Stitch Fix, Inc. (SFIX) shares rose almost 30% yesterday after the company reported better-than-expected earnings for the third quarter of Fiscal 2024 ended April 27. Q3 revenue declined 16% YoY to $322.73 million but was more than $16 million ahead of analyst estimates. The reported loss of 18 cents per share was also 6 cents better than analyst expectations. Stitch Fix, showcasing the gains from its recent cost reduction plans, reported adjusted EBITDA of $6.7 million for the quarter along with free cash flow of $18.9 million, highlighting the improving efficiency of the core business. Looking ahead, the company expects net revenue of $317 million at the midpoint of the management guidance for Q4, well ahead of the $306 million projected by analysts. Stitch Fix stock is up another 7% this morning with investors continuing to get behind the company based on improving fundamentals.

Adjusting To The Post-Pandemic Economy

Stitch Fix shares reached a high of over $100 in 2021 with the company emerging as a big winner of mobility restrictions during pandemic days. The company sells apparel, shoes, and accessories for both men and women through its online platform. Customers can use the services of a personal stylist for just $20 before getting the items delivered to their doorstep. In 2021, the total revenue of Stitch Fix increased 23% YoY to $2.2 billion with consumers flocking to its online platform amid pandemic restrictions. Since then, revenue has fallen by 1% and 21% YoY in 2022 and 2023, respectively.

With normalcy prevailing, demand for casual attire has also softened in the post-pandemic era, dealing a massive blow to Stitch Fix. These shifting consumer preferences have created a massive inventory problem for the company as well. On top of this, other well-known fashion brands have also started offering personalized styling solutions, making it difficult for Stitch Fix to establish long-lasting competitive advantages.

What The Analysts Are Saying

After digesting Q3 earnings, Wedbush analyst Tom Nikic reiterated his neutral rating and maintained a price target of $3, which suggests the company is overvalued at the current market price of around $3.75. Truist Securities analyst Youssef Squali raised the price target to $4 from $3.5 after the company guided for a stronger-than-expected Q4 and full year. However, the analyst noted that the company continues to face major challenges, including a decline in the number of active users due to macroeconomic pressures. William Blair analyst Dylan Carden, who does not have a price target for Stitch Fix, praised the company’s recent efforts to improve keep rates and average order values after analyzing the Q3 performance. Based on the ratings of 7 Wall Street analysts, the average Stitch Fix price target is $3.26, which implies a downside risk of around 14% from the current market price.

Neither Dilantha DeSilva nor Stocks.News have positions in any of the companies referred to in this article. Please see our disclosure page for more information.