Shares of Stitch Fix (SFIX 34.65, +7.67, +28.43%) are surging
after the company beat quarterly estimates and raised guidance for fiscal 2019.
The online customized shopping platform's stock has seen a wild ride since
coming public in December of 2017.
Second quarter revenue growth accelerated to 25% versus +22-24% guidance. Stitch Fix reported adjusted profit (EBITDA) and revenue above guidance for the fifth straight quarter. Second quarter EBITDA grew 5.5% but the EBITDA margin fell 100 basis points to 5.2% as the company invests in data science talent and expansion in the U.K.
Active client count grew to 3 mln from 2.9 mln in the first quarter. That was encouraging after the company missed active client count estimates and called for them to be flat sequentially as the company pulled back on advertising during the holiday quarter.
Guidance for the third quarter was mixed. The company guided quarterly EBITDA below estimates for the sixth straight quarter. The expectation for slightly negative EBITDA comes as the company launched its first integrated brand marketing campaign in order to drive increased client awareness, consideration, and emotional engagement. Management expects to see continued business momentum as third quarter revenue guidance came in above estimates, expected to grow 24% at the midpoint, which tends to be conservative.
Stitch Fix was able to raise FY19 EBITDA to $33-43 mln (2.2-2.8% margin) from $20-40 mln and revenue to $1.53-1.56 bln (25-27% growth) from $1.49-1.53 bln. The company will continue to invest in the business in order to drive long-term growth.
We are seeing a short squeeze to some extent as ~36% of a rather small float was recently sold short.
At premarket prices, the stock trades at over 80x EV/EBITDA or 2x sales. Bears are skeptical of the elevated earnings multiple while Bulls want to see the company maintain strong growth so it can scale to more substantial profitability. Growth well over 20% puts the company on a solid path towards the latter.
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