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Zumiez (ZUMZ) Q3 Earnings Beat Estimates, Sales Rise Y/Y

·5 min read

Zumiez Inc. ZUMZ delivered robust third-quarter fiscal 2020 results, with the top and the bottom line not only beating the Zacks Consensus Estimate but also rising year over year. Results gained from strong sales growth in September and October backed by late season demand. Moreover, management highlighted that the company was able to achieve earnings growth by successfully navigating through market volatilities. Operating profit growth also supported the bottom line.

Despite the uncertainty surrounding the remaining part of the holiday season, the company believes that it’s well positioned to continue on growth track backed by strong brand presence and efficient operating fundamentals.

We note that shares of this Zacks Rank #3 (Hold) company have gained nearly 2.3% during the after-market trading session on Dec 3. Shares of this Lynnwood, WA-based company have surged 40.6% in the past three months compared with the industry’s growth of 51%.

 

Results in Detail

Zumiez posted quarterly earnings of $1.16 per share that surpassed the Zacks Consensus Estimate of 76 cents. The bottom line surged 54.7% from 75 cents reported in the year-ago quarter. Higher net sales along with efficient expense management supported bottom-line growth.  

Net sales increased 2.6% year over year to $271 million and beat the Zacks Consensus Estimate of $244.5 million. In spite of delayed start to the back-to-school season, sales remained positive for September and October benefitting from delayed seasonal demand. Moreover the company gained from sturdy digital activity, full-price selling across several geographic regions as well as solid demand for its merchandise assortments.

Further, management highlighted that the company’s stores were open for 95% of potential operating days in the third quarter.  For the stores that remained open in the quarter, comparable sales went up by 8.1% year on year, which includes reopened stores and digital activity. In fact, comparable sales for physical stores grew 2.2%, while comparable web sales surged more than 39.6%.

Region-wise, North America net sales grew 0.8% to $240.3 million, while other International net sales, consisting of Europe and Australia, surged 19.8% to $30.6 million.  

Additionally, the company provided details regarding fourth quarter-to-date performance. Sales for the 31 days ending Dec 1, 2020 were down about 3.9% year over year. Comparable sales for the same period fell 1.7%. By channel, comparable sales for the stores opened were down 7.8%, while e-commerce sales were up 16.7%. For the fourth quarter-to-date period, the company had 3% fewer open store days compared with the year-ago quarter’s figures. This was due to government directives as well as safety concerns. The company also witnessed traffic metering and reduced hours at certain locations.  As the quarter progresses, management expects store closures and other operating restrictions to persist at fluctuating levels.

Coming back to third-quarter performance, gross profit increased 11.9% year over year to $105.8 million, while gross margin expanded 320 basis points (bps) to 39%.

We note that SG&A expenses declined 3.3% to $67.9 million during the quarter. As a percentage of sales, SG&A expenses declined 160 basis points to 25%. Furthermore, the company reported operating profit of $37.9 million, up nearly 56% from the prior-year quarter’s figure. Again, operating margin rose 480 bps to 14%.

Zumiez Inc. Price, Consensus and EPS Surprise

Zumiez Inc. Price, Consensus and EPS Surprise
Zumiez Inc. Price, Consensus and EPS Surprise

Zumiez Inc. price-consensus-eps-surprise-chart | Zumiez Inc. Quote

Financial & Other Updates

As of Oct 31, 2020, Zumiez had cash and current marketable securities of $316.2 million compared with $178.6 million as of Nov 2, 2019. The upside was driven by cash generated through operations including deferment of $53 million comprising landlord payments, reduced inventory levels, extended vendor terms and payroll tax payments along with net income improvements related to abatements, credits and expense reductions.

Total shareholders’ equity at the end of the quarter stood at $499.2 million. The company had no debt at the end of the quarter and maintained full unused credit line of $35 million.

On Dec 2, 2020, the company approved share repurchase of up to $100 million of its common stock.  The repurchase program is likely to continue throughout fiscal 2021, while ending on Jan 29, 2022.

We note that as of Nov 28, 2020, Zumiez operated 726 stores, including 608 in the United States, 52 in Canada, 54 in Europe and 12 in Australia. In fiscal 2020, management intends to open approximately 12 new stores, comprising three stores in North America, seven stores in Europe and two stores in Australia.

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