Specialty retailer Zumiez Inc. (ZUMZ) reported second-quarter earnings from operations of 2 cents a share, beating the Zacks Consensus Estimate of a loss of 1 cent. The company also reversed the loss of 7 cents it posted in the second quarter of 2009. Net income from operations was $1.1 million compared with a loss of $1.8 million in the prior-year quarter.
On a reported basis, Zumiez broke even in the quarter under review. The company incurred costs of $1.0 million or 2 cents per share related to the relocation of the company's distribution center from Everett, Washington to Corona, California in the quarter. Taking these costs into account, reported net income was $0.1 million or 0 cent per share, compared with a net loss of $3.1 million or 10 cents per share in the second quarter of 2009.
During the second quarter of 2009, Zumiez incurred a charge of $1.3 million, or 3 cents per share related to the settlement agreement of a previously disclosed lawsuit.
Net sales in the reported quarter increased 14.7% year over year to $97.7 million from $85.2 million a year ago. Comparable store sales increased 9.3% in the quarter compared with a decrease of 18.8% in second-quarter 2009.
Cost of goods sold in the quarter increased 10.7% year over year to $37 million while gross margin also increased 250 basis points to 31.4% in the quarter propelled by net sales increase.
Selling, general and administrative expenses were $31 million, up 3.87% year over year.
The company reported an operating loss of $0.2 million compared with a loss of $5.2 million in the prior-year quarter.
Financial Update
Cash and cash equivalents at quarter-end were $6.8 million, down from $21.3 million at the end of the second quarter of 2009.
Total long-term liabilities increased to $29.8 million at the end of the reported quarter from $27.2 million at the end of second-quarter 2009.
Store Update
As of July 31, 2010, Zumeiz operated 393 stores.
Guidance
For the third quarter of 2010, management expects comparable store sales to increase in the mid single-digit range and net income in a range of 21–24 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 position 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.
We maintain our “Neutral” recommendation on Zumiez. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.
ZUMIEZ INC (ZUMZ): Free Stock Analysis Report
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