Stitch Fix Inc (SFIX) - Get Report shares traded sharply higher Tuesday after the online clothing group posted stronger-than-expected first quarter earnings following its recent move towards 'direct buy' strategies.
Stitch Fix reported a breakeven quarter for the three months ending on November 2, topping Street forecast of a 6 cent loss as revenues rose 21% from the same period last year to $445 million and active clients on the group's platform jumped 17% to 3.4 million. A notable portion of that gain, however, was linked to the launch of two new "direct buy" offerings -- Shop Your Looks and Shop New Colors -- that both supported inventory clearance and leveraged group expenses.
"With the introduction of our direct-buy capability, which allows clients to choose and purchase items outside of a Fix directly on our app or website, we’ve begun taking steps on what will be a multiyear process of evolving our offering so that our personalization service can be accessed in more flexible ways," CEO Katrina Lake told investors on a conference call late Monday. "We strongly believe direct-buy will ultimately be incremental to our business from both a wallet share and addressable market perspective. And as a result, we've actively prioritized continued rollout and improvement to this capability."
Stitch Fix shares were marked 8.2% higher in early trading Tuesday to change hands at $27.15 each, a move that would extend the stock's year-to-date gain to around 62%.
Looking into the group's fiscal second quarter, Stitch Fix said it sees net revenues in the range of $447 million to $455 million and a client growth rate similar to that in the first quarter. Adjusted earnings, Stitch Fix said, should grow to between $10 million and $15 million.
For its fiscal 2020 year, the group expects net revenue in the range of $1.9 billion to $1.93 billion, a 22.5% year-over-year growth rate at the higher end, and $18 million to $32 million in adjusted operating earnings
"Stitch Fix's new inventory optimization algorithm considers the entire client base in the styling queue rather than one client a time, helping to allocate inventory more efficiently across all clients,” said KeyBanc Capital analyst Edward Yruma, who carries an overweight rating with a $34 price target on the stock. “Stylists pick items from an algorithmically reserved inventory selection set aside for each client.”
“In 1Q, this algorithm contributed to an increased number of items purchased per Fix, which in turn improved client satisfaction and increased gross margin by 20 bps, which was slightly offset by an increase in inventory reserves,” he added.