What Happened?
Shares of personalized clothing company Stitch Fix (NASDAQ:SFIX) fell 8.5% in the afternoon session after the company reported weak calendar fourth quarter (fiscal Q2'2025) results as high expectations heading into the quarter made it hard for the results to impress Wall Street.
The key highlight for the quarter was an upgraded full-year revenue and EBITDA outlook, signaling management's confidence in its ongoing transformation strategy. Despite this, revenue fell 5.5% year-on-year, and the company continued to lose customers, with active clients declining 15.5% from a year ago. Sales were pressured by a shrinking customer base, but revenue per active client rose 4.3%, reflecting higher spending from existing users.
In addition, operating losses persisted, and cash burn remained a concern, with free cash flow of negative $19.4 million for the quarter.
Looking ahead, Stitch Fix expects a continued sales decline, guiding for a 2.1% to 3.6% revenue drop in the next quarter. However, adjusted EBITDA is projected to remain positive, showing progress in cost controls and efficiency measures.
Overall, this was a mixed quarter with some key positives, but the company's long-term growth remains tied to stabilizing its customer base and reversing the ongoing sales decline.
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What The Market Is Telling Us
Stitch Fix’s shares are extremely volatile and have had 56 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 3 months ago when the stock gained 46.6% on the news that the company reported a "beat and raise" quarter (FQ1 2025). Stitch Fix blew past analysts' revenue, EPS, and EBITDA expectations. Looking ahead, it raised its full-year revenue and EBITDA guidance, which was encouraging. Management pointed to a strong start to the fiscal year, driven by their ongoing efforts to transform the business. This includes completing the exit from the UK market and implementing strategies aimed at returning to positive sales growth by the end of fiscal 2026. Zooming out, we think this was a solid "beat-and-raise" quarter.
Stitch Fix is down 11.2% since the beginning of the year, and at $3.88 per share, it is trading 41.6% below its 52-week high of $6.64 from December 2024. Investors who bought $1,000 worth of Stitch Fix’s shares 5 years ago would now be looking at an investment worth $313.92.
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