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Zumiez (ZUMZ) Q3 Earnings In Line, Sales Beat, Gives Q4 View

Zacks

Zumiez Inc. ZUMZ delivered a solid third-quarter fiscal 2017 with earnings matching estimates after eight consecutive beats. Moreover, sales topped estimates for the sixth straight quarter.

However, shares of Zumiez dipped 2.1% in the after-market trading session yesterday. Nonetheless, this Zacks Rank #2 (Buy) stock has advanced a whopping 61.5% in the past three months, outperforming the industry’s growth of 21.6%. This can primarily be attributed to the company’s solid monthly comps performance.



Q3 Highlights

Zumiez delivered earnings of 48 cents per share, which improved 11.6% year over year and was in line with the Zacks Consensus Estimate.

Zumiez Inc. Price, Consensus and EPS Surprise


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

Net sales advanced 11% year over year to $245.8 million, beating the Zacks Consensus Estimate of $242.9 million. The improvement in the top line came on the back of six net new store additions since last year and favorable comps.

Quarterly comps grew 7.9%, substantially surpassing the company’s forecasted range 4-6% growth. This marked the company’s fifth straight quarter of positive comps and transaction gains. Further, it reflected significant growth from comps of 4% in the year-ago quarter and 4.7% in the fiscal second-quarter.

Comps also gained from higher transaction volume, somewhat offset by a drop in dollars per transaction. Moreover, strength in the men’s and junior’s categories aided comps growth, partly negated by lower comps across accessories, hardgoods, and footwear.

Further, the company’s favorable comps trend continued in November, which reflected a solid start to the holiday season. Comps for the four-week period ended Nov 25, 2017, jumped 7.8% compared with a 5.7% increase recorded a year-ago quarter. Moreover, Zumiez reported sales growth of 11.3% to $77.1 million in November.

In the reported quarter, gross profit jumped 9.4% to about $83.4 million, while gross margin contracted 50 basis points (bps) to 33.9%. The gross margin decline can be attributed to 80 bps inventory shrinkage and 40 bps fall in product margin, partly compensated by 90 bps occupancy cost leverage.

Zumiez’s selling, general and administrative (SG&A) expenses increased 8.9% to nearly $64.6 million, while as a percentage of sales, SG&A expense contracted 60 bps to 26.2%. The decline stemmed from leverage in store costs, offset by a rise in annual incentive compensation.

Consequently, operating income grew 11.2% year over year to $18.8 million. Moreover, operating margin expanded 10 bps to 7.7%.

Financial Update

As of Oct 28, Zumiez’s cash and marketable securities were $85.8 million, up 74.4% year over year. The upside was driven by cash flow from operations, partly offset by capital expenditures. Total shareholders’ equity at the end of the quarter was $326.6 million.

Further, the company generated $13.9 million as cash flow from operations in the nine months of fiscal 2017.

For fiscal 2017, the company anticipates capital expenditures in a range of $24-$26 million, which will be primarily used for new store openings and planned remodels.

Store Update

The company remains on track to open a total of 19 new stores in fiscal 2017, including five in Europe, two in Australia and three in Canada. Of these, the company has opened 18 stores year to date. This leaves the company with the target of opening just one store in the fiscal fourth quarter.

As of Nov 25, 2017, the company operated a total of 699 stores, including 659 in North America, 33 in Europe and seven in Australia. This excludes two stores in North America that are still closed due to natural disasters.

Guidance

On account of the solid comps momentum carried forward in November, its merchandise strategies, and integrated sales channels, Zumiez anticipates generating robust holiday season sales and a fabulous earnings growth in the fourth quarter. Consequently, the company provided an encouraging outlook for fourth-quarter fiscal 2017.

The company expects net sales for the quarter in the $291-$297 million range, while comps growth is anticipated in a range of 3-5% growth. Gross margin is anticipated to increase in a band of 20-50 bps, while consolidated operating margins are projected to range from 10.5-11%. Consequently, the company projects earnings of 78-84 cents per share compared with the year-ago quarter earnings of 74 cents.

Further, the company revealed that results for the fourth quarter and fiscal 2017 are projected to gain from the inclusion of an additional 53rd week this year. The company expects the inclusion of the additional week to benefit sales by nearly $9 million and earnings per share by about 5 cents in fiscal 2017. However, this is likely to negatively impact earnings and sales growth in fiscal 2018.

Looking for More? Check these 3 Trending Retail Stocks

Other top-ranked stocks in the same industry are The Buckle Inc. BKE, Urban Outfitters Inc. URBN and American Eagle Outfitters Inc. AEO. While Buckle and Urban Outfitters sport a Zacks Rank #1 (Strong Buy), American Eagle carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Buckle has delivered positive earnings surprise of 3.8% in the trailing four quarters. Further, the stock has returned 52.9% in the last three months.

Urban Outfitters has gained nearly 47.4% in three months. Moreover, it has a long-term earnings growth rate of 11.5%.

American Eagle has improved 30.8% in the last three months. Further, the company has a long-term EPS growth rate of 8.7%.

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