A couple of weeks ago, Stitch Fix, Inc. SFIX released its fourth-quarter fiscal 2024 results, igniting discussions among investors regarding the stock's future trajectory. With its latest earnings now available, investors are weighing the decision to either boost their investments or maintain their current holdings.

Analyzing Stitch Fix's Mixed Performance

SFIX shares have declined 21.1% in the past month against the industry’s 9.1% growth. Stitch Fix faces a significant challenge with its declining active client base, which has been a primary contributor to the company’s revenue decrease over the past nine quarters. The number of active clients engaged in ongoing operations was 2,508,000, marking a year-over-year decline of 19.6% in the fourth quarter of fiscal 2024.

As a result of this, the company’s top line moved down 12.4% in the fiscal fourth quarter. This ongoing decline in sales points to persistent difficulties in client retention and acquisition.  (Read: SFIX Q4 Loss Narrower Than Expected, Client-Centric Innovation Drives Growth)

Despite revenue headwinds, the company has maintained profitability through cost control and operational optimization, achieving positive adjusted EBITDA for seven consecutive quarters. In the fiscal fourth quarter, the adjusted EBITDA margin rose 90 basis points to 3%, while the gross margin expanded year over year by 50 basis points to 44.6%, driven by better inventory management and a focus on higher-margin private-label products.

 

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Here’s How Estimates Rise for Stitch Fix Post Q4 Earnings

The Zacks Consensus Estimate for adjusted loss has witnessed improvement, reflecting the positive sentiment around Stitch Fix. Over the past 30 days, analysts have improved their adjusted loss estimates by 5 cents to 15 cents per share for the current quarter and by 2 cents to 17 cents for the next quarter. These estimates indicate year-over-year growth of 31.8% and 19.1%, respectively.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

 

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Reasons Behind Analysts’ Optimism About SFIX Stock

Stitch Fix is committed to enhancing client experiences while maintaining a robust financial foundation, including a debt-free balance sheet, which bolsters its potential for sustained profitability. The innovative integration of AI and effective cost management further position the company for long-term success. As Stitch Fix undergoes transformation and establishes a clear growth strategy, it is well-prepared to adapt to the changing retail environment.

In its fourth quarter of fiscal 2024, Stitch Fix achieved a notable 4.5% year-over-year increase in revenue per active client, reaching $533. This growth highlights the company’s ability to deepen relationships with its core clients by offering personalized and flexible shopping experiences tailored to individual needs. Expanding the Fix model to include up to eight items and offering flexible shipment cadences have boosted revenues and reduced client churn rates by 14%.

Stitch Fix’s proprietary AI technology significantly enhances personalized client experiences at scale, contributing to a 5% rise in conversion rates among new clients. The company has implemented cost-cutting measures that saved more than $100 million in selling, general and administrative expenses in fiscal 2024. Stitch Fix expects to achieve further savings in fiscal 2025. 

With its three-phase transformation strategy — rationalization, building and growth—the company aims to drive revenue growth by fiscal 2026. Ending the fiscal fourth quarter with $162.9 million in cash and no debt, Stitch Fix is well-positioned to invest in growth initiatives without financial constraints, enhancing its competitive edge in the retail landscape.