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Zumiez's (ZUMZ) Q2 Earnings Miss Mark, Revenues Decline Y/Y

·8 min read

Zumiez Inc. ZUMZ reported dismal results for second-quarter fiscal 2022. Also, both metrics compared unfavorably with the respective year-earlier fiscal quarter’s reported figures. A tough operating environment, including the lingering supply-chain bottlenecks, increased logistics costs, a tight labor market, foreign currency headwinds and high inflation remain deterrents.

During the reported quarter, ZUMZ witnessed continued pressure on its U.S. business as macroeconomic headwinds, induced by inflation adversely impacted consumer discretionary spending. We note that Zumiez is adjusting its merchandise assortments and controlling expenses to boost results in the near term. Its customer-centric strategy also bodes well.

Over the past six months, shares of this currently Zacks Rank #4 (Sell) player have decreased 29.8% compared with the industry’s 14.5% decline.

Results in Detail

Zumiez posted quarterly earnings of 16 cents per share, which lagged the Zacks Consensus Estimate of 47 cents. The bottom line also plunged from earnings of 94 cents per share reported in the year-earlier quarter and 36 cents per share in the second quarter of fiscal 2019.

Total net sales of $220 million came below the Zacks Consensus Estimate of $232 million and fell 18.1% from the year-ago period’s reading. Also, the metric dipped 3.7% from the second-quarter fiscal 2019 level. This decline from the last fiscal year’s quarterly level was driven by gains from the U.S. stimulus realized in the year-ago fiscal period and increased macroeconomic challenges as inflation impacted the consumer discretionary spending in the reported fiscal quarter. Excluding the foreign currency woes, net sales were down 16.4% from the year-ago fiscal period’s number. Lower sales across each of the geographical regions also weighed on sales.

From a regional perspective, North America net sales were $189.9 million, down 20.1% from the year-ago fiscal quarter’s tally. Other international sales, comprising Europe and Australia, were $30.1 million, down 3.4% from the year-ago fiscal quarter’s level. Excluding the impacts of adverse foreign currency translations, North America net sales fell 19.8%, while other international net sales rose 10% from the respective fiscal 2021 readings.

All categories of ZUMZ reported a sales decline from the year-ago fiscal quarter’s tally in the reported fiscal quarter with men's being the most negative, followed by hard goods, accessories, women’s and footwear.
Gross profit decreased 28.5% from the year-ago fiscal quarter’s tally to $75.1 million. Gross margin decreased 500 basis points (bps) to 34.1%. The fall in gross margin from the year-ago fiscal quarter’s level was mainly due to lower sales along with deleveraged fixed costs and rate increases in many areas.

Store occupancy costs deleveraged 220 bps on reduced sales volumes, while shrink rose 120 bps owing to a return to greater normalized pre-pandemic levels. Web-shipping costs jumped 80 bps and distribution center costs climbed 70 bps. However, product margins were solid across most geographies on full-price selling.

SG&A expenses dipped 4% from the year-ago fiscal quarter’s tally to $70.1 million during the fiscal quarter under review. As a percentage of sales, SG&A expenses increased 460 bps to 31.8% from the year-ago fiscal quarter’s tally.

Zumiez reported an operating profit of $5 million, down from $32 million recorded in the year-earlier fiscal quarter. Operating margin was 2.3%, significantly down from 11.9% witnessed in the year-ago fiscal period.

Financial & Other Updates

As of Jul 30, 2022, ZUMZ had cash and current marketable securities of $166.2 million compared with $412 million as of Jul 31, 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 fiscal quarter stood at $378.3 million. Zumiez had no debt at the end of the fiscal second quarter and maintained fully unused credit facilities. ZUMZ ended the fiscal year with $151.1 million inventory, up 1.1% from the year-ago fiscal quarter’s tally. Zumiez repurchased shares for $87.9 million during the first half of fiscal 2022

As of Aug 27, 2022, Zumiez operated 753 stores, including 612 in the United States, 52 in Canada, 70 in Europe and 19 in Australia.

Other Updates

Net sales for the fiscal third quarter to date for 37 days ended Sep 5, 2022, tumbled 18.1% from the year-ago fiscal quarter’s reported number and 12.6% from the level during the same period in fiscal 2019. Total comparable sales for the aforementioned period declined 19.7% from the comparable period in the prior fiscal year and 15.3% from the comparable period in fiscal 2019.

From a regional perspective, net sales for the North America business fell 19.5% from the year-ago fiscal quarter’s tally in the 37-day period, while the metric at the Other international business dipped 2.7% from last fiscal year’s quarterly level. For the fiscal third quarter to date, all categories were down in total sales from the year-ago fiscal period’s level. Men's remained the most negative category, followed by hard goods, women's, accessories and footwear.

Outlook

Management issued a view for third-quarter fiscal 2022. Net sales are projected in the range of $220-$228 million, while consolidated operating margins will come between 0.5% and 2.5%, resulting in earnings per share of approximately 3-18 cents.

Zumiez plans to open nearly 35 stores in fiscal 2022, including about 16 stores in North America, 14 stores in Europe and 5 stores in Australia.

For the fiscal second quarter, net sales are projected in the band of $232-$239 million. Consolidated operating margins are projected between 5% and 6.5% with earnings per share of 45-55 cents.

For fiscal 2022, total sales will decline in high-single digits from the fiscal 2021 reading. Earnings per share are predicted between $3.55 and $3.80, indicating a decline from $4.85 delivered in fiscal 2021. Capital expenditures are anticipated between $30 million and $32 million for fiscal 2022.

For fiscal 2022, total sales will decline in the 18-19% range from the fiscal 2021 reading compared with a decrease in high-single digits predicted earlier. Management expects some product margin erosion in the fiscal third and fourth quarter. The metric is estimated to be down slightly from the year-ago fiscal quarter’s figure in the back half of the current fiscal year.

Further, Zumiez anticipates witnessing deleveraged fixed costs. Management expects its operating profit to be down nearly 73-77% in fiscal 2022 due to lower sales and inflationary cost pressures.

Earnings per share are envisioned between $3.55 and $3.80, indicating a decline from $4.85 delivered in fiscal 2021, and $3.55-$3.80 projected earlier. Capital expenditures are anticipated between $29 million and $31 million for fiscal 2022.

In fiscal 2022, management intends to open approximately 35 stores, including 16 in North America, 14 in Europe and five in Australia.

Don’t Miss These Solid Bets

Here we highlighted three better-ranked stocks, namely, Designer Brands DBI, Buckle BKE and Capri Holdings CPRI.

Designer Brands designs, manufactures and retails footwear and accessories. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Designer Brands’ current financial-year revenues and EPS suggests growth of 6.9% and 23.5%, respectively, from the corresponding year-ago reported figures. DBI has a trailing four-quarter earnings surprise of 55.1%, on average.

Buckle is a renowned retailer of on-trend apparel, footwear and accessories. BKE currently has a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for Buckle’s current financial year revenues and EPS suggests growth of 6.8% and 4.5%, respectively, from the corresponding year-ago reported figures. BKE has a trailing four-quarter earnings surprise of 12.7%, on average.

Capri Holdings, a global fashion luxury group consisting of iconic brands like Versace, Jimmy Choo and Michael Kors, currently carries a Zacks Rank of 2. CPRI has an expected EPS growth rate of 10.1% for three-five years.

The Zacks Consensus Estimate for Capri Holdings’ current financial-year sales and EPS suggests growth of 3.3% and 10.1%, respectively, from the corresponding year-ago reported numbers. CPRI has a trailing four-quarter earnings surprise of 32.4%, on average.


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