Zumiez Raises 3Q Outlook - Analyst Blog

Specialty retailer Zumiez Inc. (ZUMZ) raised sales and earnings outlook for third-quarter 2010 on the back of better-than-expected sales and product margins.

Zumiez increased its third-quarter earnings guidance to a range of 25 cents to 27 cents, from a prior range of 21 cents to 24 cents provided during the second quarter conference call.

Zumiez expects comparable store sales to increase in the mid-single-digits for the rest of the third quarter, resulting in a high single-digit comparable store sales increase for the entire quarter.

Comparable store sales for the first two weeks of September increased 15.3% year over year, while it increased 10.8% for the six-week period ending September 11, compared with the same period in 2009.

The Zacks Consensus Estimate for fiscal third-quarter 2010 earnings is 24 cents per share. For full years 2010 and 2011, the Zacks Consensus Estimates are, respectively, 60 cents per share and 77 cents.

During the second quarter, Zumiez reported 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 posted in the prior-year quarter. Comparable store sales increased 9.3% in the quarter compared with a decrease of 18.8% in second-quarter 2009.

We expect Zumiez's focus on teenage action-sports based merchandise and expanding store network, leveraged by a healthy debt-free balance sheet, to help 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 #2 Rank (short-term Hold rating) for the company indicates upward pressure on the shares over the near term.

The share price of Zumiez increased approximately 4% on Monday to close at $17.41.

Based in Everett, Washington, Zumiez Inc. is a mall-based specialty retailer of action-sports related apparel, footwear, equipment, and accessories in the United States.