Zumiez Beats on Better Sales - Analyst Blog

Specialty retailer Zumiez Inc. (ZUMZ) reported third-quarter earnings of 40 cents a share, beating the Zacks Consensus Estimate of 37 cents. The company also outpaced earnings of 17 cents a share posted in the third quarter of 2009. Net income from operations was $1.1 million compared with a loss of $1.8 million in the prior-year quarter.

Net sales in the reported quarter increased 20.0% year over year to $135.9 million from $113.2 million a year ago. Comparable store sales increased 14.4% in the quarter compared with a decrease of 8.0% in third-quarter 2009.

Cost of goods sold in the quarter increased 13.3% year over year to $82.8 million while gross margin also increased 360 basis points to 39.0% in the quarter propelled by net sales increase. Selling, general and administrative expenses were $34.1 million, up 7.3% year over year. The company reported an operating income of $18.9 million compared with an operating income of $8.4 million in the prior-year quarter. 

Financial Update

Cash and cash equivalents at quarter-end were $8.3 million, up from $3.8 million at the end of the third quarter of 2009.

Total long-term liabilities increased to $29.8 million at the end of the reported quarter from $28.9 million at the end of third-quarter 2009.

Store Update

As of November 27, 2010, Zumeiz operated 400 stores.

Guidance

For the fourth quarter of 2010, management expects comparable store sales to increase in the low double-digit to mid-teen range and net income in a range of 43–47 cents per share. The company plans to open 27 new stores in fiscal 2010.

We expect Zumiez's focus on teenage action-sports based merchandise and expanding store network, leveraged by a healthy debt-free balance sheet, to deliver solid performance in the upcoming quarters. However, intense competition from other specialty retailers, seasonal nature of the business and risks associated with sourcing merchandise from foreign countries might weigh on the company's results.

The company operates in a highly fragmented specialty retail sector and faces intense competition from larger teenage-focused retailers such as Abercrombie & Fitch Co. ( ">ANF ) , Aeropostale Inc. (ARO)  and American Eagle Outfitters Inc. (AEO).

We maintain our long-term “Neutral” recommendation on Zumiez. The quantitative Zacks #2 Rank (short-term Buy rating) for the company indicates no clear directional pressure on the stock over the near term.

 
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