Zumiez Inc.’s ZUMZ shares jumped nearly 6% in after-hours trading on Jun 3 following the company’s release of stellar first-quarter fiscal 2021 results. Both the company’s top and the bottom line surpassed the Zacks Consensus Estimate and also grew year over year.
Markedly, quarterly results exceeded the pre-COVID levels even though part of the company’s global store fleet was closed in the first quarter. Also, sales trends accelerated as the quarter progressed on the company’s ability to grab a share of the discretionary spending in the United States related to government stimulus.
Management remains impressed with the start to fiscal 2021 and expects the momentum to continue over the rest of the current fiscal year. Its healthy balance sheet, sturdy business model and robust strategies positioned it well for long-term success.
We note that shares of this Lynnwood, WA-based company have rallied 21.1% year to date compared with the industry’s growth of 27.8%.
Results in Detail
Zumiez posted quarterly earnings of $1.03 per share that surpassed the Zacks Consensus Estimate of a penny. The bottom line also reversed the loss of 84 cents a share reported in the comparable quarter of the last fiscal year and further increased significantly from 3 cents recorded in the first quarter of fiscal 2019. Higher net sales along with efficient expense management supported bottom-line growth.
Total net sales increased 102.6% year over year to $279.1 million and also beat the Zacks Consensus Estimate of $216 million. Additionally, the metric improved 31.1% from the first quarter of fiscal 2019, buoyed by the net addition of 15 stores and a comparable store sales increase of 34.2%.
In the fiscal first quarter, all categories’ total sales increased year over year with men's being the largest positive category followed by accessories, hard goods, women's and footwear.
Region-wise, North America net sales surged 113.4% year over year to $248.7 million while other International net sales, consisting of Europe and Australia, increased 43.2% to $30.4 million.
Zumiez Inc. Price, Consensus and EPS Surprise
Zumiez Inc. price-consensus-eps-surprise-chart | Zumiez Inc. Quote
Furthermore, gross profit increased significantly to $103.2 million from $23.7 million recorded in the prior fiscal year’s quarter while gross margin expanded to 37% from 17.2% seen in the first quarter of fiscal 2020. The expansion in gross margin was mainly aided by 1200-basis points (bps) of leveraged occupancy costs including the impact of rent charges in 2020. Also, product margin grew 390 bps year over year.
We note that SG&A expenses jumped 33.5% to $68.9 million during the quarter under review. However, as a percentage of sales, SG&A expenses declined meaningfully to 24.7% from 37.4% registered in the last fiscal year’s quarter on leveraged fixed costs. Moreover, the company reported an operating profit of $34.3 million against the operating loss of $27.8 million reported for the previous fiscal year.
Financial & Other Updates
As of May 1, 2021, this presently Zacks Rank #3 (Hold) company had cash and current marketable securities of $400.4 million compared with $217.2 million as of May 2, 2020. The upside was driven by cash generated through operations, offset by capital expenditures.
Total shareholders’ equity at the end of the quarter stood at $581.8 million. The company had zero debt at the end of the quarter and maintained a fully unused credit line of $35 million. It ended the fiscal first quarter with $136.5 million inventory, flat with the last fiscal year tally.
For fiscal 2021, capital expenditures are projected in the band of $20-$22 million compared with $9.1 million in fiscal 2020. Most of the capital spending will be used on store openings and planned remodels.
We note that as of May 29, 2021, Zumiez operated 723 stores including 602 in the United States, 52 in Canada, 54 in Europe and 15 in Australia. In fiscal 2021, management intends to open 22 stores comprising about five in North America, 12 in Europe and five in Australia. Simultaneously, it plans to close nearly five to six outlets during the fiscal year.
Things to Note
Management provided details regarding May sales. Net sales in the four-week period ended May 29, 2021, grew 42.4% year over year. From a regional perspective, net sales at North America during the same period jumped 45.9% from the year-earlier comparable period’s figure while the metric at other International business rose 19.9% year over year. From a category perspective, the company’s all categories except hard goods were up in total sales year over year. Men's was the company’s largest positive category followed by accessories, footwear and women's.
For the four weeks ended May 29, 2021, comparable sales surged 32.9% from the number posted for the four weeks ended Jun 1, 2019.
Management did not issue any specific guidance for the second quarter or the fiscal year owing to the limited visibility of the business. With respect to fiscal 2021 revenues, management had earlier projected to exceed the 2019 revenue levels. Based on strong first-quarter results and May sales, the company now envisions fiscal 2021 net sales to increase in the low-to-mid-teen range from the fiscal 2019 reading.
On a quarterly basis, year-over-year comparisons will be tough between fiscal 2020 and fiscal 2021 on seasonal shift due to the pandemic. Management expects that the stimulus impacts will start waning in the second quarter of fiscal 2021. Nonetheless, double-digit sales growth is expected during the second quarter of fiscal 2021 from the fiscal 2019 actuals based on strong May results and current trends in the business.
Zumiez remains optimistic about the potential in fiscal 2021. It projects sales to grow in the low-to-mid-single digits year over year during the third and the fourth quarter of fiscal 2021. Moreover, gross margin is likely to improve year over year owing to a reduction in shipping costs as web revenues normalize with stores being open as well as leveraged occupancy costs on higher sales. Also, product margin will grow year over year in fiscal 2021.
Furthermore, SG&A costs are anticipated to rise slightly more than sales growth achieved in fiscal 2021 on various reasons associated with the pandemic. Nonetheless, on a net basis, operating margins are likely to grow year over year in fiscal 2021, reaching double digits as a rate of sales. As a result, earnings per share are predicted to grow meaningfully in fiscal 2021.
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