Entering text into the input field will update the search result below

Stitch Fix: Hit By Hysteria

Mar. 10, 2020 8:08 PM ETStitch Fix, Inc. (SFIX)AMZN26 Comments


  • Stitch Fix falls nearly 30% on a revenue cut due to macro issues.
  • The market is fearing too much competitive threats in selling off the stock.
  • The stock is far too cheap at an EV/S multiple 0.66x.
  • This idea was discussed in more depth with members of my private investing community, DIY Value Investing. Get started today »

After a brutal day in the stock market, Stitch Fix (NASDAQ:SFIX) cratered following a slight revenue miss and weak guidance for the 2H'20. The stock was already down to $21 following a difficult couple of tough weeks in the market while the mid-day action has Stitch Fix down nearly 50% from February highs. My investment thesis maintains an aggressive buy on the stock at $15 due to the hysteria over the guidance cut.

Tough Guidance

Heading into the quarterly report, investors had every reason to believe the personalized stylist firm could thrive during the coronavirus panic and still achieve annual revenue growth in the 22% range. Even the FQ2 revenue miss wasn't a big deal, considering Stitch Fix exceeded the midpoint of previous guidance of $451.0 million.

The problem occurred with revenue guidance for the year being cut from 21.5% to only 16.0% now. The company now expects FY20 revenues of $1.825 billion, down from $1.915 billion. The revenue hit is ~$90 million over the next two quarters.

Source: Stitch Fix FQ2'20 shareholder letter

The problem is the hopes that new initiatives in the direct buying program, Shop Your Styles and Shop Your Colors, would help maintain and possibly drive faster growth. The company gave a lot of reasons for cutting revenue guidance for the whole year:

  • Heightened promotional activity across retail caused active clients to spend less per Fix.
  • Due to higher customer acquisition costs, the company has reduced marketing plans.
  • Brexit has reduced U.K. revenue.
  • Coronavirus makes the company more conservative on guidance.

The big question is which of the issues really contributed to the reduced guidance. Brexit and coronavirus are macro themes that don't impact the long-term picture, while some of the promotional activity in the sector will likely resolve over time.

Stitch Fix has run

Looking for a portfolio of ideas like this one? Members of DIY Value Investing get exclusive access to our model portfolios plus so much more. Signup today to see the stocks bought by my Out Fox model during this market crash.

This article was written by

Stone Fox Capital profile picture

Stone Fox Capital (aka Mark Holder) is a CPA with degrees in Accounting and Finance. He is also Series 65 licensed and has 30 years of investing experience, including 10 years as a portfolio manager.

Mark leads the investing group Out Fox The Street where he shares stock picks and deep research to help readers uncover potential multibaggers while managing portfolio risk via diversification. Features include various model portfolios, stock picks with identifiable catalysts, daily updates, real-time alerts, and access to community chat and direct chat with Mark for questions. Learn more.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in SFIX over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (26)

Stone Fox Capital profile picture
Huge rally here... doubled off the lows. Doubt this is a $W type online play, but I'm sure they've done good with cheap ad rates.
Opportunist profile picture
My wife, who is a happy stitchfix customer, asked me a good question today. Concerned about the virus (we've been hunkered down for three weeks now) she said she was worried about the packages going in both directions and clothing being returned after worn and then I assume resent out to someone else.

With that thought, and the fact that we're going to be holded up for months and months so why do we need new clothes, she's going to cancel.

Any thoughts?
Stone Fox Capital profile picture
The virus doesn't last long enough on packages or any returned clothes to be a risk. What is the difference with the flu unless she is vulnerable?

What is there to cancel? Actually think more people would want fixes b/c they have nothing else to do at home the next few weeks. Would assume most of their customers have the financial means to where they aren't impacted by losing jobs. Don't see them having many restaurant workers as customers.
Stone Fox Capital profile picture
Just as I responded to this comment, SFIX ran a commercial on Bloomberg. Wonder if they ramp up advertising as others pull back. They are pretty smart and spending wisely, but the market wants them to just spend wildly to ramp up customers and revenues over the short term.
EliasMouawad profile picture
Nice article. It was a great call at $18 and a good opportunity today.
Gregory Shea profile picture
Anyone have insight why the CFO and CMO left?
cowboy-az profile picture
Anyhow know how well Amazon wardrobe compares to Stitch Fix? anyone use both that can comment?
Stone Fox Capital profile picture
Don't think it compares at all. Most companies that specialize on a premium product are able to beat $AMZN. Its when you compete on costs and time that Amazon wins.
I have position in this company and bought it high last year thinking is a good starting price. I wouldn't not recommend anyone to add at the dip or initiate new position. There are better stocks to put your money in.
Dantes_Will profile picture
The CEO trying to pin their poor execution on Brexit was the last straw for me. Dishonest leadership is always a major red flag for any fledgling company.
Stone Fox Capital profile picture
Don't buy high and sell low... don't be that guy.
Stone Fox Capital profile picture
Just part of the issue. Why do you suggest it's poor execution?
abdulmoiz1254 profile picture
Stichfix ..Hit by reality

I so wanted to short this, but i am just morally against shorting
Stone Fox Capital profile picture
Nothing morally wrong with shorting. Its how an efficient market works.
patfactorx profile picture
I think AI styling will be a huge catalyst. It will drive revenue and reduce costs.
10 Mar. 2020
Overall, I just felt like guidance was sloppy because of lack of specifics. And what they did say does make the investor feel that they do have a customer acquisition problem. Company is betting big on direct-buy but it is still unclear how they can improve customer acquisition and if what they are developing for direct-buy can somehow help with that.
I bought in AH trading at 13.35 after selling less then 2 weeks earlier at $28.
Blevinati profile picture
You have figured out the basic rule of SFIX and investing. Buy cheap and sell when you’ve made your goal.
Stone Fox Capital profile picture
Nice move... rocketed up to nearly $17 today.
Looks like blood in the streets.
nsei profile picture
Good article. I’m holding strong but wish they would have been more specific on guidance as well
Why no position?
BeepBeepImAJeep3 profile picture
@meekhuu Because just like the Golden Coral, the author gets paid by selling you biscuits. @Stone Fox Capital Funny that you didn't mention this name in your grab-bag of cherries you like to pick.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!

About SFIX

SymbolLast Price% Chg
Market Cap
Yield (TTM)
Rev Growth (YoY)
Short Interest
Prev. Close
Compare to Peers

More on SFIX

Related Stocks

SymbolLast Price% Chg
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.