Zumiez's (ZUMZ) Q3 Loss Narrower Than Expected, Revenues Down
Zumiez Inc. ZUMZ reported narrower-than-expected loss per share for third-quarter fiscal 2023. Further, sales beat the Zacks Consensus Estimate. However, both metrics compared unfavorably with the respective year-earlier fiscal quarter’s reported figures. A tough operating environment, including inflationary pressures on consumer discretionary spending and a promotional landscape, coupled with foreign currency translations remain deterrents.
Over the past three months, shares of this Zacks Rank #3 (Hold) company have gained 0.3% compared with the industry’s 7.6% growth.
Results in Detail
Zumiez posted a quarterly loss of 12 cents per share, narrower than the Zacks Consensus Estimate of a loss of 17 cents per share. The bottom line compared unfavorably with earnings per share of 36 cents reported in the year-earlier quarter.
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Total net sales of $216.3 million came above the consensus estimate of $213 million but fell 8.9% from the year-ago period’s reading. This decline was due to the sales declines across North American and Australian businesses, offset by favorable results in Europe. The company has been witnessing soft sales, mainly driven by the inflationary pressures on the consumer, a shift in spending to travel, and weak demand for full-price key styles and trends in North America. Comparable sales also decreased 9.2% during the quarter under review.
From a regional perspective, North America’s net sales were $181.6 million, down 12% from the year-ago fiscal quarter’s tally. Other international sales, comprising Europe and Australia, were $34.8 million, up 11.1% from the year-ago quarter’s level. We had anticipated North America’s net sales to be $186.8 million and the other international sales to be $25.8 million for the quarter under review.
Excluding the impacts of foreign currency translations, North America’s net sales fell 11.9% while other international net sales rose 5.2% from the fiscal 2022 readings. Comparable sales for North America plunged 10.7% while the metric for other international inched down 0.3% for the quarter.
All categories reported a comparable sales decline from the year-ago fiscal quarter’s tally with the footwear category being the most negative, followed by women’s, accessories, hardgoods and men's.
Gross profit decreased to $73.2 million from $82 million reported in the year-ago quarter . The gross margin fell 70 basis points (bps) to 31.7%. The fall in the gross margin from the year-ago fiscal quarter’s level was mainly due to reduced sales causing a deleverage in the fixed costs. Store occupancy costs deleveraged 120 bps on reduced sales while buying group costs fell 10 bps. Web-shipping costs improved 20 bps and distribution center costs improved 50 bps while product margins fell 50 bps.
Selling, general and administrative (SG&A) expenses rose 2.7% from the year-ago fiscal quarter’s tally to $73.4 million during the quarter under review. As a percentage of sales, SG&A expenses increased 380 bps to 33.9% from the year-ago quarter’s tally. We had expected SG&A expenses, as a rate of sales, to rise 210 bps in the quarter under review.
Zumiez reported an operating loss of $0.2 million against an operating income of $10.4 million recorded in the year-earlier fiscal quarter.
Financial & Other Updates
As of Oct 28, 2023, ZUMZ had cash and current marketable securities of $135.8 million compared with $141.1 million as of Oct 29, 2022. The decline was due to capital expenditures, somewhat offset by cash flow from operations. It had no debt at the end of the quarter.
Total shareholders’ equity at the end of the fiscal quarter was $379.5 million. The company ended the fiscal third quarter with $43.2 million in inventory, down 16.9% from the year-ago quarter’s tally.
As of Nov 25, 2023, Zumiez operated 771 stores, including 610 in the United States, 49 in Canada, 87 in Europe and 25 in Australia. Management intends to open roughly 19 stores in fiscal 2023, including about five stores in North America, 10 in Europe and four in Australia.
Other Updates
Net sales for the third quarter to date for the 31 days ending Nov 28, 2023, tumbled 4.6% from the year-ago period. Comparable sales for the aforementioned period declined 6% from the prior fiscal year’s quarter.
From a regional perspective, net sales for the North American business fell 7.3% from the year-ago fiscal quarter’s tally, while the metric for the other international business rose 6.2% from last fiscal year’s comparable period. Excluding foreign currency impacts, North American sales were down 7.2% while the other international sales grew 1.5%. Comps at the North American business fell 6.8% and the metric at the other international unit dipped 3.2%.
Category-wise, the men's category reported a positive comp for the 31 days ended Nov 28, 2023, while all the other categories were negative. Hardgoods remained the most negative category, followed by women's, accessories and footwear.
Outlook
Given the several internal and external factors affecting the company’s performance, management’s guidance reflects certain inherent uncertainty and complexity in projecting sales, product margin and earnings growth. Zumiez’s fourth quarter-to-date results have shown incremental progress through the trends seen in the first three quarters of the fiscal year. However, the results are trending below the prior-year levels on pressurized consumer demand stemming from the continued impact of inflation on discretionary spending.
For the fiscal fourth quarter, total sales are estimated to be in the range of $275-$281 million, including the 53rd week. Product margins are expected to be down nearly 110 bps year over year. Consolidated operating profit, as a rate of sales, is likely to be between 1.5% and 2.5%, with earnings per share of 24-34 cents for the impending quarter.
For fiscal 2023, Zumiez anticipates total sales to drop 8.7-9.3% in fiscal 2023 compared with the last fiscal. Product margins are predicted to be down nearly 85 bps on the geographic sales mix across its businesses and promotional cadence to move through inventory. For fiscal 2023, the operating margin will be between negative 2.9% and negative 3.2%, with a loss per share of $1.16 to $1.26. Management expects pretax earnings for the fiscal year to be negative.
For fiscal 2023, it anticipates capital expenditures between $20 million and $21 million compared with $26 million in fiscal 2022.
Key Picks
We have highlighted three better-ranked stocks, namely Abercrombie & Fitch ANF, American Eagle Outfitters AEO and Boot Barn BOOT.
Abercrombie & Fitch, a leading casual apparel retailer, 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 Abercrombie & Fitch’s current financial-year sales and earnings per share (EPS) suggests growth of 0.5% and 526.3%, respectively, from the year-ago reported figures. ANF delivered an earnings surprise of 107.7% in the last reported quarter.
American Eagle Outfitters, a retailer of casual apparel, accessories and footwear, currently sports a Zacks Rank of 1. AEO delivered an earnings surprise of 82.6% in the last reported quarter.
The Zacks Consensus Estimate for American Eagle Outfitters’ current financial-year sales and EPS suggests growth of 3.3% and 24.2%, respectively, from the year-ago reported figures.
Boot Barn, a fashion retailer of apparel and accessories, currently carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 8.7%, on average.
The Zacks Consensus Estimate for Boot Barn’s current financial-year sales and EPS suggests growth of 8.2% and 9.1%, respectively, from the year-ago reported figures.
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Zumiez Inc. (ZUMZ) : Free Stock Analysis Report
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