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Stitch Fix Shares Climb After Q2 Earnings Beat

Shares of Stitch Fix Inc. jumped 24.5 percent in after-hours trading after the personal styling service reported second quarter results in which earnings per share bested Wall Street’s estimates by 7 cents.

In a Nutshell: Stitch Fix saw growth on multiple fronts in the second quarter. Besides the 7 cent beat on earnings per share, the company now has active clients totaling 3 million. That represents an 18 percent gain from a year ago. Active clients are defined as anyone who checks out a subscription box at least once in the preceding 12-month period. Stitch Fix considers each men’s, women’s and kids account as a client, even if from the same household. In the second quarter, existing clients had a repeat rate of 88 percent.

Founder and chief executive officer Katrina Lake said net revenues “exceeded our guidance,” adding that the company remains “focused on delighting our existing clients and expanding our reach.”

In a letter to shareholders posted on its investor site noting how data science and algorithms are leveraged across its business, Stitch Fix said the frequency with which a client wants a subscription box provides information on inventory supply, while an algorithm assigns the client a warehouse based on that person’s location and available inventory. What the client decides to keep and return provides feedback in which an algorithm determines who is the individual’s best personal stylist. An algorithm and the personal stylist then work on refining the subscription box to increase the client’s chances of purchasing each item.

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The company continues to invest in its U.K. operations, which remains on track to launch in the fourth quarter of fiscal 2019.

The quarter also saw Stitch Fix launch its first integrated brand marketing campaign to drive awareness and emotional engagement with clients. “This campaign is running across multiple channels, seeking to re-engage existing clients, and building awareness with potential new clients who weren’t previously aware of Stitch Fix,” the letter explained.

Sales: Revenues for the quarter ended Jan. 26 jumped 25.1 percent to $370.3 million from $296 million. Gross margin was 44.1 percent, up from 43 percent in the year-ago quarter.

Earnings: Net income for the three months more than tripled to $12.2 million, or 12 cents a diluted share, from $3.6 million, or 2 cents, in the year-ago period.

Wall Street was expecting diluted EPS of 5 cents on revenues of $364.9 million.

The letter provided guidance for the third quarter ending April 27, 2019, and for fiscal year ending Aug. 3, 2019. Net revenue for the third quarter is projected at between $388 million to $398 million. Net revenues for fiscal year 2019 were forecasted in the range of $1.53 billion to $1.56 billion.

Shares of Stitch Fix on Monday rose to $33.71 in after-hours trading. The company reported earnings results after the equity markets closed trading sessions for the day. At least investors were happy this time around. Stitch Fix went public in November 2017, and ended its first year as a public company on July 28, 2018, in which it saw shares slide because the fourth-quarter revenue growth it posted at 23.2 percent was below the 29.2 percent growth in the third quarter.

CEO’s Take: “Since becoming a public company, we have posted six consecutive quarters of over 20 percent growth, which demonstrates our ability to drive consistent business performance,” Lake said.