It has been about a month since the last earnings report for Stitch Fix (SFIX). Shares have lost about 25.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Stitch Fix due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

SFIX Q1 Loss Narrower Than Expected, Active Clients Decline Y/Y

Stitch Fix reported first-quarter fiscal 2025 results, wherein both top and bottom lines beat the Zacks Consensus Estimate. The top line deteriorated from the year-earlier quarter. Meanwhile, the bottom line fared better year over year. The company raised its fiscal 2025 view.

More on Stitch Fix’s Q1 Results

Stitch Fix reported an adjusted loss of 5 cents per share, narrower than the Zacks Consensus Estimate of an adjusted loss of 14 cents. The metric was also narrower than the loss of 22 cents per share reported in the year-ago quarter.

SFIX recorded net revenues of $318.8 million, which surpassed the Zacks Consensus Estimate of $306 million. Also, the metric declined 12.6% from the year-ago quarter due to lower net active clients.

The number of active clients engaged in ongoing operations was 2,434,000, marking a year-over-year decline of 18.6%. The average net revenues generated per active client from ongoing operations were $531, representing an increase of 4.9% from the previous year.

Insight Into SFIX’s Margins & Expenses

In the fiscal first quarter, the company’s gross profit declined 9% to $144.8 million from $159.1 million in the year-ago period. However, the gross margin expanded 180 basis points (bps) year over year to 45.4%, supported by improvements in transportation leverage and product margins. 

Selling, general and administrative expenses (SG&A) declined 18.1% from $187.8 million in the prior-year quarter to $153.8 million. SG&A expenses, as a percentage of net revenues, were 48.2%, down 330 bps from 51.5% in the prior-year quarter. Advertising was 9.4% of net revenues, up 120 basis points year over year. 

Stitch Fix reported an adjusted EBITDA of $13.5 million compared with $8.6 million in the year-ago quarter, reflecting its ongoing cost-management discipline. We note that the adjusted EBITDA margin improved 180 basis points year over year to 4.2% in the quarter under review.

SFIX’s Financial Snapshot: Cash, Inventory & Equity Overview

The company ended the fiscal first quarter with cash and cash equivalents of $137.2 million, short-term investments of $116.1 million, no debt, net inventory of $119.1 million and shareholders’ equity of $190.5 million.

The net cash provided by operating activities from continuing operations was $14.3 million and the free cash flow was $9.9 million.

Stitch Fix’s FY25 Guidance

For the second quarter of fiscal 2025, Stitch Fix anticipates revenues to be between $290 million and $300 million, indicating a 9-12% year-over-year decline. Adjusted EBITDA is expected to be in the range of $8-$13 million, indicating a margin of 2.8-4.3%. The gross margin is projected to remain steady between 44% and 45% for both the second quarter and the full year, with advertising expenses constituting approximately 8-9% of revenues. 

The outlook for SFIX in fiscal 2025 reflects a cautious yet optimistic approach, with total revenues expected to be between $1.14 billion and $1.18 billion compared with the previous guidance of $1.11-$1.16 billion, indicating a 10-13% year-over-year decline when adjusted to a standard 52-week period. The company is now projecting total adjusted EBITDA to be between $25 million and $36 million with a margin of 2.2-3.1%, up from the prior estimate of $14-$28 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

The consensus estimate has shifted 38.89% due to these changes.

VGM Scores

Currently, Stitch Fix has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Stitch Fix has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

Performance of an Industry Player

Stitch Fix belongs to the Zacks Retail - Apparel and Shoes industry. Another stock from the same industry, Urban Outfitters (URBN), has gained 10.7% over the past month. More than a month has passed since the company reported results for the quarter ended October 2024.

Urban Outfitters reported revenues of $1.36 billion in the last reported quarter, representing a year-over-year change of +6.3%. EPS of $1.10 for the same period compares with $0.88 a year ago.

Urban Outfitters is expected to post earnings of $0.87 per share for the current quarter, representing a year-over-year change of +26.1%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.

Urban Outfitters has a Zacks Rank #1 (Strong Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.

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