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Zumiez Q2 Preview: Rebound Quarter Inbound?

·4 min read

The Zacks Retail and Wholesale Sector has struggled in 2022, losing more than 20% in value and widely lagging behind the S&P 500.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Zumiez ZUMZ, a company in the sector, is scheduled to unveil Q2 earnings on September 8th after the market close.

Zumiez is one of the leading global lifestyle retailers. Its distinctive brand offerings and diverse product selection have carved a niche in the rapidly changing apparel industry.

Before we get into how the company stacks up heading into the report, let’s take a look at another big retailer’s quarterly results, lululemon LULU.

Lululemon

Lululemon designs, manufactures, and distributes athletic apparel and accessories for women, men, and female youth. The company targets the high-end consumer market.

Lululemon had a strong quarter – the company reported quarterly EPS of $2.20, enough to exceed the Zacks Consensus Estimate of $1.86 by 18% and reflect a stellar Y/Y uptick of 33%.

Quarterly sales came in hot at $1.9 billion, exceeding expectations of $1.8 billion by nearly 6% and penciling in a rock-solid 30% Y/Y uptick.

Further, the company’s gross margin improved by an impressive 25% Y/Y to $1.1 billion.

LULU’s substantial results were fueled by strong business momentum, leading to rock-solid quarterly metrics and a heavily improved operating margin.

In addition, the company provided uplifting guidance – management now expects net revenues of $1.8 - $1.81 billion for Q3 2022, representing a Y/Y uptick of more than 20%.

Clearly, it was a strong quarter for the company, and it tells us that retailers operating in high-end markets have had much higher success than others in 2022.

Now, onto Zumiez.

Zumiez

Share Performance: Zumiez shares have struggled heavily in 2022, down nearly 50% and vastly underperforming the S&P 500.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Over the last month, ZUMZ shares have continued on their downward trajectory, decreasing nearly 8% in value and lagging the general market in this timeframe as well.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

The poor price action tells us that bears have had a firm grip on shares all year long.

Valuation: Zumiez shares trade at rock-solid valuation levels, further displayed by its Style Score of an A for Value.

The company’s forward earnings multiple resides at a low 7.4X, nowhere near its five-year median of 13.4X and representing a steep 70% discount relative to its Zacks Sector.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Quarterly Estimates: A singular analyst has lowered their earnings outlook over the last 60 days, with the Zacks Consensus EPS Estimate of $0.47 penciling in a steep 53% Y/Y drop off in quarterly earnings.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

The company’s top-line is also undergoing some turbulence – the Zacks Consensus Sales Estimate of $230 million reflects a 13% drop in quarterly revenue year-over-year.

Quarterly Performance & Market Reactions: Zumiez has primarily reported bottom-line results above expectations, exceeding the Zacks Consensus EPS Estimate in seven of its last ten quarters. However, the company has most recently posted back-to-back EPS misses.

Quarterly revenue has also typically come in above expectations, with ZUMZ penciling in six top-line beats over its last ten quarters. Below is a chart illustrating the company’s revenue on a quarterly basis.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

In addition, it’s worth noting that shares have moved downwards following back-to-back quarterly releases.

Putting Everything Together

As we can see from lululemon's LULU quarterly results, the high-end consumer market is in great shape. The company beat top and bottom-line estimates and even provided inspiring guidance.

Zumiez doesn’t cater to the high-end market nearly as much as LULU does, an essential factor to remember.

Zumiez shares have tumbled year-to-date and over the last month, signaling that the bears have been in control.

Still, the company’s shares trade at solid valuation levels, with its forward P/E ratio residing nicely beneath its Zacks Sector Average and five-year median.

A singular analyst has lowered their quarterly outlook, and estimates reflect a Y/Y decrease in earnings and revenue.

ZUMZ has primarily exceeded quarterly estimates but has posted back-to-back bottom-line misses.

Heading into the print, Zumiez ZUMZ carries a Zacks Rank #4 (Sell) with an Earnings ESP Score of -20%


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