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Zumiez Plunges 17% in 3 Months: Further Downside Left?

Zacks Equity Research

Zumiez Inc. ZUMZ has been losing sheen of late. We note that this Zacks Rank #4 (Sell) company has plunged 16.5% in the past three months, wider than a decline of 9.2% experienced by Zacks categorized Retail-Apparel/Shoe industry. Is further downside left in the stock? Let’s find out.

What’s Hurting the Stock?

While Zumiez’s surprise history reflects a solid earnings trend, the probable reason for the recent decline in the share price could be the drab first-quarter fiscal 2017 outlook. Moreover, a challenging retail landscape, stiff competition from online retailers and soft store traffic are further posing threat to the company.

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 compared with a loss of 8 cents reported in the year-ago quarter, clearly justify the stock’s dismal performance.

These factors led to the downtrend in the Zacks Consensus Estimate in the last 60 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.

Owing to its extensive exposure to international markets, Zumiez faces various risks associated with international operations, including legal and regulatory hurdles, changing global fashion trends and unfavorable currency fluctuations. Hence, like many other retailers, Zumiez is likely to feel the pinch of negative currency translations if the U.S. dollar continues to strengthen.



Is There Anything that Can Save the Stock?

Though Zumiez remains prone to the short-term risks looming on the retail industry, it is confident of gaining market share in the long run based on its strategic initiatives such as focus on omni-channel growth, authentic lifestyle positioning and commitment to customer service. The company remains focused on turning performance around by testing new brands, analyzing every aspect of business across brands and geographies, reviewing coordinated marketing and product plans, along with revisiting promotional strategies. Further, the company remains optimistic about performance in the European market.

Well Zumiez may face struggle to find place in your portfolio as of now but the retail sector is not devoid of outperformers. Here are the three key picks from the space.

Better-ranked stocks in the retail sector that warrant a look include Burlington Stores, Inc. BURL, The Children's Place, Inc. PLCE and Foot Locker, Inc. FL. Children's Place sports a Zacks Rank #1 (Strong Buy) while Kate Spade & Company and Foot Locker carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Burlington Stores delivered an average positive earnings surprise of 26.3% in the trailing four quarters and has a long-term earnings growth rate of 15.9%.

Children's Place delivered an average positive earnings surprise of 39% in the trailing four quarters and has a long-term earnings growth rate of 8%.

Foot Locker delivered an average positive earnings surprise of 2.2% in the trailing four quarters and has a long-term earnings growth rate of 9.7%.

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