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Stitch Fix sees softer Q1'20 revenue growth

Stitch Fix Inc. said Oct. 1 that the first quarter of its 2020 fiscal year would be slower than the rest of the year, citing lower marketing spending and prolonged sales of summer wear.

The company expects net revenue of between $438 million and $442 million for the first quarter, which would be a gain of between 20% and 21% over the same period one year ago. That growth would also lag Stitch Fix's projection for full-year revenue of $1.9 billion to $1.93 billion, or an increase of 23% to 25% adjusting for calendar lengths.

The slower revenue growth for the first quarter will come after the apparel subscription service drew down its marketing budget during the fourth quarter of 2019, decreasing the number of customers that the company plans to add, CFO Paul Yee told analysts during a call to discuss the company's results.

Summer clothes including t-shirts and sleeveless tops have also sold well for longer than expected, Yee said, meaning that the first quarter will not include as great a contribution from higher-priced fall and winter wear. "While these items carry a lower average unit retails and average order values, we're happy to see this seasonal product successful deep in the December season," he said.

In 2020, the company plans to ramp up direct-buy sales, which allow customers to purchase individual items of clothing outside of the selection, called a "fix," that is regularly shipped to them, Yee said. The company has factored $75 million in stock-based compensation into its guidance for the year, accounting for new hires at its data science team that will develop its personalized recommendations.

Excluding that investment, Stitch Fix expects adjusted EBITDA for 2020 of between $85 million and $105 million.

Fourth-quarter adjusted EPS of 7 cents beat the S&P Global Market Intelligence mean consensus estimate for normalized EPS of 4 cents, while net income excluding exceptions of $7.2 million surpassed the estimate of $3.6 million. For its 2019 fiscal year, Stitch Fix reported adjusted EPS of 36 cents was higher than the estimate of 32 cents.