What Stitch Fix, Thor Industries, and Dick's Sporting Goods Told Investors

In this episode of MarketFoolery, host Chris Hill is joined by Motley Fool analyst Bill Barker to discuss Stitch Fix (SFIX 0.47%) stock falling 30% after rough second-quarter results and guidance. Also, Thor Industries (THO -0.16%) crushed earnings but dealt with supply chain issues, and the Fools have a look at the latest results from Dick's Sporting Goods (DKS 1.43%).

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This video was recorded on March 9, 2021.

Chris Hill: It's Tuesday, March 9. Welcome to MarketFoolery. I'm Chris Hill. With me today, the one and only Bill Barker. Thanks for being here.

Bill Barker: Thanks for having me.

Hill: We've got athletic apparel retail; we've got recreational vehicles; we're going to start with the stock of the day. Shares of Stitch Fix are falling 30% this morning. Second-quarter revenue was lower than expected. Customers are spending less on Stitch Fix's platform, the company is also dealing with shipping delays. If you're looking for a silver lining the loss in the second quarter was smaller than expected, but as silver linings go, that's not a great one.

Barker: No, it's not a great one. Although I think you can rewind a little bit to just before the previous earnings announcement. The stock is still higher today even though it's been cut in half than it was at the end of November. It ran ahead of itself on some guidance that it was going to do 20% or better growth this year. It's cut back on that so it really took off, even though if you look at the quarter as a whole, the previous quarter and the one just released today, it really wasn't all that different in terms of the actual growth that was being booked. So, the stock is telling a more dramatic story I would say than the business. The part of the story today, which is probably most concerning, is this delay in being able to book revenues because of the problems that they are having with the logistics of getting things out and getting things returned.

Hill: You go back three months, there was a short squeeze that helped propel shares of Stitch Fix on its previous earnings report. It is one of those things, looking at the stock today, I do wonder if some of those bears are maybe that it closed out their position are coming back to it. Again, there are a number of things that they're dealing with, if that was the only thing they were dealing with, it wouldn't be such a dire picture. To me, it's the combination of all these things, and it's not getting the headline, but the people who are spending less. Neither one of us is a Stitch Fix customer. You would send me a link this morning looking at the platform, where you can essentially choose to start looking at clothing through your lifestyle. Well, what is your lifestyle? You and I, I think we're struck by the same thing which is for men, the five different lifestyles that are being offered by Stitch Fix all look the same. It's all casual, comfortable wear. I'm assuming that a year ago, pre-pandemic, the different lifestyles were much more different. Maybe there was one that was more focused on classic business wear, nightlife, all that sort of thing. I think that is the part of this equation that Stitch Fix has no control over, is that the pandemic has dramatically changed how people dress.

Barker: Yeah, we did look at this, and if anyone is following along live and wants to open up the Stitch Fix site, they can do so. If they're in their car driving right now, I would say don't do that. But the five categories: casual, athleisure, active, cozy, and weekend, if I were given the pictures and these words, and I had to match them up in a price is right game style thing, put these five words on these five pictures, you only have to get one right to win the grand prize, I'm pretty sure it's just coin flip. There are five identical looks to my untrained eye. I think we're not the demographic, I assume. I think if I were to ask Stitch Fix to pick out some clothes for me, they'd probably refuse, and rightly so, that man can't be dressed. But I think they need a little more eye to our eyes on how to differentiate these looks. Because if this is the very, very fine distinction that they're drawing between the perfect look for a perfect style and just missing, then they're saying to me we've got one look for everybody is what I see here, but I'm sure they're better than that. They've grown the business pretty nicely. To kick somebody when they're down, the stock's down 28% in a day, is an easy thing to do. They've done a better job than that, but 12%-ish growth given the amounts they've invested in the business of late isn't going to get you to big profits.

