Stitch Fix (SFIX) will report third quarter (April) results this afternoon in a Letter to Shareholders on the company's website. Management will host a call at 5:00 PM.
Stitch Fix is an online customized apparel shopping platform. This will be the company's seventh earnings report as a public company.
The company tends to report revenue and EBITDA above its forecast while guiding revenue in-line and EBITDA below consensus for the following quarter. In fact, the company has guided next-quarter adjusted profit (EBITDA) below estimates in all six quarterly reports.
Stitch Fix guided for third quarter EBITDA of ($4)-1 mln with revenue up 22-26% to $388-398 mln. The EBITDA loss includes $15-20 mln in incremental brand marketing investments to drive increased client awareness and engagement. The company said it will return to profitability in its fiscal fourth quarter.
Last quarter, Stitch Fix raised fiscal 2019 EBITDA guidance to $33-43 mln from $20-40 mln and revenue guidance to $1.53-1.56 bln (+22-26% yr/yr) from $1.49-1.53 bln. The company reported second quarter adjusted EBITDA and revenue above guidance for the fifth straight quarter. Revenue growth accelerated to 25%. Second quarter EBITDA grew 5.5% but the EBITDA margin fell 100 basis points to 5.2% as the company invested in data science talent and expansion in the U.K.
The stock surged to a five-month high in response to earnings but quickly gave up those gains. There are plenty of skeptics regarding the company's valuation and long-term potential. Bulls see a cash flow positive retail disruptor while bears see a competitive apparel market that requires marketing spend to grow the top-line, calling into question long-term margin profile.
Stitch Fix has a $2.4 bln market value and trades at just over 1.3x sales but ~50 EV/EBITDA, giving both the bulls and bears reason to believe the stock is mis-priced. Some 25% of the ~40 mln share float was recently sold short.
While Stitch Fix has executed well, the company will have to maintain healthy growth to scale sustainable profits. The weekly options imply a ~15% move in the stock by Friday.