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Can Zumiez's Growth Efforts Help Tide Over Dismal Comps?

Zacks Equity Research

Specialty sportswear and related products retailer, Zumiez Inc. ZUMZ has managed to carve a distinct niche for itself, with its strategy of offering action sports merchandise focused on young adults, including men and women, aged 12 to 24 years. Furthermore, its strategic locations in busy areas such as food courts, movie theatres and music/game stores largely attract target customers.

However, Zumiez has been struggling to deliver positive comparable-store sales (comps) for a while now, given the slowdown in traffic and absence of defined fashion trends. Additionally, the company is battling headwinds like foreign exchange volatility that is affecting its business in borders and tourist spots.

Consequently, the company has been reporting negative comps for eleven consecutive months. Most recently, this Washington-based retailer reported fourth-quarter fiscal 2015 results, wherein both earnings and sales fell year over year and comps remained rather dismal. In fact, the company also posted disappointing comps data for February, thus starting fiscal 2016 on a soft note.

Given the subdued start to fiscal 2016 and a tough retail environment, management issued a bleak outlook for the first quarter, which also led to a downtrend in estimates. Over the past 30 days, the Zacks Consensus Estimate for fiscal 2016 dropped 8.7% to $1.05 per share, while the same for the first quarter declined considerably to a loss of 9 cents per share.
However, Zumiez is on track with its expansion strategies, which are aimed at placing the company on the growth trajectory. Among several initiatives, the company is in the process of enhancing its merchandise assortments, optimizing supply chain and implementing a completely integrated new point-of-sale system.

Also, Zumiez remains focused on expanding globally, enhancing omni-channel capacities and maintaining a customer-centric approach. Further, the company is committed to boosting shareholder value, which is evident from its regular share buyback activities.

Zumiez has also been continuing with its strategy of optimizing store base through expansion in the underpenetrated markets and by either repositioning or closing underperforming stores through constant evaluation, aimed at maximizing long-term productivity.

While these factors may enable the company to turn its dismal comps trend around, we would prefer to wait and see what’s in store for Zumiez.

Zacks Rank

Zumiez currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry include American Eagle Outfitters, Inc. AEO, Destination XL Group, Inc. DXLG and Express Inc. EXPR, each sporting a Zacks Rank #1 (Strong Buy).

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