As class action lawsuits line up against Rent the Runway, the beleaguered fashion e-commerce retailer's stock soared after an earnings beat and raised EBITDA margin guidance. Stitch Fix's results were poor, but it also raised guidance, while Chewy posted non-GAAP adjusted profits where losses had been anticipated.
- Rent the Runway shocks the market with an earnings beat
- Stitch Fix shared disappointing results, although it did raise guidance
- The SPDR S&P Internet ETF offers exposure to e-commerce and broader internet stocks
As e-commerce companies headed into the first whole week of December, three — Stitch Fix [SFIX], Chewy [CHWY], and Rent the Runway [RENT] — released their earnings reports. The e-commerce stocks have faced a challenging year, with Stitch Fix down 79.02% in the year to 8 December, Chewy down 28.83%, and Rent the Runway down 70.92%.
Chewy's relative success came about partly thanks to a 20.25% rally over the month to 8 December. Over the same period, Stitch Fix rose 5.3%, while RENT jumped up 42.77%. Sentiment around Chewy was buoyed by a Wells Fargo report in late November that highlighted Chewy and Amazon [AMZN] as well-positioned to benefit from a shift away from in-store shopping over Black Friday.
In its previous earnings report, Stitch Fix forecasted that FY 2023's Q1 revenue would decline 20–22% year-over-year. Coupled with a diminishing USP as other online personal styling services enter the market, December was set to be light on seasonal cheer for Stitch Fix shareholders.
Meanwhile, on 5 December, shareholder rights litigation firm Schall filed a class action lawsuit against Rent the Runway for violating federal securities laws. The complaint alleges that Rent the Runway "made false and misleading statements to the market" ahead of its October 2021 IPO.
However, Rent the Runway's recent share price hike comes on the back of strong quarterly sales, which trounced forecasts. Following the earnings announcement, the stock soared 74.3% between 7 December and 8 December's market close.
Ecommerce companies reveal their earnings
Stitch Fix announced first-quarter FY 2023 results after markets closed on 6 December, with revenue falling 21.62% year-over-year to $455.59m and missing analyst expectations by 0.87%. Losses increased 2,400% to $0.50 per share, 6.38% worse than analysts had expected. However, full-year EBITDA guidance was raised from losses ranging between $25m and $45m to a loss of $10m on the low end and profit of $10m at the high end.
Rent the Runway delighted investors when its Q3 results, announced after markets closed on 7 December, raised full-year adjusted EBITDA margin guidance from -2–0% to 1%. Revenue of $77.4m marked a 31.19% year-over-year increase and beat analyst expectations by 5.59%. A net loss of $0.56 per share was in line with analyst expectations.
Chewy's results, announced after markets closed on 8 December, surprised analysts who had been expecting losses with adjusted non-GAAP earnings per share of $0.11. Revenue of $2.53bn was slightly above the $2.5bn median estimate among analysts polled by CNN Money, representing a 14.5% increase year-over-year. In the earnings call, Mario Marte, Chewy's outgoing CFO, announced that full-year net sales guidance was being raised to $10.02–10.04bn.
Challenging macro environment for e-commerce
Stitch Fix CEO Elizabeth Spaulding pointed to "meaningful progress" the company had made in its business transformation "despite a difficult macro environment," highlighting the "cost savings and efficiencies" that had been achieved.
Jennifer Hyman, CEO and co-founder of Rent the Runway, said she was proud to have raised guidance "despite a tough environment," and said that the company's restructuring efforts would enable investment in the customer proposition "while significantly improving cash burn."
Meanwhile, Sumit Singh, the CEO of Chewy, said: "The fact that we are simultaneously driving top-line growth and expanding margins is yet another proof point of our ability to get big fast and get fit fast, regardless of the macro environment."
Data from Grand View Research suggests that online apparel e-commerce is set to see a CAGR of 8.6% between 2022 and 2030, a sluggish pace compared to the 14.7% expected for the e-commerce market as a whole between 2020 and 2027. This will weigh on investor sentiment towards Rent the Runway and Stitch Fix compared with other online retailers over the medium–long term, however positive the immediate reaction to Q3 earnings has been.
Funds in focus: SPDR S&P Internet ETF
The SPDR S&P Internet ETF [XWEB] has a 1.97% weighting in Stitch Fix and a 3.21% weighting in Chewy as of 7 December. This makes Chewy the fund's second-largest holding behind Etsy [ETSY], which has a 3.35% weighting.
XWEB fell 54.86% in the year to 8 December, with Chewy and Etsy's relative overperformance (38.57% over the same period) pulling against the more significant falls seen by the likes of Stich Fix.
XWEB contains many e-commerce companies besides Chewy, Etsy and Stitch Fix, such as eBay [EBAY] and DoorDash [DASH], but it is not a pure-play e-commerce fund. Investors looking for more direct exposure to the sector could choose the Amplify Online Retail ETF [IBUY], which lists Peloton [PTON] as its top holding ahead of Etsy and Chewy. IBUY fell 52.37% in the year to 8 December.
Disclaimer Past performance is not a reliable indicator of future results.
CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.
*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.