On Tuesday, Canaccord Genuity adjusted its outlook on Stitch Fix , Inc. (NASDAQ:SFIX), reducing the company's price target to $3.50 from the previous $4.00 while maintaining a Hold rating.
The adjustment follows Stitch Fix's fiscal second-quarter 2024 earnings report, which met general expectations but highlighted ongoing struggles.
The company's top line showed a significant year-over-year decline, with difficulties in attracting new clients and reactivating former ones during the quarter.
Despite these challenges, management is concentrating on acquiring customers with a higher lifetime value (LTV). Notably, newer customer groups have demonstrated some positive trends, with the 90-day revenue per active client increasing for the third consecutive quarter.
Stitch Fix is actively refining its approach to customer engagement, as evidenced by the upcoming introduction of a new onboarding experience and a more straightforward method for clients to interact with stylists. However, the competitive nature of media spending in the industry has led the company to revise its advertising spend forecast, now expecting it to reach 8% of revenue, up from the previous range of 7-8%.
The company's outlook for third-quarter revenue and profitability fell short of market expectations, prompting a downward revision of its full-year 2024 guidance.
Canaccord Genuity's decision to maintain a Hold rating reflects a cautious stance, awaiting clearer evidence of customer and revenue growth. The new price target of $3.50 is underpinned by a discounted cash flow (DCF) valuation and represents less than one times the projected fiscal year 2025 revenue.
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