Backed by strong merchandising, new store opening and e-commerce
strategies along with improved margins, specialty retailer
Zumiez Inc.
(
ZUMZ
) reported a strong third-quarter 2011 result. The quarterly
earnings of 45 cents per share beat the Zacks Consensus Estimate of
41 cents and surged 12.5% from the prior-period level of 40
cents.
Net sales in the reported quarter climbed 13.3% to $154 million
from $135.9 million a year ago. Comparable store sales rose 6.0% in
the quarter compared with an increase of 14.4% in third-quarter
2010. Moreover, total revenue also surpassed the Zacks Consensus
Estimate of $153 million.
Cost of goods sold in the quarter increased 12.7% year over year
to $93.8 million. Gross margin nevertheless expanded 40 basis
points to 39.1% in the quarter driven by net sales increase.
Selling, general and administrative expenses were $37.3 million,
down 40 basis points to 24.3% as a percentage of net sales.
Consequently, the company reported an operating income of $22.8
million, up 20.2% from the year-ago operating income of $19 million
in the prior-year quarter resulting an expansion of 80 basis points
in operating margin to 14.8%.
Financial Update
Cash and cash equivalents at the end of the quarter were $13.9
million, up sharply from $8.3 million at the end of the third
quarter of fiscal 2010. Total long-term liabilities increased to
$34.4 million at the end of third-quarter 2011 from $29.9 million
at the end of the year-ago comparable quarter.
Store Update
The company has completed its earlier planning of opening 45
stores during fiscal 2011, including its first set of stores in
Canada. The company is operating its business through 434 stores in
the United States and 10 stores in Canada.
Guidance
For the fourth quarter of fiscal 2011, management anticipates to
generate revenue in the range of $174 to $177 million on the back
of a mid-single-digit growth in comparable store sales. On the
verge of promising sales, the company is expecting earnings per
share to come in the band of 52 cents to 54 cents. The current
Zacks Consensus Estimate for the upcoming fourth-quarter 2011 stood
at 52 cents per share, which is at the lower end of the guidance
range.
Bolstered by better-than-expected quarterly results, management
is quite keen on continuing with its key initiatives for enhancing
productivity and global footprints.
We expect Zumiez's focus on teenage action-sports based
merchandise and expanding store network to deliver solid
performance in the upcoming quarters. However, intense competition
from other specialty retailers, seasonal nature of the business and
risks associated with sourcing merchandise from foreign countries
might weigh upon the company's results.
The company operates in a highly fragmented specialty retail
sector and faces intense competition from larger teenage-focused
retailers such as
Abercrombie & Fitch Co.
(
ANF
),
Aeropostale Inc.
(
ARO
) and
American Eagle Outfitters Inc.
(
AEO
).
We maintain our long-term "Neutral" recommendation on Zumiez.
The quantitative Zacks #2 Rank (short-term Buy rating) for the
company indicates no clear directional pressure on the stock over
the near term.
AMER EAGLE OUTF (
AEO
): Free Stock Analysis Report
ABERCROMBIE (
ANF
): Free Stock Analysis Report
AEROPOSTALE INC (
ARO
): Free Stock Analysis Report
ZUMIEZ INC (
ZUMZ
): Free Stock Analysis Report
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