- Stitch Fix reports FQ1 earnings after the market close on December 7.
- The online personal styling service is expected to return to nearly 10% growth with potential upside from business normalization.
- My prediction is for FY22 revenue targets to return to pre-virus levels at ~$2.6 billion.
- The stock is cheap based on only 16x normalized adjusted EBITDA targets.
- This idea was discussed in more depth with members of my private investing community, Out Fox The Street. Get started today »
Despite some large negative reactions to recent earnings reports and distribution centers’ shutdown a while due to COVID-19, Stitch Fix (SFIX) is actually up over 70% for the year. Investors would make a mistake to dump the stock just because the online clothing personalization company trades above recent lows. My investment thesis remains bullish on Stitch Fix at least reaching new all-time highs.
Back To Normal
The stock is up this year because the virus crisis pushed more consumers to purchasing clothing online. Stitch Fix is unique in that the business is built on the concept of consumers trying on new apparel in the comfort on their home feeding right into a consumer base no longer interested in spending all day apparel shopping or in crowded spaces.
The odd part is that the company benefitted from the shutdown by far outperforming other retailers, but Stitch Fix had distribution centers closing during the peak outbreak back in April, causing a slowdown in new members. This issue impacted short-term results as new members weren’t onboarded as fast, but the company should quickly catch up on this front.
The end result should be more consumers shopping at home using personalization services, leading to higher revenue targets for the company, not lower. Analysts currently forecast FY22 revenue targets down nearly $240 million from pre-virus estimates. Just back in March, analysts had Stitch Fix generating revenues of ~$2.59 billion next fiscal year, while the current target is down to only $2.35 billion.
Source: Seeking Alpha earnings revisions
My view is that more retail moves online towards Stitch Fix, suggesting the original FY22 targets could be topped.
Normalized Model
Even during a tough FY20, Stitch Fix ended the year with an 8% increase in active clients. The year ended on August 1, so the company ended the year in the toughest period for the virus. Active clients even rose sequentially from the 3.418 million at the end of FQ3 to the record 3.522 million at the end of July.
