On Sep 24, 2014, we issued an updated research report on the Washington-based retailer of sports-related teen apparel Zumiez Inc. (ZUMZ), following the company's better-than-expected second-quarter fiscal 2014 bottom-line results.
Zumiez’s second-quarter fiscal 2014 adjusted earnings of 27 cents per share were 35% higher than the comparable year-ago period, which surpassed the Zacks Consensus Estimate of 23 cents. Bottom-line growth in the quarter was driven by strong top-line performance on the back of successful execution of the company’s long-term growth strategies and strength in its distinguished and varied assortments.
Net sales increased 11.9% year over year to $176.7 million and was almost in line with the Zacks Consensus Estimate of $177 million driven by better-than-expected growth in comparable-store sales (comps). Net sales also outperformed the company’s second-quarter forecast of $167–$171 million owing to its ability to attract customers with an exclusive collection of brands. Furthermore, we remain encouraged by the company’s August comps performance.
With a positive surprise of 17.4% in the reported quarter, the company has now surpassed the Zacks Consensus Estimate 25 times in the past 27 quarters. Going forward, we expect the company to keep up this trend of posting positive earnings surprises based on its focus on boosting productivity at existing stores, developing a leading omni-channel platform and enhancing its presence, both domestically and overseas.
Zumiez’s plan to increase its network to 600-700 stores in the long run seems to be on track as in fiscal 2013, the company successfully completed the target of opening 59 stores. It now intends to further increase the count by adding 55 stores in fiscal 2014.
Further, the company is striving to expand its e-Commerce and omni-channel platforms to give consumers quick and easy access to its products and brands. We believe that the company’s well-balanced store expansion and e-Commerce strategies will drive top-line growth.
The aforementioned factors provide investors with an encouraging outlook and instill confidence in the company. However, we are not very constructive on the stock due to the seasonal nature of its business. Risks related to sourcing merchandise from foreign countries and intense competition from rival specialty retailers, such as Citi Trends, Inc. (CTRN), Abercrombie & Fitch Co. (ANF) and Express Inc. (EXPR), may undermine the company’s results.
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