Here's an overview of Stitch Fix's third quarter using five key metrics.
Image source: Stitch Fix.
1. Revenue dropped 9%
Net quarterly sales decreased 9% year over year to $371.7 million, missing the $410.6 million Wall Street had expected.
On April 8, Stitch Fix withdrew its guidance for the quarter (as well as for the year) due to uncertainties surrounding the COVID-19 pandemic. That said, its withdrawn guidance for the quarter was for revenue of $465 million to $475 million, or growth of 14% to 16% year over year.
My gut feelings from Stitch Fix's recent unspectacular revenue performance for such a newly public company (it held its initial public offering in November 2017) is that this quarter's revenue would have been on the lighter side even if we remove the pandemic from the equation. Of course, this is just speculation, and we have no way of removing the pandemic effect.
For context, in the last two quarters, sales rose 22% year over year.
2. The number of active clients grew 9%
Here are Stitch Fix's two key customer engagement metrics:
|
Metric |
Fiscal Q3 2020 |
Change (YOY) |
|---|---|---|
|
Number of active clients |
3.4 million |
9% |
|
Average annual revenue per active client |
$498 |
6%* (about 4% apples-to-apples) |
Data source: Stitch Fix. YOY = year over year. *Overstates underlying performance since net annual revenue benefited from an extra week in Q4 of fiscal 2019 relative to the year-ago period. Adjusting for the extra week, this metric rose about 4%.
Sequentially, the number of active clients declined slightly, as this metric was 3.5 million last quarter. Average annual net revenue per active client was essentially flat with last quarter, when it was $501.
Stitch Fix considers an active client to be any customer who has bought at least one item from a "fix" or received at least one item ordered from its direct-buy function in the last 52 weeks. (A fix is a group of five items the company automatically sends clients each month.)
3. Operating loss expanded by 10 times
The operating loss came in at $46.1 million, compared with an operating loss of $4.6 million in the year-ago period. The ballooning loss was driven by increased costs associated with the pandemic.
For instance, the company's supply chain was disrupted. In mid-March, it announced that it temporarily closed three of its six distribution centers within the U.S. (in San Francisco Bethlehem, Pennsylvania, and Dallas) to comply with state and local public health orders.
For context, last quarter, Stitch Fix posted operating income of $8.8 million.
Gross margin was a factor in the operating loss expanding, as it landed at 40.8% in the quarter, down from 45.1% in the year-ago period.
4. Loss per share came in at $0.33
Stitch Fix posted a net loss of $33.9 million, or $0.33 per share, compared with net income of $7.0 million, or $0.07 per share, in the third quarter of last fiscal year. Wall Street was looking for a loss per share of $0.16, so the company missed the expectation.
Last quarter, Stitch Fix generated net income of $11.4 million. So, sequentially, the bottom line decreased by more than $45 million.
(In the year-ago quarter, the reason the company posted an operating loss yet a gain on the bottom line is that it received a tax benefit.)
5. Operating cash flow was negative $20.5 million
Stitch Fix used $20.5 million in cash in its operations in the quarter. This compares to a positive operating cash flow of $75.2 million in the year-ago period and positive operating cash flow of $38.2 million in the prior quarter. Yes, ouch.
The company ended the quarter with $96.8 million in cash and cash equivalents, down from $156.7 million in the year-ago period.
A weak quarter, though management expects growth to resume in Q4
Stitch Fix turned in a weaker quarter than many investors probably expected, even taking the global crisis into account. I think the market's reaction, driving shares down 5.5%, was about right for the situation.
On the positive side, CEO Katrina Lake said she expects the company to return to year-over-year growth in the fiscal fourth quarter. Here's part of what she had to say in the earnings release:
In a time period where the broader apparel and accessories market saw sales decline 80%, we delivered $372 million in net revenue and expect a return to positive growth in Q4. We believe our business model and balance sheet uniquely position us to thrive in retail's next era, and we're excited to demonstrate that in the quarters ahead.
