Shares of personal styling retailer Stitch Fix (SFIX) dropped sharply on December 8 after the company posted its Q1 2022 results. Despite recording a top-line beat and narrower-than-expected loss, the guidance for Q2 dismayed investors, leading to the panic sell-off situation.
Customers for the quarter were only 15,000 more from the previous quarter, which was a result of the end of an unsuccessful referral program. Moreover, the guidance calls for only a 0-3% year-over-year growth in revenues, which is much below Street expectations.
What is more concerning is that management expects a decline in customers for the first time in its history.
These factors are the ones that are making the company one of Wall Street’s trending stocks today.
“Our sequential net client additions were lower than prior quarters, and we are currently making changes to get this moving in the right direction,” assured Stitch Fix CEO Elizabeth Spaulding on the earnings call.
Expert Not Happy
However, these assurances did little to buy the confidence of Wedbush analyst Tom Nikic, who believes that the company’s “Fix” business is a “niche offering with diminishing returns as it grows”. Notably, “Fix” is a customization offering based on a style quiz, but where the outfit selections are made by stylists.
As the company transitions from this Fix model to a different model called “Freestyle”, where clients are given a chance to buy personalized clothes, Nikic is more optimistic. However, the analyst is not impressed with how the company is handling the transition.
“If they can pull it off, the stock could re-rate higher, but until we see evidence/visibility of fundamental stabilization, we’re comfortable avoiding this one,” explained Nikic, who reiterated a Hold rating on the Stitch Fix stock and reduced its price target to $21 from $45.
Wall Street Cautious
The Wall Street analyst consensus holds a cautious stance towards the stock, with a Hold rating, based on three Buys, 11 Holds, and two Sells. The average Stitch Fix price target of $25.67 indicates an upside potential of 32.2%.
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclosure: At the time of publication, Chandrima Sanyal did not have a position in any of the securities mentioned in this article.
Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates Read full disclaimer >
