Stitch Fix Stock Skyrockets on Earnings and Revenue Beats: 6 Metrics You Should See

Stitch Fix (SFIX 0.42%) reported encouraging first-quarter results for fiscal 2021 (which ended Oct. 31) after the market close on Monday, Dec. 7. 

The online personalized-apparel retailer's results and outlook suggest that its struggles stemming from the COVID-19 pandemic are largely behind it. The crisis has depressed demand for apparel and many other consumer discretionary products. Moreover, management is upbeat about the company's ability to continue taking market share from brick-and-mortar retailers, a trend that accelerated during the pandemic.

Shares have skyrocketed 40.2% in Tuesday's pre-market trading session, as of 9:20 a.m. EST. We can attribute investors' delight to four factors: Revenue and earnings both beat Wall Street's consensus estimates, and top-line guidance for both fiscal Q2 and the full year came in higher than analysts had been expecting. 

Here's an overview of Stitch Fix's first quarter and guidance using six key metrics.

Image source: Stitch Fix.

1. Revenue increased 10% 

Net sales for the fiscal first quarter rose 10% year over year to $490.4 million, topping the $481.2 million Wall Street had expected. Revenue grew 11% from the previous quarter (essentially the May to July period).

As I wrote in my earnings preview: "For context, last quarter, Stitch Fix's sales rose 2.6% year over year to $443.4 million, exceeding the $414.3 million Wall Street had expected. Sales grew 11% when adjusted for the difference in the quarter's length relative to the year-ago period." 

2. The number of active clients grew 10% 

Here are Stitch Fix's two key customer-engagement metrics:

Data source: Stitch Fix. The company considers an active client to be any customer who has bought at least one item in the last 52 weeks. YOY = year over year. 

The 10% increase in active clients combined with the quarter's high "successful first Fix" rate bodes well for the company's future results.

Stitch Fix defines its successful first Fix rate as "the percent of clients who purchase at least one item in their first Fix and look forward to their second Fix." In each of the last two quarters, nearly 80% of its first Fixes met this criteria, which is the highest level in five years, management said in the shareholder letter. A "Fix" is a group of five items selected by the company's stylists.

Last quarter, the number of active clients increased 8.5% year over year to about 3.5 million. 

3. Operating loss landed at $19.5 million 

Stitch Fix posted an operating loss of $19.5 million, compared with a small operating profit of $160,000 in the year-ago period. Operating results also deteriorated from last quarter, when the company turned in an operating loss of $14.3 million.

However, operating results have improved from two quarters ago, fiscal Q3 2020, which was particularly hit hard by the COVID-19 pandemic. In that period, the company's operating loss was $46.1 million. 

4. Earnings per share came in at $0.09, but...

Net income was $9.5 million, or $0.09 per share, compared with a small net loss of $178,000, or $0.00 per share, in the year-ago period. Wall Street was looking for a loss per share of $0.20, so the company sped by this expectation.

There's an important "but" here: BUT the only reason Stitch Fix posted a profit is because of a $28.1 million income tax benefit stemming from the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Absent that benefit, the company would have had a net loss of $18.6 million, which equates to a loss per share of $0.19.

Last quarter, Stitch Fix had a net loss of $44.5 million, or $0.44 per share. So the company's bottom line improved sequentially, even if we don't include the fiscal first-quarter's tax benefit. 

5. Operating cash flow was $57.3 million

Stitch Fix generated $57.3 million in cash from its operations in the quarter. This is up from the year-ago period, when it generated $27.5 million in cash from operations, though down a little from last quarter, when it had an operating cash flow of $63.4 million.

The company's balance sheet remains robust. It ended the period with $200.3 million in cash and cash equivalents, up from $151.8 million in the year-ago period. It has no debt.

6. Revenue growth of 20% to 25% expected in fiscal 2021

In fiscal Q2, management guided for revenue of $506 million to $515 million, representing growth of 12% to 14% year over year. For fiscal-year 2021, it expects revenue of $2.05 billion to $2.14 billion, representing annual growth of 20% to 25%.

Going into the report, Wall Street had been modeling for fiscal Q2 and full-year revenue of $507.2 million and $2.01 billion, respectively. The company's entire range for its full-year outlook was higher than the consensus estimate, while the midpoint of its Q2 guidance range exceeded the analyst expectation.

A solid rebound from the pandemic trough

Stitch Fix's fiscal Q1 results suggest the worst of its pandemic-driven struggles could be behind it. Even more encouraging, however, is management's rosy sales outlook for fiscal 2021. 

It's pretty safe to conclude that the full-year guidance is the biggest driver of the stock's huge move up in Tuesday's pre-market trading session.

Investors should be very pleased. That said, keep in mind there's no guarantee that any company will achieve its guidance. That's especially true when we're talking about forecasting several quarters out.