Zumiez (ZUMZ) Exhibits Bright Prospects Despite Headwinds
Zumiez Inc. ZUMZ is poised to benefit from its efforts to optimize its store base through expansion in underpenetrated markets and by repositioning or closing underperforming stores. The company allocates a major proportion of its capital expenditure toward store remodeling and openings.
In fiscal 2023, Zumiez intends to open about 23 stores, including nearly 8 stores in North America, 10 stores in Europe and 5 stores in Australia. For the fiscal year, it expects to incur capital expenditures of $20-$22 million.
The company has been witnessing strength in its businesses across Europe and Australia. In first-quarter fiscal 2023, sales from the other international segment, comprising Europe and Australia, increased 13.3% year-over-year to $38.9 million. Excluding the impacts of foreign currency translations, other international net sales rose 17.1% year over year. Also, comparable sales for the segment increased 12.2% for the quarter.
Zumiez’s consumer-centric approach and merchandise initiatives remain encouraging. Also, ZUMZ’s store expansion and omnichannel efforts are other positives. For instance, the implementation of advanced technology has allowed the company to augment customers’ shopping experiences across diverse channels. Further, it has been boosting its competitive advantage through investments in logistics, planning and allocation, which positions it for growth in the future.
Further, the company’s focus on cost management actions has been proven beneficial. In the fiscal first quarter, its selling, general and administrative expenses fell 1.5% year over year. Zumiez expects margins to stabilize and expand in the latter half of fiscal 2023.
Despite the positives, Zumiez has been witnessing tepid consumer demand due to the impacts of inflation on discretionary spending. In the fiscal first quarter, its overall net sales fell 17.1% year over year to $182.9 million. The decline was attributable to the North America segment's weak net sales, which dropped by 22.7%. The persistence of a challenging demand environment for its products remains concerning for its near-term performance.
For fiscal 2023, ZUMZ believes that the top line will remain under pressure as the company wraps up the first half. In the fiscal first quarter, its gross margin decreased 580 bps to 27% from the year-ago fiscal quarter’s level. The fall in gross margin was mainly due to reduced sales, causing deleverage in fixed costs. The persistence of these factors might continue to affect its margins and profitability in the upcoming quarters.
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In the past three months, this Zacks Rank #3 (Hold) stock has lost 10% against the industry’s growth of 0.9%.
Key Picks
Some better-ranked stocks from the same space are Abercrombie & Fitch ANF, Urban Outfitters URBN and Stitch Fix SFIX.
Abercrombie & Fitch, a leading casual apparel retailer, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales and EPS suggests growth of 3.4% and 732%, respectively, from the year-ago reported figures. ANF delivered a trailing four-quarter earnings surprise of 480.6%, on average.
Urban Outfitters is a lifestyle specialty retailer that offers fashion apparel and accessories, footwear, home décor and gift products. URBN currently flaunts a Zacks Rank #1.
The Zacks Consensus Estimate for Urban Outfitters’ current financial-year sales and earnings per share suggests growth of 5.1% and 57.1%, respectively, from the year-ago reported figures. URBN has a trailing four-quarter earnings surprise of 12.2%, on average.
Stitch Fix, the lifestyle apparel and accessories retailer, currently carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 7.7%, on average.
The consensus estimate for Stitch Fix’s current financial-year EPS suggests growth of 9.6% from the year-ago reported figure.
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Zumiez Inc. (ZUMZ) : Free Stock Analysis Report
Abercrombie & Fitch Company (ANF) : Free Stock Analysis Report
Urban Outfitters, Inc. (URBN) : Free Stock Analysis Report
Stitch Fix, Inc. (SFIX) : Free Stock Analysis Report
