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Why Is Zumiez (ZUMZ) Up 12.9% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Zumiez (ZUMZ). Shares have added about 12.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Zumiez due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Zumiez Tops Q2 Earnings & Sales Estimate, Upbeat FY19 View

Zumiez reported robust second-quarter fiscal 2019 financial numbers. While the company’s earnings surpassed the Zacks Consensus Estimate for the sixth straight quarter, revenues outpaced the consensus mark for the second consecutive quarter. Also, both the top line and the bottom line grew year over year. Notably, the company also delivered 12th successive quarter of positive comparable sales (comps). Better-than-expected results prompted management to raise fiscal 2019 view.

Q2 Highlights

Zumiez reported earnings of 36 cents per share, which surpassed the Zacks Consensus Estimate of 19 cents. Also, the bottom line increased considerably from 17 cents reported in the prior-year quarter. Notably, increased sales and margin expansion were the primary reasons behind its bottom-line growth in the quarter under review.

Net sales rose 4.3% year over year to $228.4 million and also exceeded the Zacks Consensus Estimate of $223.6 million. The top line benefited from comps growth and the addition of seven stores since the end of second-quarter fiscal 2018, partly offset by adverse foreign currency rates.

Quarterly comps grew 3.6%, up from the company’s guided range of flat to up 2%. Comps benefited from higher transaction volume and growth in dollars per transaction. Strength in the hard goods, accessories and footwear categories aided comps. However, the upside was somewhat offset by negative comps in the men’s and women’s categories.

Gross profit increased 6.4% to $77.2 million in the fiscal second quarter, with gross margin expansion of 70 basis points (bps) to 33.8%. The improvement was mainly backed by leveraged store occupancy costs, lower shipping and distribution costs.

Zumiez’s SG&A expenses slid 0.5% to nearly $65.5 million. Also, SG&A expenses, as a percentage of sales, declined 130 bps to 28.7% due to leverage in store expenses.

Consequently, operating income amounted to $11.7 million, up 74.3% from $6.7 million in the prior-year quarter.

Financial Update

Zumiez ended the second quarter with cash and marketable securities of $188.6 million, up 41.9% year over year. Total shareholders’ equity at the end of the fiscal second quarter was $404.2 million. During the first six months of fiscal 2019, the company generated $35.2 million as cash flow from operations. For fiscal 2019, Zumiez anticipates capital expenditures between $19 million and $21 million. Capital expenditures reported in fiscal 2018 were $21 million.

Store Update

As of Aug 31, the company operated 711 stores including 607 in the United States, 51 in Canada, 43 in Europe and 10 in Australia.

Zumiez remains on track to open around 16 stores in fiscal 2019, including seven in Europe, six in North America and three in the Australia.

Guidance

Management issued guidance for third-quarter fiscal 2019. Net sales are anticipated in the range of $258-$263 million, which showcases an improvement from $249 million recorded in the year-ago quarter. Comps are likely to grow in the range of 3-5%.

Furthermore, consolidated operating margins are projected in the range of 7-7.7%. Earnings per share for the fiscal third quarter are envisioned in the band of 55-61 cents. Zumiez delivered earnings of 55 cents per share in the prior-year quarter.

The company raised its view for fiscal 2019. It now expects comps to rise in the range of 2-4% compared with prior view of low single-digit growth. Adjusted earnings per share are anticipated in the band of $2.10-$2.20, up from prior view of $1.84-$1.94. Zumiez delivered earnings of $1.79 per share in the prior year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 9.82% due to these changes.

VGM Scores

At this time, Zumiez has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision has been net zero. It comes with little surprise Zumiez has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.



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