Stitch Fix Stock Gearing up for a Recovery Buy

Online styling and apparel retailer platform Stitch Fix NASDAQ: SFIX shares have collapsed more than 50% since peaking at $113.36 on Jan. 27 and falling to lows of $41.78 on April 21.

The company became a pandemic benefactor as online and e-commerce adoption accelerated during the stay-at-home periods. As digital traffic metrics and sales increased, shares made a parabolic run to triple digits by the end of 2020. The company has undergone a series of negative catalysts causing shares to plunge back under its pre-COVID levels despite the bullish tailwinds of the reopening narrative lifting retailers. As the S&P 500 index makes new highs, Stick Fix stock may be forming a bottom. The bar has been set low for the next earnings report. Prudent investors looking for a retail play that hasn’t rallied with the benchmark indexes can carefully monitor shares for opportunistic pullback levels.

Q2 FY 2021 Earnings Release

On March 8, 2021, Stich Fix released its second-quarter fiscal 2021 results for the quarter ending January 2021. The Company reported earnings-per-share (EPS) loss of (-$0.20) excluding non-recurring items versus consensus analyst estimates for a loss of (-$0.21), a $0.01 per share beat. Revenues grew 11.6% year-over-year (YoY) to $504.1 million, falling short of consensus estimates for $5012.17 million. Active clients rose 12% to $3.9 million, up $408,000. Adjusted EBITDA loss was (-$8.9 million) versus (-$30.1 million) loss in the year ago period.

Conference Call Takeaways

Stitch Fix CEO Katrina Lake set the tone.

"First, we are continuing to see clients migrating to our offering at the highest rates we have seen in years and we are excited about the opportunity to accelerate our share gains over time… Within our Fix offering, first Fix shipments in the quarter increased to their highest growth level in five years. However, due to the pandemic, carriers faced unprecedented volume during the holidays, and we saw increased cycle times. This resulted in us not being able to recognize all the revenue from Fixes we shipped during the quarter.”

The company is taking steps to diversify its carrier mix. January saw the higher month-over-month revenues of any January on record. Growth in the first Fix ships grew 50% YoY. The Company will continue to invest in ways to empower its 6,000 stylists like the Fix Preview, which enables customers to view proposed items for their next Fix before being shipped out. Initial tests of Fix Preview generated a 10% increase in average order in the U.K. The Company also plans to rollout live styling, which are 30-minute video call sessions with a live stylist to co-create a Fix. On April 13, Stitch Fix announced that CEO Katrina Lake will step down to transition to executive chairperson effective Aug. 1. Current President Elizabeth Spaulding will replace Lake as CEO.

Lowered Bar for Q3 2021

Due to extreme stress on online shippers, carriers and mail system, the Company experienced longer sales cycle times due to delays which was a key reason for the top line shortfall. However, these unposted sales should be recognized in Q3 2021. This combined with the lowered guidance set the bar very low heading into Q3 fiscal 2021 earnings. Demand appears to be strong as the women’s apparel segment saw the highest YoY first-time buyer growth in the past five-years. Shipping and mail delivery bottlenecks should be cleared up. Prudent investors looking to get in before the recovery can monitor for opportunistic pullback levels to dip toes.  

SFIX Opportunistic Pullback Price Levels

Using the rifle charts on the weekly and daily time frames provides a precision view of the landscape for SFIX stock. The weekly rifle chart collapsed after peaking at the $113.88 Fibonacci (fib) level in January 2021. The weekly market structure high (MSH) triggered the breakdown on the $78.83 slip. The weekly 5-period moving average (MA) is at the $48.47 fib powered by the stochastic mini inverse pup full oscillation plunge to the 10-band. The weekly market structure low (MSL) buy triggers above $52.61. The daily also formed a MSL triggers above the $45.27 trigger. The daily rifle chart breakdown is attempting to base as the 5-period MA flattens at $44.30 and the daily stochastic attempts to cross back up through the 20-band. Opportunistic pullback levels sit at the $45.27 daily MSL trigger, $44.75 fib, $38.53 fib, $37.77 fib, $35.73 fib, $31.60 fib, and the $30.44 fib. Upside trajectories range from the $62.06 fib up to the $81.60 fib.