May 5th IPO $18 to high of $36 $60 MM brought in from IPO (roughly)
2nd Qtr. Results: 28.7% net sales increased SSS up 11.3% Double Digit comps, August looks good so far EPS $0.06
5 New stores opened 1 closed, 11 opened for the year, Remodeled stores New Stores in SoCal, and South West Can "fine-tune" concepts for different regions
Operating income was $1.3 MM 3.2% of net sales compared with 523K or 1.7% Vs. 2nd Qtr. 2004 Net income $848 K or $0.06 vs. $0.02 EPS last year. Increase in inventory due to back to school. Some Inv. in Transit. Working Cap increased. ZUMZ has No Debt. No Credit on lines.
1st Half 2004: Net sales $72.8 MM increase of 31.3% of 55.4 MM 2004 11.6% increase in comps. OI 1.3 MM vs. OL in 2004.
Forward Guidance: Full Year FY 2005 EPS $.080 to 0.82 w/15.5 MM shares out.
Full year 35 new stores, 174 stores total expanding square footage to 28% 475 K sq. ft. Long-term EPS growth rate of 30% looks "very achievable"
[Note: I believe this to be "sandbagging" the next few qtrs. due to earnings misses from ANF, HOTT, et. al. and giving room for earnings surprises. We will see. With Back to school and the Christmas holidays approaching results might exceed guidance.]
ZUMZ has wide moat due to the "organized chaos" w/industrialized look and an enviable position in the "active/extreme sports" market.
Next Yr. Guidance:
30% EPS growth. Flat comps? Based on low to mid digit comp growth 20% sq. ft. growth/year
When will a new one be needed? New center was moved into in Jan 2005 Center has a (264) store capacity could be increased to service as many as 300+ stores
New stores are meeting or exceeding expectations Existing store base is comping in double digits
Store space allocation Dynamically allocated to take advantage of current trends No major change in men's/women's/lifestyle Casual vs. luxury brands are trending well
Growth margins: leveraged through increased sales, stores, operating efficiencies.
Inventories were cleaned up last year Pre-opening costs are not significant. Public company costs for 2nd Qtr. $200-300K Stores opened in 1st half are backfilling existing markets
Rent is not paid until store opens
1st half last year 16 stores opened
Cheap and dirty growth rate x EPS would give price target between $28 and $32. If growth rate for last half of the year is exceeded and margins improve even more, (which remains to be seen ZUMZ could trade in $35 to $40 range, however this would indicate the shares are fully priced currently and the future earnings are "on the come". With the store growth I would be optimistic that this can occur.) If ZUMZ can hit the 30% EPS growth rate the shares would be worth $40 today. [This is a big assumption]
For the time being this is a good story, a successful IPO and ZUMZ is bucking the trend of other retailers. ZUMZ is in a niche that no other "mall store" is competing with apples for apples although it is a tough market. I would expect that ZUMZ will trade between $28 and $32 until the next earnings report with an extra +/- $0.50 for every 100 point move on the S&P500.
I will reiterate a buy rating with a ST price target of $32 and an early 2006 price target of $35 to $37.