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Zumiez (ZUMZ) Up 24.2% Since Last Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for Zumiez (ZUMZ - Free Report) . Shares have added about 24.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Zumiez due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Zumiez Q2 Earnings Beat, Sales Rise Y/Y, Stock Up
Zumiez Inc. came out with second-quarter fiscal 2020 results, wherein both the top and the bottom lines not only beat the Zacks Consensus Estimate but also improved year over year driven by the gradual reopening of stores. Notably, this specialty retailer of apparel, footwear and accessories swung back to profit, following a loss in the preceding quarter.
Results in Detail
Zumiez posted quarterly earnings of $1.01 per share that comfortably surpassed the Zacks Consensus Estimate of 34 cents, and rose significantly from 36 cents reported in the year-ago period. Higher net sales and cost containment efforts undertaken to withstand the coronavirus crisis drove the bottom line.
To address challenges related to the pandemic, Zumiez suspended hiring, eliminated all planned bonuses for fiscal 2020, delayed most of the merit increases, curbed capital spend, extended payment terms for vendor invoices, and reduced inventory receipts by canceling or delaying orders. Management has also been minimizing operating costs, which comprise travel, marketing and other non-essential items, and reducing store labor to reflect restricted operating hours.
Net sales increased 9.6% year over year to $250.4 million and beat the Zacks Consensus Estimate of $234 million, in spite of stores being open fewer days than the year-ago period. During the quarter, stores were open for 73.4% of potential operating days. Notably, the uptick in the top line was driven by 37.3% growth in comparable sales, which includes reopened stores and digital activities, partly offset by store closures during the quarter. By channel, comparable store sales for locations opened rose more than 20%, while digital comparable sales surged more than 122%.
Region-wise, North America net sales grew 8% to $223.5 million, while other International net sales, consisting of Europe and Australia, surged 25.4% to $26.9 million. Excluding foreign currency impact, North American net sales rose 8.2%, while other International net sales increased 25.8%.
The company highlighted that third quarter-to-date sales for the 37 days ending Sep 7, 2020 were down about 14% year over year. Comparable sales for the 37-day period ending Sep 7, fell 5.1%. By channel, comparable sales for the stores opened were down 10.7%, while e-commerce sales were up 27.4%.
Management pointed that third-quarter-to-date performance has been significantly impacted by the timing of back-to-school as many states and districts have delayed the start of the new school year or are opting for digital learning owing to the disruptions caused by the pandemic. Nonetheless, the company anticipates an extended back-to-school season with demand shifting to later part of the third quarter. However, it expects the entire back-to-school season to be meaningfully below the prior year. The company envisions third-quarter sales to be down year over year.
Gross profit grew 17.7% year over year to $90.9 million. Markedly, gross margin expanded 250 basis points to 36.3% owing to higher product margin, decrease in store occupancy costs and distribution expenses, and decline in inventory shrinkage. This was partly offset by rise in web shipping costs on account of increased online activity because of store closures.
We note that SG&A expenses declined 11.9% to $57.7 million during the quarter. As a percentage of sales, SG&A expenses decreased 560 basis points to 23.1%. Furthermore, the company reported operating profit of $33.1 million, up from $11.7 million in the prior-year period. Again, operating margin rose to 13.2% from 5.1% in the year-ago quarter.
Financial Update
As of Aug 1, 2020, Zumiez had cash and current marketable securities of $299.1 million compared with $188.6 million as of Aug 3, 2019. This increase was driven by cash generated through operations including deferment of $41.5 million comprising landlord payments, reduced inventory levels, extended vendor terms and deferred payroll tax payments, and net income improvements related to abatements, credits and expense reductions. Total shareholders’ equity at the end of the quarter was $470 million. The company had no debt at the end of the quarter and maintained full unused credit line of $35 million. For fiscal 2020, Zumiez anticipates capital expenditures to be approximately $11 million, down from the prior projection of $18-$20 million. A major portion of the capital expenditure is likely to be incurred for new store openings and planned remodeling.
Store Update
As of Aug 29, 2020, Zumiez operated 720 stores, including 607 in the United States, 52 in Canada, 49 in Europe and 12 in Australia. At the end of the quarter under review, there were 645 or 89.6% of 720 stores opened with primary closures being in California and Australia owing to government mandates. As of Sep 7, 35 stores or 4.9% of the store base remained closed. During fiscal 2020, management intends to open approximately 10 new stores, comprising two stores in North America, seven stores in Europe and one store in Australia. The company had earlier envisioned opening 20 stores in the fiscal year.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -9.11% due to these changes.
