SFIX Q3 Loss Narrower Than Expected, FY25 Outlook Raised, Stock Up 8%

Stitch Fix, Inc. SFIX reported third-quarter fiscal 2025 results, wherein the top and bottom lines beat the Zacks Consensus Estimate. The top line improved from the year-earlier quarter. Meanwhile, the bottom line fared better year over year. The company raised its fiscal 2025 view. As a result, SFIX shares rose 7.5% during the after-market trading session yesterday.

SFIX demonstrated meaningful progress in its transformation strategy, returning to year-over-year revenue growth and showing strong engagement across its Fix and Freestyle channels. The company benefited from enhancements in average order value, assortment freshness and client experience improvements, including larger and more flexible Fixes. These initiatives contributed to higher client satisfaction and improved metrics, such as keep rate and client reactivation.

More on Stitch Fix’s Q3 Results

SFIX reported an adjusted loss of 6 cents per share, narrower than the Zacks Consensus Estimate of an adjusted loss of 12 cents. The metric was also narrower than the loss of 15 cents incurred in the year-ago quarter. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)

Stitch Fix recorded net revenues of $325 million, which surpassed the Zacks Consensus Estimate of $315 million. Also, the metric improved 0.7% from the year-ago quarter due to higher net active clients.

The number of active clients engaged in ongoing operations was 2,353,000, marking a year-over-year decline of 10.6%. The average net revenues generated per active client from ongoing operations were $542, representing an increase of 3.2% from the previous year.

Insight Into SFIX’s Margins & Expenses

In the fiscal third quarter, this Zacks Rank #3 (Hold) company’s gross profit declined 2.3% to $143.6 million from $147 million in the year-ago period. Also, the gross margin decreased 130 basis points (bps) year over year to 44.2%. The year-over-year decline was primarily led by lower product margins as the company continued to invest in the client experience through its assortment strategy. We expected the gross profit to decline 4.8% year over year to $139.9 million.

Selling, general and administrative expenses (SG&A) declined 10.8% from $171.8 million in the prior-year quarter to $153.3 million. SG&A expenses, as a percentage of net revenues, were 47.2%, down 60 bps from 53.2% in the prior-year quarter. Advertising expenses were 10.2% of revenues in the fiscal third quarter, a year-over-year increase of 130 basis points, reflecting the company's broader reinvestment in growth. We anticipated SG&A expenses to decline 7.8% year over year in the fiscal third quarter.

Stitch Fix reported an adjusted EBITDA of $11 million compared with $6.7 million in the year-ago quarter, reflecting its ongoing cost-management discipline. We note that the adjusted EBITDA margin improved 130 bps year over year to 3.4% in the quarter under review.

SFIX’s Financial Snapshot: Cash, Inventory & Equity Overview

The company ended the fiscal third quarter with cash and cash equivalents of $108.9 million, short-term investments of $125.3 million, no debt, net inventory of $114.4 million and shareholders’ equity of $200.4 million.

The net cash provided by operating activities was $20.5 million and the free cash was $16 million in the fiscal third quarter.

SFIX Stock Past Three-Month Performance

Stitch Fix’s FY25 Guidance

For the fourth quarter of fiscal 2025, SFIX anticipates net revenues between $298 million and $303 million, indicating a year-over-year decline of 5.2-6.7%. When adjusted to a comparable 13-week period, this indicates year-over-year growth of 0-1.7%. The company expects the fiscal fourth-quarter gross margin to come in at the lower end of 44-45%. Adjusted EBITDA is expected to be $3-$7 million, suggesting an adjusted EBITDA margin of 1-2.3%.

The outlook for Stitch Fix in fiscal 2025 implies a cautious yet optimistic approach, with total revenues between $1.25 billion and $1.26 billion compared with the previously mentioned $1.23-$1.24 billion, indicating a 4.3-4.7% year-over-year decline when adjusted to a standard 52-week period. The company expects the full-year gross margin to be at the lower end of 44-45%. It is projecting total adjusted EBITDA between $43 million and $47 million, with a margin of 3.5-3.8%, up from the prior mentioned $40-$47 million.

The SFIX stock has gained 19.8% in the past three months compared with the industry’s 11% growth.

Stocks to Consider

Some better-ranked stocks are Urban Outfitters Inc. URBN, Canada Goose GOOS and Allbirds Inc. BIRD.

Urban Outfitters is a lifestyle specialty retailer that offers fashion apparel and accessories, footwear, home decor and gift products. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for URBN’s fiscal 2025 earnings and sales implies growth of 21.2% and 8.1%, respectively, from the year-ago actuals. URBN delivered a trailing four-quarter average earnings surprise of 29%.

Canada Goose is a global outerwear brand. GOOS is a designer, manufacturer, distributor and retailer of premium outerwear for men, women and children. It carries a Zacks Rank #2 (Buy) at present.

The Zacks Consensus Estimate for Canada Goose’s current fiscal year’s earnings and sales indicates growth of 10% and 2.9%, respectively, from the year-ago actuals. Canada Goose delivered a trailing four-quarter average earnings surprise of 57.2%.

Allbirds is a lifestyle brand that uses naturally derived materials to make footwear and apparel products. It carries a Zacks Rank of 2 at present.

The Zacks Consensus Estimate for BIRD’s current financial-year earnings implies growth of 16.1% from the year-ago actual. The company delivered a trailing four-quarter average earnings surprise of 21.3%.

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This article originally published on Zacks Investment Research (zacks.com).

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