Stitch Fix Stock Plunges on Earnings Release: 6 Metrics You Should See

Stitch Fix (SFIX 1.54%) reported results for the second quarter of fiscal 2021 (which ended Jan. 30) after the market close on Monday, March 8.

Shares plunged 22.9% in Monday's after-hours trading session, which we can attribute to the personalized-apparel retailer missing Wall Street's revenue consensus estimate and lowering its full-year revenue guidance. The latter was probably the bigger factor since the market looks ahead.

Unfortunately, investors can likely expect Stitch Fix stock to unravel on Tuesday. 

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

Image source: Getty Images.

1. Revenue increased 12% 

Net sales for the fiscal second quarter rose 12% year over year to $504.1 million, falling short of the $512.2 million Wall Street had expected. That result also missed the company's own guidance, which was for revenue of $506 million to $515 million, as outlined in my earnings preview.

Revenue grew 2.8% from the prior quarter (essentially the August to October period).

In its letter to shareholders, Stitch Fix attributed revenue coming in lighter than its outlook to shipping issues:

[D]ue to the pandemic, carriers faced unprecedented volume during the holidays and we saw increased cycle times. This resulted in us not being able to recognize all the revenue for Fixes we shipped during the quarter. We define cycle time as the duration between when we style items for a Fix and when we receive and process any items back from the client in our warehouses ... Adjusting for the impact of these increased cycle times, we believe Q2'21 revenue would have been within our guidance range.

2. The number of active clients grew 12%

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. 

Last quarter, the number of active clients increased 10% year over year to about 3.8 million, and average annual revenue per active client fell 4% year over year to $467. 

3. Operating loss landed at $40.4 million 

Stitch Fix posted an operating loss of $40.4 million, compared with an operating profit of $8.5 million in the year-ago period. Operating results also deteriorated from last quarter, when the company turned in an operating loss of $19.5 million.

Indeed, the quarter's operating loss was nearly as large as that in the fiscal third quarter of 2020, a period in which many consumer discretionary companies were particularly hard hit by the fallout from the COVID-19 pandemic. In that quarter, the company's operating loss was $46.1 million. 

4. Loss per share was $0.20

Net loss was $21 million, or $0.20 per share, compared with net income of $11.4 million, or $0.11 per share, in the year-ago period. Wall Street was looking for a loss per share of $0.22, so the company beat this expectation by $0.02.

Stitch Fix's bottom line would have been significantly worse had it not had an income tax benefit of $18.8 million stemming from the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Absent that benefit, the company would have had a net loss of $39.8 million.

5. Operating cash flow was negative $51.6 million

Stitch Fix used $51.6 million in cash running its operations in the quarter. In the year-ago period, it generated cash from operations of $10.7 million.

The company ended the period with $140 million in cash and cash equivalents, down from $166 million in the year-ago period.

6. Revenue growth of 18% to 20% now expected in fiscal 2021

For fiscal Q3 (which ends on May 1), management guided for revenue of $505 million to $515 million, representing growth of 36% to 39% year over year.

Management also lowered its guidance for fiscal year 2021 (which ends on July 31). It now expects revenue of $2.02 billion to $2.05 billion, representing annual growth of 18% to 20%. The prior outlook was for revenue of $2.05 billion to $2.14 billion, representing annual growth of 20% to 25%.

A disappointment for investors

The shipping delay rationale for the lighter-than-guided fiscal Q2 revenue seems somewhat weak. It was widely anticipated there would be such issues stemming from the expected pandemic-driven surge in holiday online shopping. 

More concerning, however, is the company's lowering of full-year revenue guidance, which it issued when it released last quarter's results. This move, unfortunately, didn't surprise me. In last quarter's earnings article, I cautioned: "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." 

Given the uncertainty still surrounding the pandemic at the time (early December), management should not have issued full-year guidance when it did.

These short-term issues, largely centered on guidance-setting procedures, don't change the fact that Stitch Fix has the potential for robust and profitable long-term growth. Whether or not that potential will be realized remains to be seen.