) - a mall-based specialty retailer of action sports apparel,
footwear, equipment and accessories - reported earnings of 40
cents per share for third-quarter 2012, falling short of its own
guidance range of 42-45 cents. Reported earnings include a cost
per share of 10 cents and 1 cent associated with the acquisition
of Blue Tomato and office relocation charges, respectively.
However, excluding one-time items, the company's adjusted
earnings per share came in at 51 cents, which was ahead of the
Zacks Consensus Estimate of 47 cents and up over 13% from the
year-ago quarter's earnings of 45 cents. The year-over-year
growth was primarily driven by top line growth.
Quarter in Detail
Net sales in the reported quarter increased 16.9% to $180.0
million from $154.0 million in the comparable quarter last year.
The year-over-year growth in sales was primarily driven by the
company's store expansion and e-commerce strategies.
In the quarter under review, comparable store sales (comps)
climbed 3.7% compared with an increase of 6.0% reported in the
year-ago quarter. The company mainly benefited from a higher
average per unit retail price, partially offset by declines in
the number of transactions and units per transaction.
However, Zumiez missed its own guidance range of $181.0-$185.0
million in revenue, primarily due to weak macroeconomic
conditions in Europe and unfavorable weather conditions in the
month of October. Moreover, quarterly sales were marginally below
the Zacks Consensus Estimate of $181.0 million.
During the quarter, the gross profit increased 11.9% year over
year to $67.1 million, but as a percentage of sales it contracted
166 basis points (bps) to 37.26%. The year-over-year decline in
the gross profit margin was mainly as a result of increased
inventory due to the Blue Tomato acquisition as well as higher
e-commerce and shipping expenses. However, excluding the impact
of the Blue Tomato acquisition, the margin improved slightly.
Including costs associated with contingent future incentive
payments and the Blue Tomato acquisition, Zumiez's selling,
general and administrative (SG&A) expenses increased 23.1%
year over year, while as a percentage of sales it expanded 127
bps to 25.4% compared with 24.1% in the comparable quarter of
fiscal 2011. However, excluding these one-time items, SG&A
expenses came in at 23.7% of net sales, primarily benefitting
from increased sales.
On a reported basis, operating profit for the quarter declined
6.2% year over year to $21.4 million, while as percentage of
sales it contracted 293 bps to 11.9%. The year-over-year
contraction in operating margin was mainly due to increased
operational costs. However, if we exclude the impact of one-time
items, operating margin will come in at approximately 13.6%.
As of October 27, 2012, cash and marketable securities were
$98.3 million, a sharp decline of 28.3% from $137.1 million as of
October 29, 2011. The decline can be attributed to the use of
cash by the company to fund its Blue Tomato acquisition. During
the first nine months of fiscal 2012, the company generated a
cash flow of $28.2 million from its operational activities.
Zumiez initiated its sales and earnings guidance for the
fourth quarter of fiscal 2012. Management anticipates fourth
quarter revenues to be in the range of $218-$221 million, while
comps are likely to decline between 3% and 4%.
Based on sales projections for the quarter, the company
expects earnings per share to come in the band of 59-62 cents.
The earnings expectation also includes estimated costs and
expenses of 8 cents related to the Blue Tomato acquisition.
Everett, Washington-based Zumiez targets young men and women,
in the age group of 12 to 24 years, who seek popular brands that
represent a lifestyle centered on extreme sports activities. We
expect Zumiez's focus on teenage action-sports based merchandise
and expanding store network and e-commerce capabilities to
deliver solid results in the upcoming quarters.
Moreover, in the recent years, Zumiez launched stores
averaging 3,000 square feet, which enabled it to offer better and
increased selections without compromising the store ambience.
These initiatives provide the company with a strong platform to
effectively capitalize on the emerging opportunities.
However, intense competition from other specialty retailers
Hot Topic Inc.
Pacific Sunwear of California Inc.
), the seasonal nature of the business and risks associated with
sourcing merchandise from foreign countries may weigh on the
Currently, Zumiez holds a Zacks #3 Rank, implying a short-term
Hold rating on the stock. We retain our long-term Neutral
recommendation on the stock.
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