We reiterate our long-term Neutral recommendation on
), driven by the company's strong third quarter results, offset
by the skepticism surrounding its future comps performance. The
company also maintains a Zacks Rank #3 (Hold).
HOT TOPIC INC (HOTT): Free Stock Analysis
ZUMIEZ INC (ZUMZ): Free Stock Analysis Report
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Zumiez's store expansion and e-Commerce strategies coupled with
improved margins as well as strong merchandise aided 13% earnings
per share growth in the third quarter of 2012. Earnings per share
of 51 cents also came ahead of the Zacks Consensus Estimate of 47
cents. Net sales also rose 16.9% to $180.0 million during the
Management anticipates fourth quarter revenue between $218
million and $221 million. Based on sales projections for the
quarter, the company expects earnings per share to come in the
range of 59 cents to 62 cents per share.
Further, we believe Zumiez's initiatives such as its store
opening program and the acquisition of Blue Tomato will provide
it a solid platform to effectively capitalize on the emerging
This mall-based retailer of sports related merchandise is
currently in the early phase of its store expansion program, and
plans to strengthen its network to 600 - 700 stores in the
long-run. So far, in fiscal 2012, the company has added 56 new
stores, including 10 new stores in Canada and 3 in Germany
bringing the total store count to 502. We believe the company's
store expansion initiative will drive its top-line growth.
Despite strong quarterly results, our Neutral stance on the stock
is based on the apprehension regarding Zumiez's future comps
performance. We note that the company's comparable store sales
transactions have witnessed a declining trend so far in fiscal
2012, except for May. Further, the company's rate of upside in
comps has been decelerating over the past several months, with
comps for the past two months remaining negative. Moreover, the
company is now projecting comps decline of 3% to 4% for the
fourth quarter of fiscal 2012.
Additionally, we believe intense competition from other specialty
retailers, seasonal nature of the business, and risks associated
with sourcing merchandise from foreign countries may undermine
the company's results.
Other Stocks to Consider
Besides Zumiez, another stock to consider among retailers dealing
in sports related merchandise is
Hot Topic Inc.
), which carries a Zacks Rank #2 (Buy).