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Stitch Fix: Back To Growth Mode

Jun. 09, 2020 6:46 AM ETStitch Fix, Inc. (SFIX)LULU, NKE12 Comments


  • Stitch Fix missed FQ3 estimates due to the virus shutting down the majority of their distribution centers.
  • The online personalized stylist service predicts a return to growth in the current quarter.
  • The stock trades at an absurd 1.1 EV/S despite normalized revenue growth in the 20% range.
  • This idea was discussed in more depth with members of my private investing community, DIY Value Investing. Get started today »

Like most companies in the retail sector, Stitch Fix (NASDAQ:SFIX) saw weakness during the most recent quarter. The online apparel personalization service had the fortunate benefit of offering online sales without the need for retail locations, but the company had to close distribution centers during the virus outbreak. My investment thesis remains highly bullish on the stock looking for some cooling off after the 100% bounce off the $11 lows.

Image Source: Stitch Fix website

Bad Quarter, But Not Horrible

While most apparel retailers saw a substantial hit in the quarter covering the coronavirus shutdown, Stitch Fix only saw revenues dip 9.1%. For FQ3, revenues were only $371.7 million versus analyst estimates up at $414.5 million.

The company is predicting that without closing fulfillment centers, sales would've grown YoY due to a large backlog of orders. In fact, the company is back to full warehouse capacity now, but Stitch Fix doesn't forecast eliminating the order backlog until the end of June in a sign of strong demand despite slow deliveries.

At the end of March, Stitch Fix initially closed facilities in San Francisco, Dallas and Bethlehem, PA, leaving over half the fulfillment facilities closed with capacity dropping 70% by the end of the month. Even after reopening facilities, the company allowed warehouse workers to opt-in to return to work, reducing the workers far below full capacity.

Even with the coronavirus issues, the company saw active clients grow 9% in the quarter, but the amount was down from the previous quarter. Investors should expect Stitch Fix to see clients jump in the current quarter. A return to 10% client growth similar to last year would lead to record client counts of 3.65 million for the current quarter.

Source: Stitch Fix FQ3'20 shareholder letter

A big part of the sales weakness was

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This article was written by

Stone Fox Capital profile picture
Stone Fox Capital Advisors, LLC is a registered investment advisor founded in 2010. 
Mark Holder graduated from the University of Tulsa with a double major in accounting & finance. Mark has his Series 65 and is also a CPA.

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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.

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Comments (12)

Dead money why would you invest in the apparel sector right now. Macy’s Nordstrom...long list of stores that will be heavily discounting the balance of 2020.
Stone Fox Capital profile picture
Why would they be discounting Summer/Fall/Winter Clothes?
Wow 46.6% short interest, I wonder if these folks are as correct as they have been so far in this market😆
Shinde Investment Ideas profile picture
What caused the gross margin to drop? Distribution center closure would drive sg&a up but shouldn't have impacted gross margin
Nitin B. Sharma profile picture

From their earnings call transcript:

"Q3 gross margin was 40.8%, 430 basis points lower than Q3 of last year. This is largely driven by COVID as we increased our inventory reserve as well as higher clearance rate due to the topline softness. Partially offsetting was continued favorability and merge costs."

Shinde Investment Ideas profile picture
Thanks both items one does not want to see for a company with strong growth and customer appeal prospects, however covid19 impacts are tough for any business to take on. Lets see how they do in next quarter. I am long sfix
Stone Fox Capital profile picture
One really has to throw out some numbers during a pandemic.

@Nitin B. Sharma
Thanks for posting the info from the call.
Blevinati profile picture
I think we retrace these gains on SFIX down into the high teens before running again up to $30
EliasMouawad profile picture
@Blevinati Very probable if there is a market correction.
Deep value? 1/2 their quarter was before corona hit the current quarter will be more of the same.
Boaz1 profile picture
09 Jun. 2020
it is almost at the pps of pre covid. Do you say it's in a better position today?
Ashay Kadu profile picture
Do you have any thoughts on their total addressable market and how likely are more people to shift to personalised shopping, given its expensive for a common man?
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