Can Stitch Fix's Leaner SG&A Structure Fuel Continued EBITDA Growth?

Stitch Fix, Inc. SFIX reported a 3.4% adjusted EBITDA margin in the third quarter of fiscal 2025, up 130 basis points year over year, with adjusted EBITDA reaching $11 million. This compares with the $6.7 million reported in the year-ago quarter. This performance reflects the tangible benefits of the company’s three-phase transformation strategy — rationalize, build and now grow — which has restructured operations to drive efficiency and profitability. 

A key contributor to the improved margin was disciplined cost control, particularly in selling, general and administrative (SG&A) expenses. SG&A declined 10.8% year over year to $153.3 million, accounting for 47.2% of net revenues, down from 53.2% in the prior-year quarter. This 600-basis-point improvement reflects tighter cost management and improved productivity while supporting investments in marketing and merchandising. 

At the same time, revenues per active client grew 3.2% year over year to $542, driven by a 10% rise in average order value. This growth stemmed from offering more flexible Fix options, including shipments of up to eight items, and expanding trend-right assortments across categories. Despite a modest decline in active clients, higher client monetization helped offset volume pressures, demonstrating resilience in the business model.

The contribution margin held above 30% for the fifth consecutive quarter, providing financial flexibility to absorb gross margin fluctuations tied to the merchandising mix and reinvestment in the client experience. While advertising spend increased to 10.2% of revenues, management emphasized a targeted approach focused on acquiring higher-lifetime-value clients. This combination of cost discipline and strategic investment has underpinned Stitch Fix’s path to sustainable margin expansion.

The company raised its full-year adjusted EBITDA guidance to $43-$47 million, implying a margin of 3.5-3.8%, up from the previously communicated $40-$47 million. With a leaner cost structure, improving client economics and continued focus on efficiency, Stitch Fix appears well-positioned to sustain its turnaround and accelerate profitable growth.

Stitch Fix’s Valuation Picture

SFIX is currently trading at a forward 12-month price-to-sales (P/S) multiple of 0.42X, which positions it at a discount compared with the industry’s average of 1.77X. Also, SFIX is priced lower than the sector’s average of 1.66X. It has a Value Score of A.

SFIX’s Stock Performance

Shares of this Zacks Rank #1 (Strong Buy) company have gained 34.8% in the past three months compared with the industry’s 25.5% growth.

Other Key Picks

Some other top-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 flaunts a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for URBN’s fiscal 2026 earnings and sales implies growth of 22.2% and 8.5%, respectively, from the year-ago actuals. Urban Outfitters 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 implies 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 Allbirds’ current financial year’s 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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