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Zumiez (ZUMZ) Q4 Earnings Miss Estimates, Sales Increase Y/Y

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Zumiez Inc. ZUMZ reported soft fourth-quarter fiscal 2021 results wherein both its top and the bottom line missed the Zacks Consensus Estimate. However, the metrics increased year over year. Results were hurt by numerous headwinds, including global supply-chain issues and labor shortages, inflation and closures tied to the pandemic.

Over the past six months, shares of this Lynnwood, WA-based player have increased 8.2% against the industry’s 40% decline.

Results in Detail

Zumiez posted quarterly earnings of $1.70 per share, lagging the Zacks Consensus Estimate of $1.80. The bottom line improved 1.2% from the last fiscal year’s figure in the comparable quarter and 14.9% from the fourth-quarter fiscal 2019 tally.

Zumiez Inc. Price and Consensus

Zumiez Inc. Price and Consensus
Zumiez Inc. Price and Consensus

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

Although total net sales of $346.7 million missed the Zacks Consensus Estimate of $354 million, the same jumped 4.6% from the year-ago period’s reading. This year-over-year growth was buoyed by the reopening of stores, efforts to cash in on the current trends and a highly normalized holiday season. Additionally, net sales improved 5.5% from the fourth-quarter fiscal 2019 actuals.

During the reported quarter, Zacks Rank #3 (Hold) Zumiez’s stores were open for about 99% of the potential operating days compared with 94% in the year-earlier quarter and 100% in the fourth quarter of 2019.

Region-wise, net sales at North America rose 0.6% to $287 million while the metric at the other international net sales comprising Europe and Australia grew 28.8% from the fiscal 2020 level to $59.6 million. Excluding the impacts of foreign currency fluctuations, North America net sales inched up 0.6% year over year while other international net sales improved 36.9%. Category-wise, men’s was the largest growth category in the quarter followed by footwear, accessories and women's. Hardgoods was the worst-performing category.

Gross profit increased 3.3% year over year to $133.9 million. Gross margin decreased 50 basis points (bps) to 38.6%. The year-over-year fall in gross margin was mainly due to higher costs by 40-bps, 30 bps of deleveraged occupancy costs and 20 bps of increased distribution and fulfillment costs, all offset by 40-bps growth in product margins.

SG&A expenses jumped 8.4% year over year to $82.2 million during the quarter under review. As a percentage of sales, SG&A expenses increased 80 bps year over year to 23.7%.

Zumiez reported an operating profit of $51.7 million, down 3.9% year over year, while operating margin was down 130 bps year over year to 14.9%.

Financial & Other Updates

As of Jan 29, 2022, ZUMZ had cash and current marketable securities of $294.5 million compared with $375.5 million as of Jan 30, 2021. The decline was due to capital expenditures and share repurchases, partly offset by cash provided through operations.

Total shareholders’ equity at the end of the quarter stood at $468.3 million. Zumiez had no debt at the end of the fiscal fourth quarter and maintained fully unused credit facilities. ZUMZ ended the fiscal year with $128.7 million inventory, down 4.2% year over year. During fiscal 2021, ZUMZ bought back 4.6 million shares for $198.4 million.

As of Feb 26, 2021, Zumiez operated 738 stores, including 602 in the United States, 52 in Canada, 67 in Europe and 17 in Australia.

Q1 Updates

Zumiez provided details for the fiscal first quarter. Total sales for the first-quarter fiscal 2022 to date for the 35 days ended Mar 5, 2022, dipped 1.9% from the same-period level ended Mar 6, 2021. For the same period, management repurchased an additional 1.2 million shares for $54.3 million.

Region wise, total sales for the North America business for the 35-day period fell 5.3% from the last-year level. The metric at the other international business grew 17.9% from the year-ago period’s level. From a category perspective, footwear was the key positive one followed by women’s and accessories, while hardgoods remained the largest negative category, followed by men.

Outlook

Considering the positive impact of stimulus on net sales in the fiscal first quarter and the current economic volatility, Zumiez projects first-quarter net sales between $215 million and $221 million, significantly down from the prior-year level. ZUMZ also anticipates a deleverage in the income statement in relation to the fixed costs ad the re-introduction of expenses forgone in 2021 due to the pandemic. Earnings per share are likely to come in the band of a breakeven to positive 10 cents per share. Consolidated operating margin is expected in the band of a breakeven to a positive 1.5%.

Given the slow start to the quarter, management expects tough comparisons with the respective year-ago reported figures, affecting near-term sales and margin. ZUMZ anticipates the domestic business to remain challenging heading into the fiscal second quarter. Internationally, management projects solid growth in Canada, Europe and Australia as Zumiez continues to capitalize on more normalized operations.

However, ZUMZ forecasts to witness softness in Europe due to the ongoing situation in Ukraine for the near term. Also, it sees external challenges like continued inflation and economic uncertainty heading into fiscal 2022. Consolidated product margin is likely to be almost flat. Zumiez now predicts the operating profit to decline in the mid-teens for fiscal 2022 from the last fiscal-year level.

For fiscal 2022, earnings per share are expected to rise in mid-single digits as management will capitalize on its buyback program. Capital expenditures are envisioned between $30 million and $32 million, with most of the amount to be utilized in adding a number of stores. Management plans to open roughly 34 stores in fiscal 2022, including about 15 stores in North America, 14 stores in Europe and 5 stores in Australia.

For the back half of the fiscal year, Zumiez remains optimistic about the improving trends owing to the back-to-school and holiday seasons.

3 Hot Stocks to Consider

Here are three better-ranked stocks, namely Capri Holdings CPRI, Tapestry TPR and Designer Brands DBI.

Capri Holdings, a global fashion luxury group, currently flaunts a Zacks Rank #2 (Buy). CPRI’s bottom line outperformed the Zacks Consensus Estimate by a wide margin in all the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Capri Holdings’ current financial-year EPS suggests growth of 215.8% from the corresponding year-ago period’s reported figures. CPRI has an expected EPS growth rate of 53.9% for three-five years.

Tapestry, the designer and marketer of fine accessories and gifts for women and men in the United States and internationally, has a Zacks Rank #2 at present. TPR has a trailing four-quarter earnings surprise of 28.2%, on average.

The Zacks Consensus Estimate for Tapestry's current financial-year sales and EPS suggests growth of 17.5% and 22.9%, respectively, from the year-ago period’s reported numbers. TPR has an expected EPS growth rate of 12.5% for three-five years.

Designer Brands, designer, manufacturer, and retailer of footwear and accessories for women, men, and kids primarily in North America, holds a Zacks Rank of 2 at present. DBI has a trailing four-quarter earnings surprise of 116%, on average.

The Zacks Consensus Estimate for DBI’s current financial-year sales and EPS suggests growth of 44% and 143.3%, respectively, from the year-ago period’s reported figures.


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