Zumiez's (ZUMZ) Q4 Earnings Beat, Revenues Increase Y/Y

Zumiez Inc. ZUMZ reported better-than-expected earnings for fourth-quarter fiscal 2023. Also, sales beat the Zacks Consensus Estimate and increased year over year. However, the bottom line compared unfavorably with the respective year-ago fiscal quarter’s reported figures.

Zumiez ended a challenging year with fourth-quarter results that exceeded expectations, thanks in part to an acceleration in consolidated monthly sales, which were announced on Jan 24. Notably, the company's performance improved across multiple areas, with the North American men’s segment experiencing year-over-year growth in the fourth quarter. This improvement is encouraging, highlighting sustained progress throughout the year.

Despite the optimism drawn from these better-than-expected fourth-quarter results and consistent quarterly advancements, Zumiez acknowledges the ongoing challenges in the global operating environment. As a response, the company is adjusting its strategies to ensure it aligns with the interests of both shareholders and customers.

Over the past three months, shares of this current Zacks Rank #3 (Hold) company have declined 22.7% against the industry’s 14.4% growth.

Zumiez Inc. Price, Consensus and EPS Surprise Zumiez Inc. Price, Consensus and EPS Surprise

Zumiez Inc. price-consensus-eps-surprise-chart | Zumiez Inc. Quote

Results in Detail

Zumiez posted quarterly earnings of 40 cents per share, surpassing the Zacks Consensus Estimate of 26 cents. The bottom line declined 32.2% from the earnings per share of 59 cents reported in the year-earlier quarter.

Total net sales of $281.8 million came above the consensus estimate of $276 million and increased 0.6% from the year-ago period’s reading. Comparable sales also decreased 3.9% during the quarter under review. The decline was attributed to ongoing inflationary pressures affecting consumer spending, persistent challenges, increased competition for discretionary spending and weaker performance in specific categories of its business.

From a regional perspective, North America’s net sales were $212.4 million, down 3.4% from the year-ago fiscal quarter’s tally. Other international sales, comprising Europe and Australia, were $69.4 million, up 15.2% from the year-ago quarter’s level. We had anticipated North America’s net sales to be $222.9 million and the other international sales to be $53.5 million for the quarter under review.

Excluding the impacts of foreign currency translations, North America’s net sales fell 3.4% while other international net sales rose 12.3% from the fiscal 2022 readings. Comparable sales for North America declined 5.4% while the metric for other international inched up 0.9% for the quarter.

Regarding sales by category, men's was the sole segment to report positive comparable sales for the quarter, in contrast to all other categories, which experienced declines from the previous year. The women's category showed the most significant downturn, with accessories, hard goods and footwear performing negatively.

Gross profit increased 1.5% year over year to $96.7 million from $95.3 million reported in the year-ago quarter. The gross margin expanded 30 basis points (bps) to 34.3%. The improvement in gross margin mainly stemmed from several factors. A 70-bps reduction in shipping costs was achieved thanks to improved outbound shipping rates.

Additionally, a shift in the mix from service and related shipping revenues, which had negatively impacted margins in the same quarter of the previous year, contributed a positive 60 bps Finally, a 30-bps leverage in store occupancy costs was realized due to a decrease in total expenses year over year, coupled with a slight sales increase attributed to the inclusion of the 53rd week.

Selling, general and administrative (SG&A) expenses rose 61.7% from the year-ago fiscal quarter’s tally to $129.4 million during the quarter under review. As a percentage of sales, SG&A expenses increased 1730 bps to 45.9% from the year-ago quarter’s count.

Zumiez reported an operating loss of $32.8 million against an operating income of $15.2 million recorded in the year-ago fiscal quarter.

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Financial & Other Updates

As of Feb 3, 2024, ZUMZ had cash and current marketable securities of $171.6 million compared with $173.5 million as of Jan 28, 2023. The decline was due to capital expenditures of $20.4 million, somewhat offset by cash flow from operations of $14.8 million. It had no debt at the end of the quarter.

Total shareholders’ equity at the end of the fiscal quarter was $353.2 million. The company ended the fiscal fourth quarter with $128.8 million in inventory, down 4.4% from the year-ago quarter’s total.

As of Mar 2, 2024, Zumiez operated 753 stores, including 594 in the United States, 47 in Canada, 87 in Europe and 25 in Australia. Management intends to open roughly 10 stores in fiscal 2024, including about three stores in North America, three in Europe and four in Australia.

Other Updates

For the first quarter-to-date, spanning four weeks and concluding on Mar 2, 2024, total sales dropped 3.1% compared with the same four-week period ending Feb 25, 2023. When examining comparable sales for the four weeks ending Mar 2, 2024, there was a decline of 6.2% from the comparable four-week period ending Mar 4, 2023. Looking at it regionally, comparable sales in North America saw a decrease of 2.6%, while sales in other international regions experienced a more significant reduction of 17.8% year over year.

In terms of category performance, the men's category exhibited the highest growth in comparable sales, with footwear coming in next. On the other end of the spectrum, hard goods faced the most significant decrease in comparable sales, with accessories and women's categories following in terms of sales decline.

Outlook

Zumiez provided guidance for the first quarter and fiscal 2024. For the first quarter of fiscal 2024, it anticipates total sales to be between $167 million and $172 million. The company expects operating loss to be between negative 15% and negative 17% as a percentage of sales and anticipates a loss per share to be between $1.09 and $1.19, compared with a loss of 96 cents a share in the year-ago quarter.

For fiscal 2024, Zumiez expresses confidence in achieving total sales growth, considering the challenges of a 53-week year in fiscal 2023 and planned store closures. The company anticipates product margin to grow in fiscal 2024 with a more stable sales environment. SG&A costs are expected to leverage year over year, beyond the benefit of moving past the $41.1 million goodwill impairment charge recorded in the fourth quarter of fiscal 2023. Operating margins are expected to return to positive for the full year, with an effective tax rate projected to be roughly 40% for fiscal 2024.

Zumiez plans to optimize the current footprint, with capital expenditures estimated to be between $14 million and $16 million. The projected share count for the full year is approximately 19.8 million shares. This guidance reflects the company’s strategic priorities for fiscal 2024, including a focus on increasing productivity, enhancing profitability, investing in new and private label brands, and maintaining strong customer service.

Key Picks

A few better-ranked stocks in the same space are Deckers Outdoor Corporation DECK, American Eagle Outfitters Inc. AEO and Abercrombie & Fitch Co. ANF.

Deckers, a leading designer, producer and brand manager of innovative, niche footwear and accessories, sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Deckers’ current fiscal-year earnings and sales indicates growth of 38.7% and 15.7% from the year-ago period’s reported figures. DECK has a trailing four-quarter average earnings surprise of 32.1%.

American Eagle Outfitters is a specialty retailer of casual apparel, accessories and footwear. It sports a Zacks Rank of1, at present.

The Zacks Consensus Estimate for American Eagle Outfitters’ current fiscal-year earnings and sales indicates growth of 7.9% and 3.3% from the year-ago period’s reported figures. AEO has a trailing four-quarter average earnings surprise of 22.7%.

Abercrombie & Fitch is a specialty retailer of premium, high-quality casual apparel. The company currently carries a Zacks Rank #2 (Buy). ANF has a trailing four-quarter average earnings surprise of 715.6%.

The Zacks Consensus Estimate for Abercrombie & Fitch’s current fiscal-year earnings and sales indicates growth of 16.4% and 5.7% from the year-ago period’s reported figures.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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