Stitch Fix spikes after beating earnings and revenue expectations

Key Points
  • Stitch Fix spikes 26% in after-market trading as growth in its women's business and the scaling up of its men's business help it to top fiscal third-quarter estimates.
  • The company says it had 3.1 million active clients in the third quarter.
  • This is the seventh consecutive quarter Stitch Fix has seen more than 20% growth in revenue.
Katrina Lake of Stitch Fix at the NASDAQ, November 17, 2017.
Source: Nasdaq

Shares of Stitch Fix soared 25% in after-market trading Wednesday after the online personal styling company reported it beat earnings and sales expectations in the fiscal third quarter of 2019. It was helped by the healthy growth of its women's business and the scaling up of its men's business, it said.

Here's what the company reported compared with what Wall Street expected, based on a survey of analysts by Refinitiv:

  • Earnings per share: 7 cents vs. a loss of 3 cents expected
  • Revenue: $408.9 million vs. $394.9 million expected

For the third quarter ended April 27, Stitch Fix said net income dropped to $7 million, or 7 cents a share, from $9.5 million, or 9 cents a share, a year ago. Analysts predicted results at a loss of 3 cents per share, based on a poll by Refinitiv.

Its active clients — people who received a box of clothing in the preceding 12-month period — came in at 3.1 million, an increase of 17% year over year.

Stitch Fix beats on top and bottom lines
Stitch Fix beats on top and bottom lines

Stitch Fix has posted seven consecutive quarters of more than 20% growth in revenue since it became a public company in 2017. Sales in the third quarter of 2019 grew 29% to $408.9 million, widely beating the $394.9 million analysts expected.

"These results demonstrate our ability to attract new clients and to serve our existing clients well," Stitch Fix founder and CEO Katrina Lake said in a statement. "The continued strength of our Women's category and the growth of our Men's category give us even more confidence in our ability to scale new categories and geographies. As I look forward, I'm excited about the opportunities ahead to delight even more clients around the world."

In a letter to shareholders, the company said it used predictive algorithms to better reach female clients "who possess attributes that drive long-term relationships." Stitch Fix said it strengthened its men's business by increasing its product assortment and adding more exclusive brands to its selection.

The company also credited its year-old service Style Pass for improving client retention, growing average revenue per client and increasing client satisfaction compared with non-Style Pass clients. The service offers unlimited styling for a yearly $49 fee, which is credited toward items a client purchases. Stitch Fix said renewal rates for Style Pass were 70% across its men's and women's business. The service is only available for select clients at the time.

The company raised its revenue forecast for 2019 to a range of $1.57 billion to $1.58 billion, up from previous estimates of $1.53 billion to $1.56 billion. For the fourth quarter, revenue will be between $425 million and $435 million.

Adjusted EBITDA will be between $5 million and $10 million in the fourth quarter and between $38 million and $43 million for the year.

In the second quarter of 2019, the company launched a new algorithm application that allows it to predict product demand by using data they obtain from styling reviews and quizzes on the app. Lake partially attributed the company's strong performance that quarter to the algorithm.

Stitch Fix also unveiled at the beginning of the third quarter a brand marketing campaign to heighten consumer awareness by describing how their service works. In May, the company launched in the United Kingdom, a move that was expected to impact earnings projections.

The company, which has a market cap of $2.4 billion, has seen its stock surge 38% since the start of the year.