Shares of Stitch Fix (SFIX) are surging after the company reported better than expected third quarter results and raised guidance for fiscal 2019.
Revenue growth accelerated for the third straight quarter. Sales grew 29% as active clients grew 17% yr/yr to 3.1 mln while revenue per active client grew 8%.
The company's core women's business continues to perform while the Men's business is starting to scale.
The retail sector is struggling mightily, but Stitch Fix is slowly proving that a next generation retail business model can work.
Management has consistently executed since its IPO in late 2017, having reported EBITDA and revenue above guidance every quarter.
A testament to its business momentum, Stitch Fix guided next-quarter revenue above estimates for the second consecutive quarter while this was the first-time management did not guide down EBITDA for the next quarter.
Stitch Fix stock represents a battleground between bulls and bears. Twenty-five percent of the float was recently sold short. The stock surged after reporting strong second quarter results in March but the stock quickly gave it all back.
Bulls see a cash flow positive retail disruptor growing north of 20%, trading at ~1.5x sales.
Bears are skeptical that the business model will scale to significant profitability in a competitive retail environment.
With a $2.7 bln valuation, the stock trades at ~50x its modest profits. Founder and Chief Executive Katrina Lake is running a disciplined enterprise, focused on cash flow positive top-line growth, so valuing the stock on near-term profitability seems short-sighted.
The stock has already pared a good chunk of its gains as traders fade the gap up, but continued execution makes this stock an interesting play on the secular shift online in the retail sector.