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Zumiez
(ZUMZ)
Even
given the spotty economic data
and mixed corporate earnings, there are still some consumer
discretionary
stocks that remain strong; Zumiez being one of them.
Coming
into their earnings report on
May 17th, the stock remains in a bullish channel and is trading very
close to its 52 week high of $38.99. For
Zumiez, it will have some big expectations coming into the report given
their relatively
high (trailing) P/E of 31.63.
The
recent hot IPO of competitor Tilly’s may have showed
that there may be strength left in this space and perhaps room for a
couple key
players in the sector. Tilly’s net sales
increased 20% to $400.6 million in 2011 and their net income jumped 41%
to
$34.3 million. Tilly’s operates about a third of the stores Zumiez
currently controls.
Earnings Estimates
In the month
ahead of the report, the majority of analysts have upped their rating
and
targets for Zumiez. Although there are several hold recommendations,
its overall
rating is a buy, with no analysts issuing a sell rating on the company.
The Zacks Consensus Estimate is for Zumiez to
earn 11 cents per share this quarter, but the most recent forecast is
down at 10
cents, which suggests a potentially weaker than expected report.
On
their last conference call, Zumiez
projected Q1 revenue to be in the range of $123 to $125 million and
resulting
in net income per diluted share of approximately $0.06 to $0.08, which
includes
an estimated $0.01 per diluted share, for charges associated with the
relocation of ecommerce fulfillment operations.
In
terms of the magnitude of analyst
estimate trends, we are seeing all of the consensus estimates higher
than they
were just 30 days ago for the current quarter as well as FY2013 and
FY2014;
estimates for Q22012 have remained steady at 10 cents.
Of
the 15 analysts who now cover
ZUMZ, the consensus is for the company to grow earnings by 22.5% in the
current
year (FY2013) and roughly 14.25% in FY2014. Zumiez has
surprised analysts
to the upside 4 quarters in a row at an average of almost
68%.
Financial Profile
ZUMZ is a small-cap (1.18 billion) company that is trading at about 26
times
forward (expectations for next quarter) earnings. ZUMZ has
been a Zacks
Rank 1 strong buy since March 10th and has been between a Rank 1 and
2 since December 6th, 2011.
Total
2011 sales increased 16.1%
compared to full year 2010. Comparable store sales increased
8.7% in
fiscal 2011, slightly down from the 11.9% sales growth in fiscal 2010.
ZUMZ
GAAP earnings increased from
$0.83 in FY2011 to $1.19 in FY2012. They
are expected to earn $1.44 in FY2013 (current FY) according to the
Zacks Consensus
Estimate.
Company Description
&
Developments
Zumiez got their start outside of Seattle in 1978.
Headquartered in
Everett, WA, they now operate over 420 stores in 37 states across the
US, 10 in
Canada and are growing rather fast.
The
bulk of their stores are inside
malls, which is where you are likely to find someone in their target
demographic. Zumiez stores offer couches and video games to
keep teen customers
(and sometimes their parents) in the store longer, spending money on
one or
more of their many brands.
Having
been around for almost 34
years, there is no doubt the company is doing something
right. But on the
other hand one has to realize that as a niche, discretionary retailer
they are
going to be highly susceptible to consumer habits and trends.
For now, it
seems that their business model is benefitting from an overall strong
consumer
and product line that is in favor.
In
2011 they added 45 productive new
stores which help fuel a 3% improvement in operating margin and
generated more
than $68 million in operating cash flow. That
expansion is expected
to continue into 2012 and hopefully justify (and reduce) Zumiez’
relatively
high P/E multiple.
Market Performance &
Technicals
Zumiez remains in its bullish channel, which began after a bullish gap
in
October of 2011. During that time, the stock has
maintained above
its 50 day moving average which now stands at $34.89. It
broke above its 200 day moving average
after reporting strong earnings in early December of 2011, which now
stands at
$26.86.
ZUMZ
managed to make another new 52
week high on Friday despite the overall weakness in the broad markets.
Use
the 50 day moving average to be
key support moving forward; a break below it could signal a bearish
trend
change for the company. It is also important to note that
ZUMZ was again
in overbought territory Friday as it eclipsed its upper Bollinger band.
ZUMZ
has exceeded the S&P 500’s
performance in the past year by 30% and outpaced it by almost 25.5% in
the past
3 months as the broad market has begun to slow down. The
stock remains in
a bullish trend and has maintained most of its momentum in the past
month,
leading the S&P 500 index by 6.61%.
Use
caution coming into the earnings
report on May 17th and realize that ZUMZ still has a high Beta of
1.92, which means it’s both correlated to and more volatile than the
S&P
500.
Jared
A Levy is the Momentum Stock
Strategist for Zacks.com. He is also the Editor in charge of the
market-beating
Zacks
Whisper Trader Service.
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