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Zumiez Curbs Costs & Extends Store Closure Amid Coronavirus

Zacks Equity Research
·4 min read

The novel coronavirus has wreaked havoc on the retail sector, compelling retailers to take stern measures beyond store closures and furloughs. Now, they are resorting to several proactive actions that include strengthening liquidity and cutting down on expenses to address challenges tied to the pandemic. In view of the heightened uncertainty concerning the prevailing backdrop, Zumiez Inc. ZUMZ has taken additional steps to combat the crisis.

In order to reinforce liquidity, the company has decided to suspend hiring, eliminate all bonuses for fiscal 2020, delay most of the merit increases, curb capital spend, extend payment terms for vendor invoices and reduce inventory receipts by canceling or delaying orders. Also, management has been minimizing operating costs, which consist of marketing and other non-essential items. Moreover, it has announced to suspend rent payments and defer store openings for the time being. It has also chosen to put share repurchases on hold for now.

In its last earnings call, Zumiez had anticipated capital expenditures between $18 million and $20 million for fiscal 2020. Management planned to open nearly 20 stores, including about eight stores each in North America and Europe, and four in Australia for the same fiscal. It ended fiscal 2019 with more than $250 million in cash and no debt.

Zumiez had previously announced the temporary closure of all stores across the United States and Canada effective Mar 19 to Apr 3. These closures are now extended until further notice. Also, its Blue Tomato stores in Europe and Fast Times stores in Australia will remain shut. However, management will continue supporting its full-time workers. The athletic retailer had also withdrawn its first quarter and fiscal 2020 guidance.

Nevertheless, Zumiez’s e-commerce websites will continue to function in the interim. Encouragingly, this Zacks Rank #3 (Hold) company is striving to expand its e-commerce and omnichannel platforms to provide consumers with the facility of quick and easy access to its products and brands. In this regard, Zumiez has considerably improved customers’ experience by integrating its physical and digital networks. This allows customers to access inventories through all channels alongside availing facilities like buy online, pick up in store, and reserve online and pay in store. We expect the company’s e-commerce strategies to provide cushion to the top line to a certain extent.

This Lynnwood, WA-based company’s shares have lost 44% in a year compared with the industry’s 68.4% decline.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Wrapping Up

Incidentally, a few other players such as L Brands LB, Macy’s M and Tilly's TLYS have also taken similar measures in the wake of the alarming spread of the pandemic. Women’s apparel retailer, L Brands, suspended quarterly dividend payout, cut down on capital expenditures and drew $950 million from the revolving credit facility. The renowned omnichannel retailer, Macy’s, has suspended second-quarter fiscal 2020 dividend payout and lowered capital expenditures for the current fiscal. The company has also chosen to access $1.5 billion available under the revolving credit facility. Apparel and accessories dealer, Tilly's, has borrowed $23.7 million from its credit facility, shut down the distribution center in Irvine, CA, and furloughed most of its associates. It has also recognized additional cost reductions for fiscal 2020.

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