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Zumiez Comps Maintain Momentum

Zacks Equity Research

Zumiez Inc. (ZUMZ), a U.S. specialty retailer with a focus on teenage action-sports based merchandise, reported a 7.5% hike in comparable store sales for the four-week period ended July 28, 2012 compared with the year-ago increase of 4.9%. Net sales for the period surged 21.5% to $47.0 million from $38.7 million reported in the four-weeks ended July 30, 2011.

We believe that the company’s well-balanced store expansion and e-commerce strategies will drive its top line further. Zumiez is currently in the early phase of its store expansion program. Moreover, it is planning to expand its store network by opening 50 new stores during fiscal 2012, of which 10 would be opened in Canada.

Additionally, during the last few years, Zumiez has launched stores averaging 3,000 square feet, which enabled it to offer extended merchandise without compromising on the store ambience. These initiatives provide the company with a strong platform to effectively capitalize on emerging opportunities.

Moreover, we believe the company’s recent acquisition of Blue Tomato will provide it with broader avenues to strengthen its international base. Expecting synergies from the acquisition Zumiez raised its second-quarter sales guidance in the range of $134–$136 million, inclusive of nearly $2 million sales from Blue Tomato. Earlier, the company was expecting revenue in the range of $128–$130 million.

However, Zumiez kept its earnings per share guidance unchanged for second-quarter 2012 at 4–6 cents, inclusive of the acquisition-related costs and expenses. The current Zacks Consensus Estimate for the upcoming quarter stands at 13 cents per share, which is way above the company’s guidance range.

Everett, Washington-based Zumiez targets young men and women in the 12 to 24 year age group who seek popular lifestyle brands centered on extreme sports activities. The company competes with Hot Topic Inc. (HOTT) and Pacific Sunwear of California Inc. (PSUN).

Zumiez's stores span across 2,900 square feet on an average, and offer couches and video game stations to entice customers to shop for extended periods. These stores are strategically located near busy areas of the mall, such as food courts, movie theatres, music/game stores and other popular teenage hang-out destinations.

As of July 30, 2012, the company operated 457 stores in the United States, 17 stores in Canada and 5 stores in Europe.

Currently, Zumiez carries a Zacks #1 Rank, implying a short-term Strong Buy rating. Moreover, we maintain a long-term Outperform recommendation on the stock.

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