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Stitch Fix Earnings: What to Watch

By Demitri Kalogeropoulos – Dec 3, 2021 at 3:00AM

Key Points

  • Quarterly sales growth is slowing to below 20%.
  • Stitch Fix is aiming to reaccelerate growth with a push into direct purchase offerings.
  • Watch for signs of customer engagement in average spending metrics.

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The apparel specialist reports fiscal 2022 first-quarter earnings on Dec. 7.

Stitch Fix (SFIX -0.42%) investors have some big questions heading into the fiscal first-quarter earnings report. The online apparel specialist's stock has fallen over 60% year to date and is down 80% from the high shareholders saw at the start of the year.

Wall Street is worried about slowing growth, rising competition, and the threat of reduced profitability due to supply chain challenges and surging prices.

Against that pessimistic backdrop, let's look at a few ways Stitch Fix might surprise investors in the earnings news set for the afternoon of Dec. 7.

Person removing clothes from a box.

Image source: Getty Images.

Slowing growth

Expectations are modest on the growth front with sales expected to rise between 14% and 17% in the quarter that ended Oct. 30. That result would mark a slowdown from the 23% growth the company reported at the end of fiscal 2021.

However, Stitch Fix trounced management's guidance during that period, and there's a chance the company can post a repeat of that solid performance. But such a winning scenario depends on the company gaining market share in a crowded e-commerce niche.

Look for CEO Elizabeth Spaulding and her team to highlight Stitch Fix's engagement metrics, including average order spending, as encouraging growth indicators. The company last reported serving 4.2 million active customers at an average annual spending rate of over $500.

Dealing with challenges

The stock's decline in recent weeks can be tied to concerns the company stumbled in its inventory management due to supply chain challenges being felt across the global economy. It's also possible demand fell as shoppers return to their in-person shopping habits. These issues threaten both the short-term and long-term growth prospects of the business.

On the other hand, Stitch Fix is in a quickly growing market that management believes will soar in both the U.S. and the U.K. over the next few years. And the retailer just increased the size of its addressable market by adding new direct-buy offerings. We'll find out soon whether Stitch Fix can compete with more entrenched rivals in that much larger space.

Looking ahead

Another big question heading into Tuesday's report is whether Stitch Fix can ever reasonably target 20% sales growth again going forward. Management's official fiscal 2022 forecast calls for sales to rise just over 15%, while its adjusted EBITDA margin lands around 2%.

Investors can accept modest growth and low profitability if they can see a path toward stronger results. The push into direct buying and categories like menswear and children's clothing should lay the groundwork for those improvements. Stitch Fix still has a growing base of loyal shoppers, too.

Those assets are likely to help the company recover momentum in 2022. But the stock might not begin rebounding until it becomes clearer to investors that management's initial full-year outlook was too conservative.

Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Stitch Fix. The Motley Fool has a disclosure policy.

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