Zumiez's 1Q Earnings Beat Est.
Zumiez Inc. (ZUMZ) – a mall-based specialty retailer of action sports apparel, footwear, equipment and accessories – reported adjusted earnings of 13 cents per share for first-quarter 2013, marginally surpassing the Zacks Consensus Estimate of 12 cents but declining 20% from 15 cents earned in the year-ago quarter. Bottom-line results benefited from the successful execution of its long-term growth strategies and the strength of its extremely distinguished and varied assortments.
Reported earnings, including a charge of 5 cents per share related to the acquisition of Blue Tomato, were 8 cents compared with 14 cents reported in the year-ago quarter, which included a charge of a penny related to the Blue Tomato acquisition.
Quarter in Detail
Net sales increased 14.3% to $148.5 million from $129.9 million in the comparable last year quarter. The year-over-year growth in revenues was primarily driven by excellent full price selling for the combined March/April month, offset by a decline in comparable store sales (comps). Quarterly sales were almost in line with the Zacks Consensus Estimate of $148.0 million.
Comps declined 0.7% compared with an increase of 12.9% reported in the year-ago quarter. The company’s comps suffered due to a decline in comparable store transactions, offset by an increase in dollars per transaction, which mainly benefited from a higher average per unit retail price and year-over-year increase in units per transaction.
By category, the company witnessed positive comps growth in the juniors and hardgoods categories, while men's, accessories, footwear and boy's generated negative comps.
During the quarter, gross profit increased 14.0% year over year to $48.0 million, but as a percentage of sales it contracted 10 basis points (bps) to 32.3%. The decline in the gross profit margin was mainly the result of increased web fulfillment and shipping costs as a percent of total sales and the deleveraging effect of negative comps, slightly offset by improvement in product margins.
Zumiez’s selling, general and administrative (SG&A) expenses increased 26.1% year over year, while as a percentage of sales it expanded 280 bps to 29.6% compared with 26.8% in the comparable quarter of fiscal 2012. The increase resulted from deleveraging of the company’s cost structure due to negative comps, the provisional future incentive payouts and amortization of intangible assets associated with the Blue Tomato acquisition.
Operating profit for the quarter dipped 44.5% year over year to $4.0 million, while as percentage of sales it contracted 290 bps to 5.6%.
Financial Update
As of May 4, 2013, cash and marketable securities were $97.6 million, a sharp decline of 43.0% from $171.2 million as of Apr 28, 2012. The decline is attributed to the use of cash by the company to fund its Blue Tomato acquisition as well as capital expenditures and stock repurchases, offset by cash flow from operations. During the first quarter, the company generated a cash flow of $4.4 million from its operational activities.
During the quarter, Zumiez bought back about 0.2 million shares for a total of $3.7 million, with an average price of $22.36. As of May 4, 2013, the company had $12.5 million remaining under its authorization of $20 million.
Guidance
Zumiez initiated its sales and earnings guidance for the second quarter of fiscal 2013. Management anticipates second-quarter revenues in the range of $155–$158 million, while comps are likely to range from flat to a 2% increase.
Based on sales projections for the quarter, the company expects earnings per share to come in the band of 12–14 cents. The earnings expectation also includes estimated charges of 4 cents related to the Blue Tomato acquisition.
The company plans to expand its store base by opening 58 new stores in fiscal 2013, comprising 9 stores in Canada and 6 in Europe.
A Look at the Zacks Rank
Zumiez holds a Zacks Rank #2 (Buy). Apart from this, other stocks performing well in the apparel/shoe space include Buckle Inc. (BKE), Gap Inc. (GPS) and American Apparel Inc. (APP), all of which carry a Zacks Rank #2 (Buy).
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