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Zumiez (ZUMZ) Beats on Q2 Earnings & Sales, Raises View

Zacks

Zumiez Inc. ZUMZ delivered a solid second-quarter fiscal 2018 as both top and bottom lines surpassed estimates and improved year over year. While this marked the company’s second consecutive earnings beat, sales topped estimates for the ninth straight quarter.

Shares of Zumiez did not react much to the company’s earnings. Nonetheless, this Zacks Rank #1 (Strong Buy) stock has advanced a whopping 45% in the past six months, outperforming the industry’s growth of 10.2%. This can primarily be attributed to the company’s solid monthly comps performance.



Q2 Highlights

Zumiez delivered earnings of 17 cents per share compared with loss of 2 cents reported in the prior-year quarter and topped the Zacks Consensus Estimate of 13 cents.

Zumiez Inc. Price, Consensus and EPS Surprise


Net sales advanced 13.9% year over year to $219 million, beating the Zacks Consensus Estimate of $218 million. The company’s sales gained from the addition of 11 stores in the past year. Moreover, it gained from about 10 million contributions from the calendar shift, which led to the occurrence of the back-to-school season in the second quarter of this fiscal compared with the third quarter of last fiscal.

Quarterly comps grew 6.3%, substantially surpassing the company’s forecast of 3-5% growth. This marked its eighth straight quarter of positive comps and increase in transactions. Further, it reflected significant growth from comps of 4.7% in the year-ago quarter.

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

Further, the company’s favorable comps trend continued in August. Comps for the four-week period ended Sep 1, 2018, jumped 9.5% compared with a 7.4% increase recorded in the year-ago quarter. Moreover, Zumiez reported sales growth of 9% to $107.4 million in August.

In the reported quarter, gross profit jumped 21.3% to $72.5 million while gross margin expanded 200 basis points (bps) to 33.%. The gross margin increase can be attributed to 160 bps of occupancy cost leverage, 30 bps of rise in product margin and 30 bps of lower inventory shrinkage.

Zumiez’s selling, general and administrative (SG&A) expenses increased 8.7% to nearly $65.8 million, while, as a percentage of sales, SG&A expense contracted 150 bps to 30%. The decline stemmed from leverage in store operating costs and timing of annual training events, offset by rise in annual incentive compensation.

Consequently, operating income of $6.7 million compared favorably with an operating loss of $0.8 million in the prior year.

Financial Update

Zumiez ended the reported quarter with cash and marketable securities of $132.9 million, up 88% year over year. The upside was driven by cash flow from operations, partly offset by capital expenditure. Total shareholders’ equity at the end of the quarter under review was $355 million.

Further, the company generated $15.5 million as cash flow from operations in the first half of fiscal 2018.

For fiscal 2018, it anticipates capital expenditures of $21-$23 million, which will be primarily used for store openings and planned remodels.

Store Update

As of Sep 1, 2018, the company operated 703 stores, including 610 in the United States, 50 in Canada, 36 in Europe and seven in Australia.

The company remains on track to open 13 stores in fiscal 2018, including seven in Europe, one in Australia and five in the United States. Of these, it has opened 11 stores year to date. This leaves the company with the target of opening just two stores in the second half of fiscal 2018.

Guidance

Following the strong results, the company provided an encouraging outlook for third-quarter fiscal 2018.

It expects net sales of $247-$252 million in the fiscal third quarter, with comps growth of 4-6%. Consolidated operating margins are projected to be 6.5-7% compared with 7.7% in the year-ago quarter. Consequently, the company projects earnings of 45-51 cents per share compared with 48 cents in the prior-year quarter.

Further, the company revealed that results for the fiscal third quarter will be negatively impacted by the aforementioned calendar shift of the back-to-school season to the fiscal second quarter this year. This is likely to impact sales by $10 million, operating profit by $3.2 million and earnings per share by 10 cents.

The company expects the positive comps trend to continue in fiscal 2018 and beyond. It now expects comps to grow in a mid-single digit for fiscal 2018, an increase from the prior guidance of low-single-digit growth. Operating margin is anticipated to increase in the mid-to-high teens range, up from the previous guidance of high-single-digit growth. SG&A is expected to increase at a significantly slower rate in fiscal 2018, driven by the company’s cost management efforts. Moreover, it expects earnings per share of $1.64-$1.70 in fiscal 2018, reflecting an increase of 52-58% from $1.08 last year.

However, the company expects earnings and sales for the fourth quarter and fiscal 2018 to be hurt by the absence of an additional 53rd week this year.

Let Your Portfolio See Growth: 3 Stocks Other to Buy

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The Buckle, Inc. BKE has an average positive earnings surprise of 8.2% for the trailing four quarters. It currently carries a Zacks Rank #2 (Buy).

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