Shares of Stitch Fix (SFIX 0.45%) fell by 1.4% in after-hours trading on Tuesday following the online personalized-apparel retailer's release of a weak quarterly report.
The main catalysts driving this drop were quarterly revenue and earnings that missed Wall Street's consensus estimates, a decline in the company's number of active clients, and management's lowering of its sales guidance for the full fiscal year.
Here's an overview of Stitch Fix's fiscal 2023 first-quarter results and its outlook centered around six key metrics.
NASDAQ: SFIX
Key Data Points
1. Revenue declined by 22%
In the fiscal quarter, which ended Oct. 29, net sales fell 22% year over year to $455.6 million, which undershot the $459.4 million Wall Street had expected. The result did, however, fall within the company's own $455 million to $465 million guidance range -- though just barely.
2. Active clients fell by 11%
| Metric | Fiscal Q1 2023 | Change YOY |
|---|---|---|
| Number of active clients* | 3,709,000 | (11%) |
| Average net annual revenue per active client | $525 | Flat |
Data source: Stitch Fix. *The company considers an active client to be any customer who has bought at least one item in the past 52 weeks. YOY = year over year.
The company has been struggling to grow its customer base. Last quarter, the number of active Stitch Fix clients declined 9% year over year, and this metric fell by 5% two quarters ago.
Granted, the macroeconomic environment is challenging. But, in my view, the bigger issue is that the company's business model was flawed from the get-go. The number of consumers who would want to regularly receive a box containing apparel items that they (or someone close to them) didn't select is very small, in my opinion. It seems likely to me that the company's flagship "Fix" will remain a niche product that has little long-term growth potential.
3. Operating loss was $55.1 million
Stitch Fix's quarterly operating loss was $55.1 million, compared to an operating loss of $1.9 million in the prior-year period.
4. Loss per share widened by 25 times
The company's quarterly net loss was $55.9 million, or $0.50 per share, compared to a net loss of $1.8 million, or $0.02 per share, in the year-ago period. That result was worse than the loss of $0.47 per share that Wall Street had projected.
5. Operating cash flow was negative $10 million
In its fiscal Q1, Stitch Fix used $10.0 million in cash to run its operations, and its free cash flow was negative $16.2 million. Those were stark reversals from the prior-year period, when it generated positive operating cash flow of $141.7 million and positive free cash flow of $125.3 million.
The company ended the quarter with $203.4 million in cash, cash equivalents, and short-term investments on the books, so it remains in solid shape from a liquidity standpoint.
6. Fiscal 2023 revenue is now expected to decline by 18% to 23%
For its fiscal second quarter (which ends Jan. 28), management guided for revenue in the range of $410 million to $420 million. That would amount to a drop of 19% to 21% year over year. Going into the report, Wall Street had been modeling for fiscal Q2 revenue of $445 million, so the company's outlook was lighter than the analysts' consensus expectation.
For the full fiscal year (which ends July 29), management now expects revenue of $1.6 billion to $1.7 billion. This would amount to an annual decline of 18% to 23%. The prior guidance was for revenue to fall by 10% to 15%.
Continue to pass on Stitch Fix stock
As of the market close on Tuesday, Stitch Fix was down 81% year to date. It's also trading near its all-time low. But don't be tempted to go bottom-fishing here, as it's not a value stock even at the current low price, in my view.
Instead -- as I've written before in articles about previous Stitch Fix earnings reports -- investors "would be better off paying up for shares of companies with business models that have proven capable of generating profitable and solid revenue growth."
Two growth stocks that fit the bill: athletic apparel specialist Lululemon in the retailing industry and Nvidia in the growth tech space.