VGM Scores
Currently, Zumiez has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Zumiez has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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Zumiez (ZUMZ) Up 24.2% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Zumiez (ZUMZ - Free Report) . Shares have added about 24.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Zumiez due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Zumiez Q2 Earnings Beat, Sales Rise Y/Y, Stock Up
Zumiez Inc. came out with second-quarter fiscal 2020 results, wherein both the top and the bottom lines not only beat the Zacks Consensus Estimate but also improved year over year driven by the gradual reopening of stores. Notably, this specialty retailer of apparel, footwear and accessories swung back to profit, following a loss in the preceding quarter.
Results in Detail
Zumiez posted quarterly earnings of $1.01 per share that comfortably surpassed the Zacks Consensus Estimate of 34 cents, and rose significantly from 36 cents reported in the year-ago period. Higher net sales and cost containment efforts undertaken to withstand the coronavirus crisis drove the bottom line.
To address challenges related to the pandemic, Zumiez suspended hiring, eliminated all planned bonuses for fiscal 2020, delayed most of the merit increases, curbed capital spend, extended payment terms for vendor invoices, and reduced inventory receipts by canceling or delaying orders. Management has also been minimizing operating costs, which comprise travel, marketing and other non-essential items, and reducing store labor to reflect restricted operating hours.
Net sales increased 9.6% year over year to $250.4 million and beat the Zacks Consensus Estimate of $234 million, in spite of stores being open fewer days than the year-ago period. During the quarter, stores were open for 73.4% of potential operating days. Notably, the uptick in the top line was driven by 37.3% growth in comparable sales, which includes reopened stores and digital activities, partly offset by store closures during the quarter. By channel, comparable store sales for locations opened rose more than 20%, while digital comparable sales surged more than 122%.
Region-wise, North America net sales grew 8% to $223.5 million, while other International net sales, consisting of Europe and Australia, surged 25.4% to $26.9 million. Excluding foreign currency impact, North American net sales rose 8.2%, while other International net sales increased 25.8%.
The company highlighted that third quarter-to-date sales for the 37 days ending Sep 7, 2020 were down about 14% year over year. Comparable sales for the 37-day period ending Sep 7, fell 5.1%. By channel, comparable sales for the stores opened were down 10.7%, while e-commerce sales were up 27.4%.
Management pointed that third-quarter-to-date performance has been significantly impacted by the timing of back-to-school as many states and districts have delayed the start of the new school year or are opting for digital learning owing to the disruptions caused by the pandemic. Nonetheless, the company anticipates an extended back-to-school season with demand shifting to later part of the third quarter. However, it expects the entire back-to-school season to be meaningfully below the prior year. The company envisions third-quarter sales to be down year over year.
Gross profit grew 17.7% year over year to $90.9 million. Markedly, gross margin expanded 250 basis points to 36.3% owing to higher product margin, decrease in store occupancy costs and distribution expenses, and decline in inventory shrinkage. This was partly offset by rise in web shipping costs on account of increased online activity because of store closures.
We note that SG&A expenses declined 11.9% to $57.7 million during the quarter. As a percentage of sales, SG&A expenses decreased 560 basis points to 23.1%. Furthermore, the company reported operating profit of $33.1 million, up from $11.7 million in the prior-year period. Again, operating margin rose to 13.2% from 5.1% in the year-ago quarter.
Financial Update
As of Aug 1, 2020, Zumiez had cash and current marketable securities of $299.1 million compared with $188.6 million as of Aug 3, 2019. This increase was driven by cash generated through operations including deferment of $41.5 million comprising landlord payments, reduced inventory levels, extended vendor terms and deferred payroll tax payments, and net income improvements related to abatements, credits and expense reductions. Total shareholders’ equity at the end of the quarter was $470 million. The company had no debt at the end of the quarter and maintained full unused credit line of $35 million. For fiscal 2020, Zumiez anticipates capital expenditures to be approximately $11 million, down from the prior projection of $18-$20 million. A major portion of the capital expenditure is likely to be incurred for new store openings and planned remodeling.
Store Update
As of Aug 29, 2020, Zumiez operated 720 stores, including 607 in the United States, 52 in Canada, 49 in Europe and 12 in Australia. At the end of the quarter under review, there were 645 or 89.6% of 720 stores opened with primary closures being in California and Australia owing to government mandates. As of Sep 7, 35 stores or 4.9% of the store base remained closed. During fiscal 2020, management intends to open approximately 10 new stores, comprising two stores in North America, seven stores in Europe and one store in Australia. The company had earlier envisioned opening 20 stores in the fiscal year.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -9.11% due to these changes.
VGM Scores
Currently, Zumiez has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Zumiez has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.