SFIX beat the quarter on sales, RevPAC, gross margin and $0.09 from better-than-expected taxes. The company reported Adjusted EPS of $0.07, beating Cons of ($0.03). The beat was the result of better sales ($408.9M vs. Cons of $395.1M) and gross margin (45.1% vs. Cons of 44.0%), partially offset by SG&A (46.2% vs. Cons of 45.1%). Active clients grew 17% YoY to 3.1M and was in-line with Cons of 3.12M. RevPAC grew 8% YoY to $472 beating Cons of $468. Clearly, SFIX is pursuing “high-quality” clients with greater lifetime value over rapid client growth with high potential churn. We are impressed by the GM upside, as well as the increased spend per customer, but we continue to look for acceleration of active client growth in combination with RevPAC growth. The company guided FY4Q19 Adjusted EBITDA to $5M-$10M vs Cons of $7.56M and raised the low end of their full-year Adjusted EBITDA guidance range from $33M to $38M, while maintaining the high-end of $43M. Shares were up 26% in the after-market.
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The April reading was the fourth consecutive month at 1 or the worst score possible. In April, 50% of retailers posted a short position >15% (up from 47.8% in March). We note the percentage of retailers with a short position over 15% continues to increase month-over-month. We rank Sector Sentiment on a scale of “1” being the most negative sentiment to “10” being the most positive sentiment. The basis for the ranking is based on the number of retailers in the sector with >15% short positions.
In FY2Q19, two critical key metrics delivered surprise upside and are drivers of future growth: 1) active clients of ~3M (Cons 2.95M) up 18% YoY and 2) RevPAC of $463 (Cons $467) up 6.1% YoY. Retained customer drove 88% of revenues and the strength of this customer segment resulted in the ability to push an incremental $15 million in brand spending into FY3Q19. After market on 3/11/19, SFIX reported FY2Q19 EPS of $0.12 vs Cons of $0.05. Shares surged 25% during the trading session.
The January reading plummeted, falling two rankings from December’s reading of 3/10, suggesting investors started re-shorting stocks during the January rally after being sidelined at year end. In January 45.7% of retailers posted a short position >15% (up from 39.1% in December). Since we last published this report on 12/17/18, the XRT is up 1% vs. the S&P 500 +4%. We rank Sector Sentiment on a scale of “1” being the most negative sentiment to “10” being the most positive sentiment. The basis for the ranking is based on the number of retailers in the sector with >15% short positions.
The December reading rose for the second consecutive month, suggesting with valuations pulling in short sellers may be derisking. The November reading was 2 out of 10. In December 39.1% of retailers posted a short position >15% (was 42.2% in November). Since we last published this report on 12/17/18, the XRT is up 6% vs. the S&P 500 +2%. We rank Sector Sentiment on a scale of “1” being the most negative sentiment to “10” being the most positive sentiment. The basis for the ranking is based on the number of retailers in the sector with >15% short positions.
We recently initiated at Peer Perform with a cautious bias after the disappointing outlook last quarter. This quarter’s outlook does not dissuade us from our cautious stance, but given the sell-off, shares may be momentarily derisked. Three key metrics are mission critical to an early-stage consumer growth story, namely 1) active client growth, 2) net revenue per active client (“RevPAC”), and 3) cost to acquire customers. On 12/10/18 after market, SFIX reported an EPS beat of $0.10 (Cons $0.03). The outlook on key metrics disappointed though sending shares -21% in the after market. Reiterate Peer Perform with cautionary bias on the risk of continued slowing growth in active clients.
3Q18 Consumer Sentiment Poll scores 5. 1 out of 10 (vs 6.2 in 2Q18). Each quarter, we send out a brief survey to gauge investor sentiment prior to earnings, where 1 is “Terrible” and 10 is “Excellent.” Thanks for replying, if you did! Survey results are completely anonymous, and the greater the response rate, the more conclusive the results, so please consider participating next time.
After a disappointing FY4Q18, management derisked expectations by lowering both FY1Q19 and FY19 EBITDA by roughly 40%. While we believe SFIX is at the heart of the shift to e-commerce personalization and customization, we question whether today’s consumer is ready for SFIX’s offering? Over time, we believe the answer is an emphatic “Yes!” But in the near-term, we believe demand for personalized online styling appeals to early adopters – typically the first 20% of the market. Before becoming increasingly constructive, we want to see signs of early-stage mass adoption (the other 80% of the market), signaling the sweetspot of the S-Curve in our opinion. We commend management’s heretofore emphasis on profit maximization over sales growth at any cost but are wary of investment phases. In our experience, retailers in investment phases have heightened business risk and, as such, their stocks tend to languish. Given the added burden on margins, top-line has no room for error.