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Zumiez Displays Strong Performance, Growth on Track

Zacks Equity Research

On Jun 25, 2014, we updated our research report on Zumiez Inc. (ZUMZ) following a strong first-quarter fiscal 2014 by the teen apparel retailer.

Zumiez posted better-than-expected first-quarter fiscal 2014 bottom-line results that was double the Zacks Consensus Estimate. The results gained from strong top line growth benefiting from the company’s successful execution of long-term growth strategies and the strength of its distinguished and varied assortments. Though sales in early part of the quarter suffered due to excess inventory it picked up in the latter half driven by full price selling.

Furthermore, we remain encouraged by the company’s May comps performance. Zumiez reported a 3.6% rise in comparable-store sales (comps) for the four-week period ended May 31, 2014, compared with a comps increase of 1.1% for the four weeks ended Jun 1, 2013.

Moreover, net sales for May rose 13.3% to $49.5 million from $43.6 million reported in the year-ago period. We believe the company’s sales for the month mainly picked up with the arrival of warmer weather that induced demand for the spring and early summer collections.

Zumiez is a mall-based specialty retailer of action-sports related apparel, footwear, equipment and accessories. The company’s strategy is to offer action sports merchandise focused on young adults, both men and women aged 12 to 24 years, which has enabled it to carve a distinctive niche for itself.

Going forward, we believe that Zumiez’s store expansion policy, along with improvement of its omni-channel capabilities will help boost its top and bottom lines.

The company is in the process of expanding its store base and plans to increase its network to 600—700 stores in the long run. It has successfully completed the target of opening 59 stores in fiscal 2013 and intends to further increase its store count by adding another 50 stores in fiscal 2014. The company is also focused on optimizing its presence in all markets through repositioning or closing of its underperforming stores to ensure long-term productivity.

In addition, the company is striving to expand its e-Commerce and omni-channel platforms to provide consumers with the facility of quick and easy access to its products and brands.

However, we are not very constructive on this Zacks Rank #3 (Hold) stock due to intense competition from rival specialty retailers, the seasonal nature of the business and risks related to sourcing merchandise from foreign countries, which may undermine the company’s results.

Moreover, a dampened consumer confidence and spending behavior due to macroeconomic factors including increase in fuel and energy costs, credit availability, high unemployment levels, and high household debt levels, may negatively affect the consumers disposable income. This in turn, could affect the company’s growth and profitability.

Key Picks from the Sector

Better-ranked stocks among apparel-shoe retailers include Citi Trends Inc. (CTRN), Christopher & Banks Corp. (CBK) and Foot Locker Inc. (FL). Of these, Citi Trends and Christopher & Banks sport a Zacks Rank #1 (Strong Buy) while Foot Locker has a Zacks Rank #2 (Buy).

Read the Full Research Report on ZUMZ
Read the Full Research Report on CBK
Read the Full Research Report on FL
Read the Full Research Report on CTRN

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