While most of you reading this probably haven’t bought a Zumiez product, that doesn’t mean tons of kids, teens and young adults (especially hipsters, skaters, BMX’ers, etc) aren’t buying en mass.
In fact Zumiez reported record earnings on March 8th and saw sales increase almost 18% in the fourth quarter that ended on January 28th. Yesterday’s strong retail sales data also added credence and perhaps stability to the Zumiez numbers and future outlook.
Can this niche retailer keep their sales growth and stock momentum going into 2012?
Company Description & Developments Zumiez got their start outside of Seattle in 1978. Headquartered in Everett, WA, they now operate over 420 stores in 37 states across the US, 10 in Canada and are growing rather fast.
Just about all of their locations are inside malls, which is where you are likely to find someone in their target demographic. Similar to Starbucks, they offer couches and video games to keep customers hanging around the store and hopefully spending money on one or more of their many brands.
Having been around for almost 34 years, there is no doubt the company is doing something right. But on the other hand one has to realize that as a niche, discretionary retailer they are going to be highly susceptible to consumer habits and trends. For now, it seems that their business model is benefitting from an overall strong consumer and product line that is in favor.
In 2011 they added 45 productive new stores which help fuel a 3% improvement in operating margin and generated more than $68 million in operating cash flow. I will be curious to see if that expansion will continue into 2012 and continue to justify Zumiez’ relatively high P/E multiple.
Financial Profile ZUMZ is a small-cap (1.08 billion) company that is trading at about 24.13 times forward (expectations for next quarter) earnings. ZUMZ recently became a Zacks Rank 1 strong buy on March 10th, 2011, but has been between a Rank 1 and 2 since December 6th.
Total 2011 sales increased 16.1% compared to full year 2010. Comparable store sales increased 8.7% in fiscal 2011, slightly down from the 11.9% sales growth in fiscal 2010.
ZUMZ GAAP earnings increased from $0.83 in FY2012 to $1.19 FY2011 and they expected to earn $1.20 in FY2013 according to the Zacks Consensus Estimate.
Earnings Estimates Zumiez projected Q1 revenue to be in the range of $123 to $125 million and resulting in net income per diluted share of approximately $0.06 to $0.08, which includes an estimated $0.01 per diluted share, for charges associated with the relocation of ecommerce fulfillment operations. Guidance is based on an anticipated comparable store sales increase in the high single digit range for the first quarter of fiscal 2012.
Of the 17 analysts who cover ZUMZ, the consensus is for the company to grow earnings by 19.4% in the current year (FY2013) and roughly 14% in FY2014. Zumiez has surprised analysts to the upside 4 quarters in a row at an average of almost 68%.
In terms of the magnitude of analyst estimate trends, we are seeing all of the consensus estimates the same or higher than they were 30 days ago for the current and next quarter as well as FY2013 and FY2014.
Market Performance & Technicals Since its swift recovery from its October 2011 lows, Zumiez has enjoyed a fairly consistent bullish trajectory ever since. During that people the stock has maintained above its 50 day moving average which now stands at $30.26.
ZUMZ managed to make another new 52 week high yesterday as markets rallied on strong retail data.
Look for the 50 day moving average to be key support moving forward; a break below it could spell a trend change for the company. It is also important to note that ZUMZ was in overbought territory yesterday as it eclipsed its upper Bollinger band.
ZUMZ has exceeded the S&P 500’s performance in the past year by 29% and outpaced it by almost 12% in the past 3 months as the broad market has rallied. The stock remains in a bullish trend and has maintained its momentum in the past month, leading the S&P 500 index by 13.5%.
With a Beta of 1.9, ZUMZ is both correlated to, but more volatile than the S&P 500.