This clothing retailer beat Wall Street’s estimates on both the top and bottom lines, posting revenues $535.6 million (up 44%), and EBITDA of $11.6 million, compared to the forecast of a loss of $5 million to $9 million. The company also raised its full-year revenue guidance from $2.02 billion-$2.05 billion to $2.07 billion-$2.08 billion, and gave full-year adjusted EBITDA guidance for the first time, of $25 million-$30 million.
Stitch Fix, Inc. (SFIX)
From Canaccord Genuity Research
Stitch Fix reported strong 3Q21 results as its second-highest quarter of net client additions, improving success rates, and strong engagement with new direct buy and Fix preview features all contributed to robust revenue growth and better-than-expected profitability.
The apparel market is rebounding as the vaccine rollout accelerates and consumer behavior normalizes, with the company seeing demand shift from casual clothing to items better suited to business and social settings, and this dynamic is likely to persist throughout the rest of the year.
The 4Q21 outlook reflects this momentum, with both revenue and EBITDA guidance coming in well ahead of consensus. Meanwhile, the management transition is on track as Founder and CEO Katrina Lake moves into the Executive Chairperson role in August, when current President Elizabeth Spaulding will take over as CEO.
Stich Fix’s broadening of the direct buy platform to new clients is on schedule for late 4Q21, and this should meaningfully expand its TAM by serving a greater share of purchase occasions, and enhanced functionality across both the core Fix offering and direct buy are driving heightened engagement, retention, and AOV (average order value), laying the foundation for continued top-line growth and improving profitability.
Strong customer acquisition and heightened keep rates drive upside: Stitch Fix added 234K active clients during 3Q21, bringing the total to 4.11M (+20% y/y), ~6% ahead of CGe (Canaccord Genuity’s estimates), as strong demand for Fixes from both first-time and reactivated clients drove the second highest quarter of net additions in company history. Net revenue grew ~44% y/y to $535.6M, ~5% ahead of CGe, with strong performance driven by both sequential and y/y increases in keep rates across all categories.
Stitch Fix has begun to see demand shift out of loungewear and into more formal attire as consumer behavior normalizes, with sales of rompers and jumpsuits up 60% y/y during Q3 along with clients increasingly requesting vacation-related items and bright seasonal colors.
GM expanded 310bps q/q to 46%, the highest level since 1Q17, primarily driven by lower merchandise costs and improved transportation costs. Adj. EBITDA of $11.6M came in well ahead of expectations, primarily due to the revenue and GM upside along with advertising efficiency.
Direct buy and core Fix offerings both see improved functionality: Stitch Fix launched Shop by Category to all existing customers in March, giving direct buy clients the ability to easily sort and shop by department, trend, or brand while still receiving personalized recommendations. Shop by Category helps with intent-based purchases and is a natural complement to Trending for You, with the company seeing a meaningful increase in engagement since the launch as weekly orders per client reached a record high during 3Q21, and each new Fix cohort has higher direct buy engagement within its first 30 days than the prior cohort thanks to the continuously improving customer experience.
Stitch Fix reiterated its plans to expand direct buy to new clients that have not previously ordered a Fix by the end of fiscal Q4, noting it plans to invest in advertising next year to educate consumers who may be familiar with the core Fix service about the new direct buy offering. Stitch Fix has also expanded availability of Fix preview, which allows clients to view and adjust items selected for their next Fix before it ships, to its entire client base in the UK and to more than half of US clients. Roughly three quarters of customers have opted-in, with strong engagement resulting in both higher success rates and heightened AOV.
Strong outlook as recent momentum is expected to persist. Stitch Fix provided 4Q21 net revenue guidance of $540-550M, representing 22-24% y/y growth and above consensus of $523M, raising its FY21 net revenue outlook to $2.07-2.08B (vs. $2.02-2.05B prior). 4Q21 adj. EBITDA guidance of $15-20M was in-line with CGe of $18.5M and above consensus at $5M.
Valuation: We are raising estimates and increasing our price target to $76 (from $68), based on 3.3x FY22 revenue (vs. 3.0x prior) and supported by DCF valuation.
Maria Ripps, CFA, Michael Graham, CFA, Jason Tilchen, CFA, Canaccord Genuity Research, canaccordgenuity.com, June 7, 2021