We have downgraded our long-term recommendation on
) to 'Neutral'. Our view is based on the company's declining
comparable store sales transaction in fiscal 2012 so far, except
We observed that the company's rate of upside in
comparable-store sales has been decelerating. It increased in the
mid double-digit to low double-digit range between February and
May (14.2% to 10.1%), but from June to September the comps
portrayed an upside between high-single digit to low-single digit
(8.2% to 3.7%). Therefore, considering this downward trend, we
remain apprehensive about the company's future comparable store
Further, the sporting goods retail industry is a
consumer-driven industry, and hence is very sensitive to the
health of economy as sports are mainly a leisure activity.
Spending on sporting goods is heavily dependent on personal
disposable income of consumers. The current macroeconomic
challenges such as high household debt and unemployment levels
may restrain consumers spending on sporting goods.
However, continuing with its store expansion and e-commerce
strategies, Zumiez posted better-than-expected quarterly results
for the second quarter of 2012.The quarterly earnings of 17 cents
per share doubled year over year. Net sales grew 20.4% during the
quarter. Management now anticipates revenue between $181 million
and $185 million and earnings in the band of 42-45 cents per
share for the third quarter.
The company is currently in the early phase of its store
expansion program and plans to augment its network to 600-700
stores in the long run. Further, the recent acquisition of Blue
Tomato facilitates Zumiez to tap the European market. We believe
these initiatives provide the company with a solid platform to
effectively capitalize on the emerging opportunities.
The above pros and cons justify our long-term view on the
company. Currently, Zumiez competes with other teenage-focused
retailers as well as sporting goods retailers
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