Stitch Fix Inc(NASDAQ:SFIX) stock crashed over 10.7% on December 20th, 2017 (as of 11:59AM EST; Source: Google finance) on concerns over their margins. Their Gross margin fell to 43.7% in the first quarter of 2018 against 46.6% in the pcp which is a fall of 290 basis points on the back of launch into men’s and plus. On the other hand, the group forecasts their gross margins to improve overtime with scale. Moreover, despite gross margins pressure, analyst from Piper Jaffray’s, Erinn Murphy is still bullish on the stock. The analyst sees that the new mediums are performing better than the expectations as well as expects a sequential improvement in SFIX’s three TV campaigns launched to date. The shares of SFIX enhanced over 48.9% in the last four weeks.
SFIX reported a active client base rise of 30% on a year-over-year basis to 2.4 billion active clients. They delivered a 25% top-line growth, reaching $295.6 million in net revenue as well as reported a $13.5 million in GAAP net income and $11.8 million in adjusted EBITDA. The Adjusted EBITDA was $11.8 million in the quarter or 4% of net revenue, a fall against $28 million or 11.9% of net revenue in Q1 of fiscal ’17. The group rising investments in marketing to win new clients, coupled with their expansion in the men’s plus and premium brands and technology headcount to improve their ability to serve all clients drove the performance.
For the second quarter, the group forecasts a net revenue in the range of $287 million to $294 million, which is a rise of 21% to 24% year-over-year. They forecast adjusted EBITDA in the range of $11.5 million to $15.5 million or margin of 4% to 5.3%. The group is aiming to achieve an adjusted EBITDA margins to be in the 11% to 13% range, boosted by a better gross margins and leverage on their fixed SG&A costs.
The group launched Premium Brands, but there is still significant opportunity to expand into new categories, product types and geographies. The current infrastructure and data science platform for personalization extend the opportunity for the group into new markets and categories.