Why Stitch Fix Could be an Undervalued Gem: Key Factors to Consider

Stitch Fix, Inc. SFIX stands out as a compelling value play within the Retail-Apparel and Shoes industry, trading at a forward 12-month price-to-sales ratio of 0.30, down from the industry and the Retail-Wholesale sector's averages of 1.26 and 1.36, respectively. This undervaluation highlights its potential for investors seeking attractive entry points in the retail space. SFIX Looks Attractive From a Valuation Standpoint Image Source: Zacks Investment Research In the past six months, the SFIX stock has gained 5.8%, significantly outperforming the industry’s 23% decline. The company’s strategic initiatives have supported it in outpacing the sector and the S&P 500 index’s respective declines of 5.7% and 11.4% in the same period.SFIX Stock Past Six-Month Performance Image Source: Zacks Investment Research Stitch Fix’s Enhanced Client ExperienceStitch Fix’s client-focused initiatives are driving measurable improvements across key performance metrics. By expanding its assortment with trend-driven styles and strengthening client-stylist relationships, the company has seen a rise in client engagement and loyalty. Customer requests for the same stylist have reached a five-year high, pointing to increased trust and satisfaction. Meanwhile, the introduction of flexible Fix options, allowing up to eight items per shipment, has elevated the overall shopping experience.These improvements have contributed to a consistent rise in average order value (“AOV”), which has increased for six consecutive quarters. In the second quarter of fiscal 2025, AOV jumped 9% year over year, with a notable 16% surge on Jan. 25. Higher keep rates and average unit retail also reflect stronger client-product alignment. Revenue per active client rose to $537, up 4.3% from the prior year, reinforcing Stitch Fix’s position in the personalized fashion market and supporting long-term growth.Strategic Transformation & Operational Efficiency of SFIXStitch Fix’s transformation is gaining momentum through personalization enhancements and improved inventory curation. Keep rates for new styles have increased 7%, showcasing a better product-market fit. AI-powered tools are playing a critical role in this shift, enabling the company to anticipate and meet customer preferences more effectively. The launch of exclusive brands like The Commons and Montgomery Post has broadened appeal, with the former now among the top men’s revenue drivers.Operational discipline has further strengthened Stitch Fix’s financial performance. Gross margin rose 110 basis points (bps) to 44.5% in the fiscal second quarter, driven by favorable product mix and increasing AOV. SG&A expenses dropped 18.5% year over year, declining from $181.5 million to $147.9 million, with SG&A as a percentage of revenue falling 750 bps to 47.4%. Also, advertising was 7.8% of net revenues, down 160 bps year over year.  The company’s ability to improve margins while scaling its business highlights a well-executed approach to long-term sustainability. We estimate SG&A expenses to decline 16% year over year and as a percentage of net revenues, this metric is estimated to leverage 480 bps in fiscal 2025.Stitch Fix’s Market Expansion & Brand DifferentiationThe company is also seeing success in revitalizing underperforming segments, particularly men’s and Freestyle. Both categories returned to year-over-year growth, supported by rising demand for high-value apparel. Cashmere sales grew 400% year over year in the fiscal second quarter, while the performance of workwear nearly tripled, reflecting a consumer shift toward quality and versatility. The Freestyle platform’s resurgence extends Stitch Fix’s reach beyond its subscription base, unlocking new customer acquisition channels.A focus on proprietary brand development is reinforcing Stitch Fix’s competitive edge. New in-house brands like The Commons have quickly gained traction, becoming top revenue generators and offering higher margins. This private label strategy allows better inventory control and enhances customer exclusivity. By blending unique labels with national brands, Stitch Fix delivers a curated experience that strengthens client loyalty and differentiates itself in a crowded market.Final Words on Stitch FixStitch Fix is gaining momentum through stronger customer engagement, improved product offerings and smarter operations. Its focus on personalization, exclusive brands and flexible shopping options is deepening loyalty and enhancing the overall client experience. With rising demand in key segments and disciplined cost management, the company is showing clear signs of a successful transformation. These strengths position Stitch Fix for sustainable growth, making it a compelling choice for investors looking for long-term potential. The company currently has a Zacks Rank #2 (Buy).Other Key PicksSome other top-ranked stocks are The Gap, Inc. GAP, Deckers Outdoor Corporation DECK and G-III Apparel Group, Ltd.  GIII.The Gap is a premier international specialty retailer offering a diverse range of clothing, accessories and personal care products. It sports a Zacks Rank of 1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.The Zacks Consensus Estimate for The Gap’s fiscal 2025 earnings and revenues indicates growth of 7.7% and 1.6%, respectively, from fiscal 2024 reported levels. GAP delivered a trailing four-quarter average earnings surprise of 77.5%.Deckers is a leading designer, producer and brand manager of innovative, niche footwear and accessories. It carries a Zacks Rank #2 at present.The Zacks Consensus Estimate for DECK’s fiscal 2025 earnings and revenues implies growth of 21% and 15.6%, respectively, from the year-ago actuals. DECK delivered a trailing four-quarter average earnings surprise of 36.8%.G-III Apparel is a manufacturer, designer and distributor of apparel and accessories under licensed brands, owned brands and private label brands. It currently carries a Zacks Rank of 2.The Zacks Consensus Estimate for GIII’s fiscal 2025 earnings and revenues implies a decline of 4.5% and 1.2%, respectively, from the year-ago actuals. GIII delivered a trailing four-quarter average earnings surprise of 117.8%.Zacks' Research Chief Names "Stock Most Likely to Double"Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.This top pick is among the most innovative financial firms. With a fast-growing customer base (already 50+ million) and a diverse set of cutting edge solutions, this stock is poised for big gains. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Deckers Outdoor Corporation (DECK): Free Stock Analysis Report The Gap, Inc. (GAP): Free Stock Analysis Report G-III Apparel Group, LTD. (GIII): Free Stock Analysis Report Stitch Fix, Inc. (SFIX): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks