Can Zumiez's (ZUMZ) Positive Comps Trend Help Offset Hurdles?
Zumiez Inc. ZUMZ has been out of investors’ good books for quite some time now. Soft traffic, volatile consumer spending and a competitive retail landscape have been plaguing the company of late. Owing to these factors, Zumiez’s shares have slumped 43% on a year-to-date basis, underperforming the Zacks categorized Retail – Apparel and Shoes industry’s decline of 22.2%.
However, a bright spot was witnessed in Zumiez’s otherwise dull picture last week, when the company announced impressive comparable store sales (comps) numbers for June that marked its fourth straight month of positive comps growth. This also encouraged management to raise its overall outlook for second-quarter fiscal 2017. Since the announcement, which came as a breather for investors, shares of the company have climbed 1.6%.
So, let’s take a deeper look into the June numbers and see if Zumiez can sustain this momentum.
June Numbers & Outlook
Net sales of this Lynnwood, WA-based retailer advanced 8.4% to $72.2 million, for the five week period ended Jul 1, 2017 – in comparison with $66.6 million for the five week period ended Jul 2, 2016. Further, comps for June jumped 5.3%, against a 4.5% drop recorded in the same period last year. Prior to this, Zumiez comps grew 3.3%, 7.8% and 1.1% for the months of May, April and March, respectively.
On the back of better-than-expected sales witnessed so far in the quarter, management raised its sales, comps and the bottom-line view for second-quarter fiscal 2017. Sales for the second quarter are now projected in a range of $189–$191 million compared with the old guidance of $185–$189 million. Further, the company now anticipates comps growth to range from 3–4%, up from 1–3% forecast earlier. Finally, management now expects to incur a loss of 6–8 cents per share in the second quarter, as compared with a loss of 6–11 cents, guided earlier.
Can These Trends Offset the Hurdles?
Being a mall-based specialty retailer, Zumiez is also struggling with hurdles like sluggish mall and store traffic. With the digital transformation in shopping and consumers splurging online, store and mall traffic has been hit hard. As a result, most retailers including big-box ones are struggling to compete with e-Commerce giants like Amazon.com, Inc. AMZN. Consequently, retailers are now concentrating on enhancing their omni-channel capabilities, optimizing store fleet and restructuring activities.
Evidently, major departmental store retailer Macy’s, Inc. M announced a slew of measures pertaining to stores closures, cost containment, real estate strategy and investment in omni-channel capabilities to enhance sales, profitability and cash flows. Also, apparel and shoe retailer, American Eagle Outfitters Inc. AEO announced plans to shutter 25–40 stores in fiscal 2017 when it released first-quarter results last month. Moreover, in an effort to better align its stores with omni-channel network and utilize capital resources efficiently, J. C. Penney Company, Inc. JCP announced strategic initiatives, wherein it will shut two distribution facilities as well as nearly 130–140 stores.
Likewise, Zumiez also remains focused on omni-channel growth, authentic lifestyle positioning and commitment to customer service to gain market share. In fact, the company’s brand value, combined with management’s efforts to improve omni-channel capacity, enhance merchandise choices and deliver better sales quality, helped it to boost comps in first-quarter fiscal 2017. From the favorable June sales data, it looks like these trends have continued into the second quarter as well, which surely gives out positive signals.
However, will this positive comps trend be enough to counter the aforementioned industry hurdles? Well, that remains a wait and watch story.
Zumiez currently carries a Zacks Rank #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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