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Zumiez’s (ZUMZ) Strategic Efforts Bode Well: Should You Hold?


A prudent investment decision involves buying stocks that offer solid prospects and selling those that appear risky. Again, at times it is rational to hold certain stocks that have enough potential for long-term growth. Here we discuss one such stock, Zumiez, Inc. ZUMZ with expected long-term earnings per share growth rate of 15% and a VGM Score of “A”.

Zumiez remains focused on turning its performance around by testing new brands, analyzing every aspect of its business across brands and geographies along with reviewing its coordinated marketing and product plans. Moreover, the company remains optimistic about its performance in the European market. The retailer expects to generate profits and boost shareholder value based on its ongoing growth strategies.

We believe the company remains on track with its expansion strategies. The company’s investments in global expansion, enhancing omnichannel capacities and customer-centric approach bode well.

Ever since this specialty retailer of apparel, footwear and accessories broke its 17-month long trend of posting negative comparable store sales (comps) and dismal sales results on Oct 5, the company shares have gained more than 20%. Zumiez’s comps for the five weeks ended Oct 1, 2016 rose 6.3% compared with a 1.8% decline witnessed in the five-week period ended Oct 3, 2015.

Further, Zumiez raised its third-quarter fiscal 2016 sales, earnings and comps outlook backed by greater-than-expected sales in the quarter-to-date period. The retailer now envisions net sales in the range of $216–$217 million versus its previous forecast of $209–$213 million. Earnings per share are anticipated in the band of 29–30 cents compared with 21–26 cents per share guided earlier.

On the flip side, owing to its extensive exposure to international markets, Zumiez faces various risks associated with international operations, including legal and regulatory risks, changing global fashion trends and unfavorable currency fluctuations.

Furthermore, the company faces intense competition from other teen-focused as well as sporting goods retailers on the basis of brand recognition, fashion, price, service, store location, and quality.

The pros and cons embedded in the stock are well reflected by Zumiez’s Zacks Rank #3 (Hold).

Stocks to Consider

Better-ranked stocks worth considering in the retail sector include The Children's Place, Inc. PLCE, Sportsman's Warehouse Holdings, Inc. SPWH and Tilly's, Inc. TLYS. All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Children's Place has surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average earnings surprise of 33.1% and has a long-term earnings growth rate of 10.3%.

Sportsman's Warehouse Holdings has a long-term earnings growth rate of 15%.

Shares of Tilly's have gained 60% in the past three months. The stock has a long-term earnings growth rate of 15.5%.

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