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Zumiez (ZUMZ) Stock Up 15% on Q1 Earnings and Sales Beat

Zacks Equity Research

Zumiez Inc. ZUMZ reported solid first-quarter fiscal 2019 financial numbers. While the company’s earnings surpassed the Zacks Consensus Estimate for the fifth straight quarter, revenues outpaced the consensus mark after a miss in the previous quarter. It also delivered 11th straight quarter of positive comparable sales (comps).
 
Following the quarterly results, this Zacks Rank #2 (Buy) stock gained nearly 15.2% during the after-market trading session on Jun 6.

Q1 Highlights

Zumiez reported earnings of 3 cents per share against the Zacks Consensus Estimate of a loss of 9 cents. In the prior-year quarter, the company had incurred a loss of 10 cents per share. Notably, increased sales and margin expansion were the primary reasons behind the company’s bottom-line growth in the quarter under review.

Net sales rose 3.2% year over year to $212.9 million and also exceeded the Zacks Consensus Estimate of $206 million. The top line benefited from comps growth and the addition of seven stores since the end of first-quarter fiscal 2018, partly offset by adverse foreign currency rates.

Zumiez Inc. Price, Consensus and EPS Surprise

Zumiez Inc. Price, Consensus and EPS Surprise

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

Quarterly comps grew 3.3%, up from the company’s guided range of flat to down 2%. Comps benefited from higher transaction volume and growth in dollars per transaction. Strength in the footwear, accessories and hard goods categories also aided comps. However, the upside was somewhat offset by negative comps in the women’s and men’s categories.

Gross profit increased 6.2% to $66.5 million in the fiscal first quarter, with gross margin expansion of 90 basis points (bps) to 31.2%. The improvement was mainly backed by leveraged store occupancy costs, lower shipping and fulfillment costs as well as improved product margin.

Zumiez’s selling, general and administrative (SG&A) expenses inched up 1.9% to nearly $65.5 million. However, SG&A expenses, as a percentage of sales, contracted 40 bps to 30.7% due to leverage in store operating expenses.

Furthermore, operating income amounted to nearly $1 million against operating loss of $1.7 million in the prior-year quarter.

May Sales

Zumiez’s comps for the four-week period (ended Jun 1, 2019) increased 2.4% compared with a 7.5% rise registered in the four-week period (ended Jun 2, 2018). This improvement can be attributed to rise in dollars per transaction, partly offset by lower transactions. Positive comps in the hardgoods and footwear categories, somewhat offset by men’s, accessories and women’s categories too aided comps growth.

Financial Update

Zumiez ended the first quarter with cash and marketable securities of $168 million, up 42.4% year over year. Cash generated from operations, partly offset by capital expenditures led to the upside. Total shareholders’ equity at the end of the fiscal first quarter was $394 million.

As of May 4, 2019, the company generated $9.9 million as cash flow from operations and incurred capital expenditures of $20.1 million.

During the reported quarter, management did not buy back shares. As of May 4, the company had $75 million outstanding under its share buyback authorization.

For fiscal 2019, Zumiez anticipates capital expenditures between $20 million and $22 million compared with $21 million in fiscal 2018.

Store Update

As of Jun 1, the company operated 707 stores including 606 in the United States, 50 in Canada, 42 in Europe and nine in Australia.

Zumiez remains on track to open around 15 stores in fiscal 2019 including seven in Europe, six in North America and two in the Australia.

Q2 Guidance

Management issued guidance for second-quarter fiscal 2019. Net sales are anticipated in the range of $220-$224 million, which showcases an improvement from $219 million recorded in the year-ago quarter. Comps are likely to grow in the range of flat to 2%.

Furthermore, consolidated operating margins are projected in the range of 2.2-3.2%. Earnings per share for the fiscal second quarter are envisioned in the band of 14-20 cents. Notably, the Zacks Consensus Estimate for second-quarter earnings stands at 19 cents. Zumiez delivered earnings of 17 cents per share in the prior-year quarter.

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The Children's Place, Inc. PLCE delivered average positive earnings surprise of 37.4% in the trailing four quarters and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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Stitch Fix, Inc. SFIX, also a Zacks Rank #1 stock, has an impressive long-term earnings growth rate of 22.5%.

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