Hill: There's a version of this that things turn around dramatically for Stitch Fix. We've been talking a lot on this show recently about what's being called "the great reopening." You look at all the stats around how much money people have saved either intentionally or through circumstance, just spending less, and people looking to -- later this year -- celebrate being out of the pandemic. That's obviously going to manifest itself in a lot more travel than we've seen over the past year. I think for a lot of people it's going out, it's buying new clothes to go out at night, to go back to clubs, go back to bars, all that sort of thing. So the opportunity is going to be there for Stitch Fix, and I think at this point it's just a question of whether or not they're able to take advantage of it.

Barker: You've jumped the gun. We were talking about this before -- you went ahead and bought a T-shirt in fact, recently.

Hill: [laughs] Yeah. That was not so much out of necessity, that was more out of boredom.

Barker: It just seems like a sign of reopening that you're ready to wade back in with a T-shirt here and there.

Hill: Exactly.

Barker: Stitch Fix has an opportunity, if people need to upgrade their wardrobe, to get out there and help them do that, as do lots of other places. Being Stitch Fix you would have thought would have grown more than 12% year over year, given people staying indoors, not going out to malls to do their clothes shopping. So, it does look today a little less rosy than it did before, but it doesn't look that much different than it looked four or five months ago.

Hill: Second quarter profits for Thor Industries came in much higher than expected. Revenue was up as well for the RV maker, but shares of Thor not really moving higher due to guidance; and I want to get to the guidance in a minute. But first, how good was this quarter? Because on the surface this looks like a really good quarter.

Barker: Yeah, it was a really good quarter, that was already easy to see, the Recreational Vehicle Trade Industry Association puts out monthly data on shipments, and they were up 43% in November, 47% in December, 39% in January, those are all comping to a year ago when everything was still open. So, those are good numbers, and the numbers going ahead are going to look even better for RVs on a year over year comparison, because everything that the factory is really shutdown toward the second half of March and a good part of April, and there were almost no shipments for the industry. So, they've got several more months of basically free eye-popping comparisons. Given the fact that the industry was doing about 40%, 41% increased sales, which is a No. 1 player doing the same basically. The market really already knew what was coming in today's report.

Hill: In terms of the guidance, one of the things Thor Industry management talked about was they said there were going to be some supply chain issues. I'm curious, how bad do you think those are going to be? Because we've seen, certainly in the automotive industry, supply chain issues are causing significant problems for some of the automakers. For RV makers like Thor, they're saying this is going to be bad in the short term, they didn't really paint a terrible picture here. I guess my question is, do you believe them?

Barker: Well, I think, in the auto the thing that's getting some of the headlines is the chips. So for the towable segment of RVs, you've got the ones that you tow behind a vehicle and then you've got the motorhomes, the big, large, the things that you're driving. They'll do the chips in motor homes, but not so much on the towables, so that's not one of the issues for them, but supply chain is an issue. There are plenty of stories getting out about things coming into California, being brought in across the ocean and there's just a log jam of cargo waiting to get off. There are going to be issues, that's OK, the demand is there, they've got I think $10 billion in back orders. The problems that the RV industry has suffered through really came about by building too many RVs too fast and having too many on lots. They had a record year in 2017, they still haven't as an industry surpassed the 2017 shipment record, it looks like they will this year. But the fallout of that was 2018, there were too many RVs on the lots. Thor saw its stock price drop two thirds, and it's taken most of the last three years to regain the stock price that it had. Back in early 2018, in the early part of the year, there were still good shipments and then in the second half of the year things started falling off and the stocks cratered. So, I don't think that having a huge demand that they are unable to meet right away is that consequential. I think a much bigger problem is going to be if they, again, make the mistake of anticipating a huge jump long term in the market that doesn't end up materializing.

Hill: Dick's Sporting Goods ramped up the fiscal year in style, fourth quarter profits and revenue came in solidly higher than expected, but shares of Dick's Sporting Goods down 7% due to guidance. I understand why the stock is falling, because this is a stock that has just better than doubled over the past year. Like I said, I mean, this has really been an amazing year for Dick's Sporting Goods.

