It has been about a month since the last earnings report for Stitch Fix (SFIX). Shares have lost about 16.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Stitch Fix due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its latest earnings report in order to get a better handle on the important catalysts.
SFIX Stock Falls 9% Despite Narrower Q3 Loss & Raised FY26 Outlook
Stitch Fix reported third-quarter fiscal 2026 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate. Revenues increased year over year, while losses narrowed significantly from the prior-year quarter. The company also raised its fiscal 2026 revenue and adjusted EBITDA outlook, citing resilient client engagement and continued execution of its transformation strategy.
Despite the strong performance and higher guidance, shares declined roughly 8.9% following the earnings release as investors appeared concerned about moderating growth expectations and continued margin pressure.
The online personal styling retailer continued to benefit from improvements in client engagement, assortment enhancements and AI-driven personalization initiatives. Management highlighted that the fiscal third-quarter results marked the company’s fifth consecutive quarter of year-over-year revenue growth on an adjusted basis and included a milestone of sequential active-client growth.
More on Stitch Fix’s Q3 Results
SFIX reported an adjusted loss of 1 cent per share, narrower than the Zacks Consensus Estimate of an adjusted loss of 6 cents. The metric also improved significantly from the adjusted loss of 6 cents incurred in the year-ago quarter.
Stitch Fix recorded net revenues of $340.3 million, which surpassed the Zacks Consensus Estimate of $333 million. The metric increased 4.7% from the year-ago quarter, supported by continued strength in average order values, higher client spending and improved assortment performance across key categories.
The number of active clients engaged in ongoing operations was 2.309 million, reflecting a year-over-year decline of 1.9% but an increase of 0.9% sequentially. Average net revenues generated per active client (RPAC) were $578, which beat our estimate of $576 and increased 6.6% from the previous year. This marks the ninth consecutive quarter of year-over-year RPAC growth and the highest RPAC reported by the company. The increase in RPAC indicates that Stitch Fix’s strategy is effectively driving higher client engagement and spending, resulting in a greater share of wallet from clients.
The Fix average order value increased year over year. This increase was driven by higher items per Fix due to the expanded adoption of the company’s larger Fix offering. Higher average unit retail, supported by assortment enhancements and a favorable product mix, also contributed to the increase.
Management noted that new clients increased more than 10% year over year for the third consecutive quarter, while retention rates improved for the seventh straight quarter. The company also reported its highest retention rate in four years.
Category performance remained strong across key growth areas. Within the women’s business, activewear and athleisure grew about 50% year over year, while seasonal categories such as sandals, skirts and sneakers posted solid gains. The men’s business delivered double-digit growth for the fourth consecutive quarter, with shorts, casual shoes and short-sleeve woven tops each increasing more than 30%. Continued strength in footwear, accessories and activewear, supported by national and private brands, underscored healthy demand trends and improving client engagement.
Insight Into SFIX’s Margins & Expenses
In the fiscal third quarter, this Zacks Rank #3 (Hold) company’s gross profit increased 3.7% year over year to $148.8 million. However, the gross margin decreased 50 basis points year over year to 43.7%, beating our estimate of 43.5%. Despite the decline, the contribution margin remained above 30% for the ninth consecutive quarter.
Selling, general and administrative expenses (SG&A) declined 0.3% year over year to $152.9 million. SG&A expenses, as a percentage of net revenues, were 44.9%, down roughly 230 basis points from 47.2% in the prior-year quarter. Advertising represented 10.2% of revenues in the fiscal third quarter, in line with management’s expectations.
The operating loss improved to $4 million from $9.7 million in the year-ago period.
Stitch Fix reported adjusted EBITDA of $13.2 million, up from $11 million in the year-ago quarter. We note that the adjusted EBITDA margin expanded 50 basis points year over year to 3.9% from 3.4% in the prior-year period.
SFIX’s Financial Snapshot: Cash, Inventory & Equity Overview
The company ended the third quarter of fiscal 2026 with cash and cash equivalents of $87.3 million, short-term investments of $99.5 million, and long-term investments of $42.6 million, resulting in total cash and investments of $229.4 million. Stitch Fix remained debt-free, while net inventory increased to $132.2 million and shareholders’ equity stood at $201.5 million.
The company generated $11.8 million in net cash from operating activities and $6.5 million in free cash flow in the fiscal third quarter. Stitch Fix repurchased 4.5 million shares for $15.1 million, reflecting confidence in its balance sheet strength and ongoing transformation efforts.
Stitch Fix’s FY26 Guidance
For the fourth quarter of fiscal 2026, SFIX expects net revenues of $322-$327 million, representing year-over-year growth of 3.5-5.1%. Adjusted EBITDA is projected to be $7-$10 million, implying an adjusted EBITDA margin of 2.2-3.1%.
The company continues to benefit from improvements in assortment, personalization, client engagement and AI-driven capabilities, which have helped drive stronger revenue trends, record revenues per active client and sequential active-client growth. Management remains focused on balancing growth investments with profitability while navigating a dynamic consumer environment. The company also expects continued momentum from category expansion, enhanced client experiences and disciplined marketing efforts.
Management raised its fiscal 2026 outlook following the stronger-than-expected fiscal third-quarter results. The company expects fiscal 2026 revenues of $1.346-$1.351 billion, indicating year-over-year growth of 6.2-6.6%. This compares with the prior mentioned $1.33-$1.35 billion. Adjusted EBITDA is projected at $49-$52 million, indicating an adjusted EBITDA margin of 3.7-3.9%, up from the previously stated $42-$50 million and a margin outlook of 3.2-3.7%.
The company continues to expect a gross margin of 43-44%, advertising expenses of 9-10% of revenues and a positive free cash flow for the full fiscal year. The updated guidance reflects confidence in the company’s improving client trends, strong average order value performance, disciplined expense management and continued execution of its transformation strategy.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a upward trend in fresh estimates.
VGM Scores
Currently, Stitch Fix has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock has a score of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Stitch Fix has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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Stitch Fix, Inc. (SFIX): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).