What happened
Shares of apparel e-commerce company Stitch Fix (SFIX -4.44%) popped on Wednesday following weak financial results for the fourth quarter of its fiscal 2022. It doesn't make a ton of sense. But as of 3 p.m. ET, Stitch Fix stock was up 11%.
So what
Fiscal 2022 wasn't good to Stitch Fix. Full-year revenue was only down 1.4% from fiscal 2021, coming in at $2.1 billion. However, business results are deteriorating. Fourth-quarter revenue was down 16% year over year. Active clients (customers in the past year) were down 9% in Q4, its third consecutive quarter of customer attrition. And it recorded a massive $96 million net loss.
Wall Street analysts were unsurprisingly lowering price targets and downgrading Stitch Fix stock en masse today after seeing its Q4 numbers. One of the strongest reactions came from Canaccord's Maria Ripps. According to The Fly, Ripps lowered her price target for Stitch Fix stock by more than 40% to just $7 per share, partly because management keeps lowering its forward expectations.
Wall Street's reaction wasn't surprising, but the market's reaction was. After initially dropping in early trading, Stitch Fix stock inexplicably jumped. Returns in a given day don't always make sense.
Now what
Perhaps the market was encouraged by Stitch Fix's somewhat improved guidance for profits. Management is guiding for a margin of -2% to -3% for earnings before interest, taxes, depreciation, and amortization (EBITDA) in the first quarter of its fiscal 2023. That would be an improvement from its -7% EBITDA margin in Q4.
However, back to Ripps's point, Stitch Fix is also expecting its business to keep getting smaller. Management is guiding for Q1 revenue of just $455 million to $465 million, which would be a 20% to 22% year-over-year decrease.
Investors may be encouraged that Stitch Fix's bottom line might improve. However, it has its work cut out for it to return to user and revenue growth, which may hold the stock back from additional gains from here.
