Shares of Zumiez Inc. ZUMZ plunged 13.8% in the after-hours trading session yesterday, as the company provided disappointing fourth-quarter guidance. Though the company’s top and bottom lines beat expectations in third-quarter fiscal 2015, comparable-store sales (comps) performance was rather dismal.
Despite the waning sales trend, the company’s third-quarter adjusted earnings of 36 cents a share surpassed the Zacks Consensus Estimate of 29 cents, benefitting from Zumiez’s expense control initiatives. However, adjusted earnings descended 35.7% from 56 cents posted in the year-ago quarter.
Quarter in Detail
Net sales descended 4.2% year over year to $204.3 million. However, the figure marginally surpassed the Zacks Consensus Estimate of $203.5 million. Per analysts, the decline in sales was attributable to sales promotions and fashion misses.
Further, quarterly comps tanked 7.3%, as against a 3.7% increase registered in the year-ago quarter. Concurrent with the third-quarter results, Zumiez posted its sales data for Nov 2015. The company’s comps for the month plunged 13.8%, against a 6.3% improvement recorded in the same period a year ago. Net sales for the month ended Nov 28, 2015 fell 10.6% year over year to $62.8 million.
Costs & Margins
In the reported quarter, gross profit decreased 10% to $70.1 million, with the gross margin contracting 220 basis points (bps) to 34.3%.
Zumiez’s selling, general and administrative expenses escalated 3.7% to $54.8 million, while as a percentage of sales, the same increased 200 bps to 26.8%.
Stemming from a fall in gross profit and higher expenses, operating profit for the quarter nosedived 39% to $15.2 million, with the operating profit margin contracting 420 bps to 7.5%.
Financial Update
As of Nov 28, 2015, cash and marketable securities were $51.1 million, down 53% year over year due to share buybacks and capital expenditures, offset by cash flow from operations. Total shareholders’ equity at quarter end stood at $299.5 million.
During the quarter, Zumiez repurchased 0.7 million shares for $16.7 million, taking the total year-to-date repurchase to $77.7 million worth of shares. Also, with the earnings release, management authorized additional share buybacks worth $70 million. These factors underscore Zumiez’s commitment toward boosting shareholder value.
Guidance
Going forward, Zumiez remains on track with its growth strategies that instill confidence about generating profits and boosting shareholder value in the long term.
However, the company stated that it commenced the fourth quarter on a soft note, as sales remained sluggish. Also, given a highly promotional holiday season and tough year-over-year comparisons, management provided a subdued outlook for the fourth quarter.
Management envisions net sales for the quarter to range from $226–$231 million, while comps are anticipated to plunge in the range of 14%–16% over the same period.
Consequently, the company expects earnings per share for the fourth quarter to be in the band of 40–46 cents, way below the Zacks Consensus Estimate which is currently pegged at 63 cents.
Zacks Rank
Zumiez currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same industry worth considering include Abercrombie & Fitch Co. ANF, with a Zacks Rank #1 (Strong Buy), American Eagle Outfitters, Inc. AEO and Foot Locker, Inc. FL, each carrying a Zacks Rank #2 (Buy).
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