Stitch Fix Inc (NASDAQ: SFIX) stock fell over 1% in the pre-market session on December 13th, 2018 on change in strategy that includes slowing growth in new users. The company added new brands this quarter, including Michael Kors, Madewell, The North Face, Bonobos and Converse, and expanded its size offerings for men. Active clients for the quarter rose 22% to 2.9 million, but fell short of Wall Street expectations of 2.95 million. In Q1, ‘19 the company implemented an automated outbound fix conveyor and labeling system in our Phoenix fulfillment center, which is reducing per fix labor costs and improving shipping accuracy.
SFIX in the first quarter of FY 19 has reported the adjusted earnings per share of 10 cents, beating the analysts’ estimates for the adjusted earnings per share of 3 cents, as per Factset. The company had reported the adjusted revenue growth of 24 percent to $366.2 million in the first quarter of FY 19, beating the analysts’ estimates for revenue of $358 million. Revenue per client grew 2% year-over-year despite the dilutive impact of the newer categories. Q1 gross margin was 45.1%, 140 basis points higher than last year’s Q1. Advertising was 10.6% of net revenue this quarter compared to 9.5% in last year’s Q1. Other SG&A, excluding advertising was 31.5% of net revenue in the quarter compared to 30.9% in Q1 of last year. These results reflect both payroll and SPC investments and technology talent partially offset by continued savings with a variable labor. Adjusted EBITDA was $14.3 million or 3.9% of net revenue. Quarter end inventory was up 22% year-over-year consistent with revenue growth. SFIX also ended Q1 with over $355 million in cash and cash equivalents
For the second quarter, Stitch Fix expects “slower” active client growth, advertising spending to be lower, and a flat active client count. Part of the reason for the lower advertising spend is the lack of seasonality at Stitch Fix, such that the holiday season is not as critical to the company’s results as it is for traditional retailers.
For the second quarter, the company expects revenue of $360 million to $368 million while analysts expected around $363 million. The company expect adjusted EBITDA in the range of $8 million to $12 million or an adjusted EBITDA margin at 2.2% to 3.3%.