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Stitch Fix: Challenges Sour the Outlook but Valuation Is Appealing, Says One Analyst
Stock Analysis & Ideas

Stitch Fix: Challenges Sour the Outlook but Valuation Is Appealing, Says One Analyst

Markets were soaring at Wednesday’s open, making for a nice change from the recent carnage. That was scant consolation for Stitch Fix (SFIX) investors, however. The shares were trending south after the styling service delivered a mixed earnings report.

In F2Q22, revenue increased by 2.5% year-over-year to reach $516.7 million, beating the Street’s $514.5 million forecast by $2.2 million. EPS landed at -$0.28, $0.02 ahead of the consensus estimate.

However, the outlook left a lot to be desired. For FQ3, net revenue is anticipated to be in the $485 million to $500 million range, some way below the Street’s expectation of $558.65 million.

The company blamed the disappointing outlook on a decline of active customers in the quarter. Management said it is still feeling the impact of Apple’s privacy changes, while a lower-than-anticipated retention rate as the quarter lapped last year’s referral program also played its part. As such, total active customers fell by 161,000 quarter-over-quarter to 4.02 million.

Nevertheless, surveying the print, Canaccord’s Maria Ripps highlights the positives.

Although the company has been prudent with its efforts to promote Freestyle – the new service launched last September – while it continues to “iterate the onboarding and conversion process to avoid friction” for its core Fix business, “engagement” with the new platform was “strong” during the quarter.

And Ripps notes that the company has big expectations for the platform.

“Management reiterated that it still thinks the opportunity for Freestyle is 2-3x larger than that of its core Fix business, and while we recognize the ongoing transition requires operational execution over the coming quarters to return the business to growth, a very undemanding valuation could help the stock find support over the near term,” Ripps opined.

All in all, Ripps stays with the bulls, reiterating a Buy rating, although her price target on SFIX drops from $38 to $20. Still, there’s upside of 99% from current levels. (To watch Ripps’ track record, click here)

Ripps, though, is on her own here as the only bull on the Street. With 12 additional Holds and 2 Sells, the stock makes do with a Hold consensus rating. Investors could be sitting on one-year returns of 19%, given the average price target clocks in at $12. (See SFIX stock analysis on TipRanks)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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