After riding the crest of the board-sports wave in the
) is about to take on Europe.
And it's taking the acquisition route to get there. The teen
focused action-sports retailer has agreed to buy Austria-based
peer Blue Tomato for $75 million, it said last Tuesday.
The deal, which is expected to close before the end of the
current quarter, should give Zumiez a boost as it moves to
tap into the large European market for action sports goods.
Blue Tomato sells branded board-sports clothing and gear
mainly through its e-commerce website, which ships goods to 60
countries. Bluetomato.com is available in 14 languages. Online
sales accounted for roughly 75% of its 2012 fiscal year revenue
of $36.9 million. It also has five stores in Austria.
Zumiez expects the buy to be modestly accretive to 2012
earnings, excluding acquisition and integration costs.
The deal comes at a time when the Everett, Wash.-based Zumiez
is enjoying a booming business selling clothes and accessories to
board sports enthusiasts in North America with 448 mall-based
stores in the U.S. and 11 in Canada as of May 26.
Sales have grown by double digits the past nine quarters. And
Zumiez same-store sales have outpaced the industry overall in all
but two months since November 2010, according to Ken Perkins,
president of Retail Metrics. In May, its comps surged 13.7% vs. a
year earlier compared with a 2% gain for the industry.
But the buy represents a way for Zumiez to enter the European
market without taking a big risk of acquiring a large store
fleet, says B. Riley & Co. analyst Jeff Van Sinderen. And it
would give Zumiez the opportunity to draw on Blue Tomato's large
and established e-commerce business to gain a presence in France,
Germany and other countries in Europe, where there's a love of
action sports similar to that in the U.S., he says.
"There is an opportunistic, contrarian element of buying a
European business at this moment," he adds.
But, he says, Zumiez might have had to pay more for Blue
Tomato if "all the stars were aligned" for Europe on the macro
"We believe that the fact that it's 75% online makes it a
safer way of entering an untapped market," adds JPMorgan analyst
Simeon Siegel. "But we recognize that this is not without risks
given the macro economic environment abroad."
Zumiez sees a lot of potential having Blue Tomato onboard.
"Blue Tomato's experience and growth trajectory in Europe
combined with Zumiez's proven ability to open highly productive
stores with an integrated website provides a unique opportunity
to build a dominant global action sports retail presence," said
Chief Financial Officer Marc Stolzman on a conference call
announcing the deal.
In addition to the purchase price, Zumiez will also give Blue
Tomato an additional payment based on certain performance
objectives over the next three years.
Blue Tomato's large e-commerce business is a big draw,
Zumiez caters to the 14- to 24-year-old crowd, mainly male,
who love board sports like surfing and skateboarding. They're
also big online buyers.
Building a well-developed e-commerce business is a direction
that's been very important for Zumiez, says John Horan, publisher
of Sporting Goods Intelligence, a weekly newsletter.
"Given the age of its customers, I see a bigger piece of their
sales migrating online and to mobile than for most retailers," he
said. "That's part of the attraction."
Blue Tomato is a well-respected, well-run company, he adds,
with a lot of potential for expansion. Blue Tomato will keep its
home base in Austria and its senior management will stay on in
their current roles.
Keeping the management in place with the potential for an
earn-out is a good move, says Horan.
It's a much more complicated platform to accept multiple
currencies and sell in multiple languages than having an
e-commerce business in the U.S., he says.
So having local management's expertise will be important.
Zumiez is weighted more toward apparel and carries little
equipment, says Horan.
Comps And Margins
Meanwhile, Zumiez is faring handsomely with its current mix.
In the most recent first quarter, profits surged 150% to 15 cents
a share. Sales climbed 23% to $129.9 million. Same-store sales
popped 12.9% vs. a year earlier. Based on better-than-planned
sales, Zumiez raised its guidance to $134 million to $136
million, including $2 million from Blue Tomato, assuming the buy
is done by July 1.
That's up from its original sales guidance of $128 million to
"They've been doing extremely well and outperforming most of
retail in terms of comps and margins," said Van Sinderen.
While the company "felt some pain" in 2008 and 2009, it stuck
to the strategy that defines what Zumiez is all about.
"Their customers didn't see them radically change their
strategy," he said. "They just refined it and are getting better
at it. They continue to be the dominant retailer for core
action-sports apparel in the malls."
The design and the merchandising in its stores are a big draw,
say followers. The board-sports enthusiasts it caters to know its
stores are a destination where the employees are knowledgable
about action sports and probably participate in them, says Van
Analysts polled by Thomson Reuters expect full-year earnings
to rise 33% to $1.60 a share. They see a 14% increase in