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Why has Zumiez (ZUMZ) Suddenly Fallen Off Investors' Radar?

Zacks Equity Research

Shares of Zumiez Inc. ZUMZ, which had been moving higher sometime back, appear to be declining since the company’s fourth-quarter fiscal 2016 earnings were announced in early March. This dismal performance, of late, can be attributed to the challenging retail landscape due to sluggish mall traffic, volatile consumer spending and macroeconomic uncertainty.

Notably, Zumiez’s shares rose nearly 2% in the last six months compared to the Zacks categorized Retail – Apparel/Shoe industry’s decline of 11%. However, shares of this Zacks Rank #4 (Sell) company have declined 15.7% year to date, underperforming the broader industry’s fall of 9%. Let’s find out why.



What’s Behind the Slump?

While Zumiez’s surprise history reflects a solid earnings trend, the probable reason for the recent decline in share price could be the drab first-quarter fiscal 2017 outlook. As mentioned earlier, the tepid retail environment is expected to weigh on the company’s performance in the upcoming quarter.

Consequently, the company guided net sales in the range of $178–$182 million, while comparable store sales (comps) are expected to be flat to up 2% in the fiscal first quarter. Furthermore, a soft operating margin guidance of -4% to -5% and loss per share projection of 17–21 cents, clearly justify the dismal share performance.

Further, this weighed upon the company’s estimates, which have been trending downwards in the last 30 days. The Zacks Consensus Estimate of $1.02 and $1.09 for fiscal 2017 and 2018 declined 13 cents and 19 cents, respectively. Also, the current fiscal first quarter loss estimate of 18 cents per share has widened from the previous loss estimate of 4 cents per share.

Is this a Temporary Phase?

Though the drab outlook and the resultant decline in estimates portray a negative picture, we cannot ignore the company’s solid surprise trend and its strategic initiatives that position it for growth. Notably, the company has delivered positive earnings surprise in the last six quarters, with an average beat of 31.4% in the trailing four quarters.

Further, its strategic initiatives, focus on omni-channel growth, authentic lifestyle positioning and commitment to customer service highlight its long-term potential. Based on these factors, along with the company’s VGM Score of “A” and a long-term earnings growth rate of 15%, we believe the slump in the stock price may be a temporary phase.

The company has all the potential to bounce back and regain its lost momentum.

Key Picks

Meanwhile, investors may consider better-ranked stocks like The Children's Place, Inc. PLCE, Kate Spade & Company KATE and Foot Locker, Inc. FL.

The Children's Place, with a long-term earnings growth rate of 8%, has surged 55.3% in the past six months. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Kate Spade, a Zacks Rank #1 stock, rose 34.3% in the past six months.  Also, it has a long-term earnings growth rate of 28.3%.

Foot Locker, which carries a Zacks Rank #2 (Buy), has jumped 18.2% in the past one year. Also, the stock has a long-term earnings growth rate of 9.7%.

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Zumiez Inc. (ZUMZ): Free Stock Analysis Report
 
Foot Locker, Inc. (FL): Free Stock Analysis Report
 
Children's Place, Inc. (The) (PLCE): Free Stock Analysis Report
 
Kate Spade & Company (KATE): Free Stock Analysis Report
 
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