By Sam Boughedda
Stitch Fix (NASDAQ:SFIX) was downgraded to Underweight from Neutral at JPMorgan on Tuesday by analysts in a research note.
They said Stitch Fix has had a tough year, with shares down 82% in 2022 compared to JPMorgan's internet median of -57%. Stitch Fix shares have tumbled almost 10% during Tuesday's session.
"SFIX has struggled with its transition to a Fix + Freestyle model, which has been amplified by the current macro environment and resulted in four straight qtrs of active client declines. SFIX is focused on improving profit and FCF, with ~$135M of cost savings expected to result in Adj. EBITDA breakeven in FY23," the analysts wrote.
The analysts said they applaud the company's focus on profit but questioned its 50% cut in advertising spend to get there, stating that it is "likely to weigh heavily on top-line growth and in our view presents downside risk to mgmt's guide for a revenue decline of ~20% in FY23."
"We recognize investor expectations are low, but we think 2023 could be another tough year as macro potentially becomes an even greater headwind to apparel spend, and we remain skeptical on the ability for Freestyle to drive new client acquisition at scale. We think there is risk active clients & revenue do not return to growth in FY24. We are also cautious on the sustainability of margin improvement, with ad spend likely needed to return closer to historic levels to support any potential top-line re-acceleration, in our view, and we do not project GAAP profit through our FY26 estimates," the JPMorgan analysts concluded.