It’s Not Insider Selling Or Results That Made Stitch Fix Tank

Stitch Fix Gives Ultra Weak Guidance 

Although there has been some notable insider selling in Stitch Fix (NYSE: SFIX) that’s not why shares are down 20% in premarket trading and it’s not the Q3 results either. Not, it’s the guidance for the 2nd quarter that has shares down in the dumper but we see an opportunity brewing. While the guidance was super weak we think it is extraordinarily cautious in light of consumer trends of late. The company is expecting revenue to decline on a sequential basis and to a level well below the consensus. 

As far as the insiders go, they’ve sold $74.8 million worth of the stock over the past 12 months and we think selling could continue on a regular basis for the foreseeable future. Not only do insiders hold more than 27% of the stock this is a low float company. Only 51% of shares are available for public trading meaning there are quite a few shares in lock-up or the company treasury just waiting for a good time to sell. What this means for investors is a potential headwind for share prices but that’s a story for a different day. Today it’s guidance that has this market moving. 

Stitch Fix Has A Great 4th Quarter 

Stitch Fix had a great quarter that is really only marred by the outlook. The $581.24 million in net revenue is up 18.5% from last year on a double-digit increase in customer count and revenue per customer. This is on top of last year’s 10% YOY gain and is 180 basis points better than expected as well. In terms of customers and revenue per, the client count is up 11% while the revenue per client is up 12% and the good news doesn’t end there. 

Stitch Fix was also able to widen the gross margin versus last year. The company reported a 225 basis point increase to 46.9% and a company record. Operating expenses continue to outpace earnings but there is good news here as well. While the company posted a GAAP loss the $0.02 was $0.12 better than expected and a much narrower loss than last year. 

Looking forward, the company is expecting FQ2 revenue in a range of $505 to $520 million versus the $586 million expected by the Marketbeat.com analyst consensus figure. The upshot is that in light of company strength and evident strength within the retail sector the guidance could be overly cautious. It is our expectation for revenue to grow on a sequential basis in the 2nd quarter as it has done for the last three years. 

Short-Sellers Drive Stitch Fix Lower 

The guidance is the spark that started the post-release sell-off but short-selling is why it is so severe. The stock was roughly 15% short going into December and that figure may be higher now. Regardless, with so much of the market short and guidance so poor, there were few speculators willing to hold up prices.

The Technical Outlook: Stitch Fix Falls Back To Support 

Shares of Stitch Fix fell as much as 20% in after-hours trading bringing the price action down to the lowest level in 6 weeks. This level is coincident with previous highs and may provide strong support but we’ll see. If support confirms the stock may become a buy but that won’t be until early next year at the soonest. We believe the company is set up to outperform the expectations but its a long time until the next reporting date. 

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About Thomas Hughes

[email protected]

Experience

Thomas Hughes has been a contributing writer for InsiderTrades.com since 2019.

Areas of Expertise

Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies

Education

Associate of Arts in Culinary Technology

Past Experience

Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights. 

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