Stitch Fix (NASDAQ: SFIX) likely to post weak Q1 earnings

Stitch Fix Inc. (NASDAQ: SFIX) is set to release its earnings results for the first quarter of fiscal 2020 on Monday after the market closes. The bottom line will be hurt by higher costs and expenses while the top line will be benefited by active clients and net revenue per active client.

As of August 3, 2019, the company had 3.24 million active clients. The company’s data science capabilities consisted of the rich data set and proprietary algorithms, which fuel its business by enhancing the client experience and driving business model efficiencies. The company believes its data science capabilities give a significant competitive advantage in the market.

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During the company’s first five years, much of the client base growth originated from referrals, organic word of mouth, and other methods of discovery as its marketing efforts and expenditures were relatively limited. The company will incur higher marketing expenses in the future by investing more in digital marketing and launching its first television advertising campaigns.

The company currently utilizes both digital and offline channels to attract new visitors to its website or mobile app and subsequently convert them into clients. The existing cash balances and cash flows from operations are likely to be sufficient to meet the company’s working capital and capital expenditure needs for at least the next 12 months.

Analysts expect the company to report a loss of $0.06 per share on revenue of $441 million for the first quarter. In comparison, during the previous year quarter, Stitch Fix posted a profit of $0.10 per share on revenue of $366.2 million. The company has surprised investors by beating analysts’ expectations in all of the past four quarters.

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For the fourth quarter, Stitch Fix reported a 61% dip in earnings due to higher costs and expenses as well as lesser income taxes benefit. The top line jumped by 36% driven by increases in both active clients and net revenue per active client. The company demonstrated its ability to deliver great client experiences and growing revenue per active client.

Looking ahead into the first quarter, the company expects revenue in the range of $438-442 million, representing a year-over-year growth of 20-21%, and an adjusted EBITDA of $6-9 million. For fiscal 2020, the company predicts revenue of $1.9-1.93 billion and an adjusted EBITDA of $85-105 million.

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