Heading into tonight's print, shares are again on the rise, up above 5% at intraday highs, in anticipation of another upside performance. This renewed strength comes on the heels of a downgrade to Neutral at Piper Jaffray back on September 20, which put an abrupt halt to SFIX's upward momentum at that time. The firm's primary concerns revolved around whether SFIX's top-line growth has peaked, in combination with a loftier valuation following the stock's sky-rocket move higher. On that note, shares are currently trading with a 1-year Forward P/S of about 3.6x, which doesn't seem overly egregious in our view given the company's double-digit growth and improving cash flow generation.
As for tonight's print, SFIX is expected to report GAAP EPS of $0.04 on revenue of $318.9 mln, representing year/year growth of 23%. Analysts' top line projections are at the high-end of SFIX's $310-$320 mln guidance it provided in its Q3 report. In its Q3 report, the company also guided for Q4 Adjusted EBITDA of $6-$11 mln, which translates to year/year growth of nearly 250% at the mid-point.
A couple other metrics to keep an eye on are gross margin and active clients. On the former, gross margin has remained steady at the 43-44% level over the past four quarters. Specifically, Last quarter’s margin (3Q18) came in at 43.6%, 2Q18 was 43.0%, 1Q18 was 43.6%, and 4Q17 came in at 43.5%. For this quarter, the Street anticipates that gross margin will stay within this range at 43.5%.
On the latter metric, active clients, one of the more attractive fundamental qualities for SFIX is its consistent performance in the realm of new client additions, demonstrating growth quarter after quarter. Last quarter, active clients grew by 29.6% to 2.7 mln, up 614,000. This followed growth of 31% (+588K accounts) in Q2.
For this quarter, investors are likely looking for a similar performance in that 25-30% growth range, putting SFIX around the 3.4 mln total client area. One key catalyst that could help push its active client growth even higher is the launch of its new Stitch Fix Kids offering, which just took hold last quarter.
Looking Ahead & Conclusion
SFIX will also likely provide guidance for 1Q19 and FY19. In order to meet analysts' expectations, the company will need to guide for Q1 revenue and EPS of $360.1 mln (growth of 22%) and $0.04, respectively. It may also provide an EBITDA outlook, with analysts currently forecasting $11.6 mln.
For FY19, SFIX will need to guide for revenue and EPS of $1.49 bln and $0.14, respectively, in order to meet expectations.
To conclude, with the stock spiking higher ahead of tonight's report, traders are anticipating another solid result from SFIX. Its revenue growth is expected, per company and Street forecasts, to decelerate a bit, but the company has nevertheless been executing well, as illustrated by its three straight upside reports and its turn to profitability. Another strong performance tonight could add more fuel to this recent reversal higher, but an in-line report (or worse) would be likely to ignite a sharp sell-off given the heightened expectations heading into the print.