Barker: Yeah, you sum up today's action that the stock had already anticipated pretty good results, and Dick's has guided to softer growth for the year ahead, which makes sense. The athletic sporting goods industry had been growing at about 1.5% a year in five years previous to the pandemic. You've got a lot of competition: You've got Amazon, you've got Walmart, you've got your specialty retailers, and Dick's has seen good growth in its online business. It's had to really get behind that business during this last year, the way lots of other places have. Sitting on top of I think 15%-17% growth this last quarter is an indication of people still buying equipment for their homes, weights, bikes, things like that, treadmills, and getting ready to go back out. Like a lot of other places that had eye popping same store sales improvements this year, I think that the year going ahead is going to be one of consolidating, digesting, just trying to somehow level off and keep that level of sales rather than say, "Look, this is just going to compound on top of itself." It's not going to compound on top of itself. You've got that story coming out from Home Depot, from Tractor Supply, from plenty of other retailers, the ones that we're able to stay open during the year, I think they said 1.5% growth in the industry. They're seeing like 10 years of growth this year. That's not a number that you can anchor to for something to look forward to.

Hill: Now, although I do think the investments that Dick's Sporting Goods made in delivery in their digital sales in their just pick-up at brick-and-mortar locations, it was smart and that is the thing that it's not going to get the exact same kind of growth but it is the investment that they had to make, they did it well. I think that continues to pay a small dividend in the future, and I think it's a credit to Lauren Hobart, who is the CEO. She took over in February of last year. I mean, CEO transitions are tough under good circumstances, these were terrible circumstances, and to the extent that you give out rookie of the year awards for CEOs. I mean, the jobs she did, I think what's amazing.

Barker: Well, necessity is the mother of invention then I think that they like others have had to deliver an online experience, which is comparable to what people think about first, which is in many cases Amazon. If you're not able to deliver the same experience both in terms of shipping and delivery and in terms of online selection to shop from, you're going to get left behind. So, those investments were necessary. They have paid off; they will pay dividends going forward. In the meantime, they have a large legacy of physical business, which people know and we'll continue to use, but it is a more challenging future to navigate. Even when people are free to go back into malls and free to do everything they did before, that part of the business was under pressure from the online side. They've now joined the online participants and that's the part of the business I'd be more enthusiastic about going forward.

Hill: We've got the college basketball tournament coming up and the second half of the NBA season. Safe to assume that you are already focused on spring training?

Barker: Yes. It's again a year where we can assume that the Yankees will be much more fun to follow than the Red Sox, [laughs] so all is right in the world for the majority of people, I would say.

Hill: Wait, majority?

Barker: See, the Red Sox are not as universally loved as the Yankees. Facts.

Hill: I think you misspoke there. I think you meant to say "hated" when you said "loved."

Barker: They're not as hated as the Yankees either, but the Yankees are the team that people love to hate, and go around the world. You will see a lot more Yankee hats than Red Sox hats. You know that to be true.

Hill: Those fashionable pinstripes that never go out of style.

Barker: They never do. They're slimming [laughs].

Hill: Have you seen photos of Babe Ruth? They're not as slimming as you think.

Barker: Can you imagine him in horizontal stripes?

Hill: No, that would be even worse.

Barker: Babe Ruth stole as many bases in his career as Pete Rose.

Hill: Did he really?

Barker: Yeah. He is not as fat as you think.

Hill: He is not as skinny as you think either.

Barker: Pete Rose was not as fast as you think. He used to steal more bases back in different areas of baseball, and I think Pete Rose was not necessarily one of the huge base-stealing eras.

Hill: We're going to have to rethink that Charlie Hustle nickname for Pete Rose.

Barker: Well, he got as much as he could out of his physical gift. Whereas Babe Ruth squandered some of his physical gifts, but utilized a lot of them as well. He's still the best there ever was in terms of how much better he was than the competition of his era.

Hill: Bill Barker, always good talking to you. Thanks for being here.

Barker: Thanks for having me.

Hill: As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of MarketFoolery, the show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening. We'll see you tomorrow!