Zumiez Inc.’s ZUMZ shares slumped about 20.3% in after-hours trading session yesterday as the company came up with disappointing guidance for the third quarter of fiscal 2015. Moreover, although the company managed to meet earnings estimates for the second quarter, earnings fell year over year while its comparable-store sales (comps) performance was rather dismal.
The company’s second-quarter fiscal 2015 adjusted earnings of 12 cents a share were in line with the Zacks Consensus Estimate. However, adjusted earnings descended 55.6% from 27 cents posted in the year-ago quarter.
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Including charges related to the Blue Tomato acquisition, the company reported earnings per share of 11 cents compared with 26 cents in the prior-year quarter
Quarter in Detail
Net sales rose 1.8% year over year to $179.8 million, marginally short of the Zacks Consensus Estimate of $180 million. The top line was adversely impacted by about $4.4 million as result of foreign currency headwinds as well as negative comps.
Quarterly comps declined 4.5%, as against 3.4% increase registered in the year-ago quarter. The decline in comps reflects a slowdown in domestic sales due to the absence of defined fashion trends to drive teens. Further, the company stated that sales were impacted by increased promotions taken up to clear slow moving merchandise to prepare the stores for the back-to-school season.
Category wise, the company witnessed comps growth in hardgoods, while juniors, men's, footwear and accessories reported negative comps.
Concurrent with the second-quarter results, Zumiez posted its sales data for Aug 2015. The company’s comps for the month declined 10.7%, against a 2% improvement recorded in the same period a year ago. Net sales for the month ended Aug 29, 2015 dipped 7.2% year over year to $87.3 million.
Costs & Margins
In the reported quarter, gross profit fell 5.1% to $57.8 million, with the gross margin contracting 240 basis points (bps) to 32.1%. Lower gross margin was mainly due to higher occupancy cost from negative comps and decline in product margins driven by increased promotional activity to clear seasonal inventory.
Zumiez’s selling, general and administrative expenses escalated 6.5% to $52.5 million, while as a percentage of sales, the same increased 130 bps to 29.2%.
Stemming from a fall in gross profit and higher expenses, operating profit for the quarter declined 54.3% to $5.3 million, with the operating profit margin contracting 370 bps to 2.9%.
Financial Update
As of Aug 1, 2015, cash and marketable securities were $80.8 million, down 28.7% year over year due to increased share buybacks and capital expenditures, offset by cash flow from operations. Total shareholders’ equity at quarter end stood at $305.1 million.
Store Update
Zumiez continues with the strategy of optimizing its store base through expansion in under-penetrated markets and by either repositioning or closing underperforming stores through their constant evaluation, in order to maximize long-term productivity.
During the second quarter, Zumiez opened 24 new stores in North America. With this, the company ended the quarter with a total store count of 640, including 578 in the U.S., 40 in Canada and 22 in Europe. In fiscal 2015, Zumiez plans to introduce roughly 57 stores, with up to 7 stores in Canada and 6 in Europe.
Guidance
Going forward, Zumiez remains on track with its growth strategies that make the company confident of generating profits and boosting shareholder value in the long term. Further, the company remains optimistic about its performance in the European market.
However, the company provided a weaker-than-anticipated forecast for the third quarter of fiscal 2015. Management envisions net sales for the quarter to range from $202–$206 million, while comps are anticipated to decline in the range of 7%–9% over the same period.
Consequently, the company expects earnings per share for the third quarter to be in the band of 27–31 cents, whereas the Zacks Consensus Estimate currently stands at 53 cents.
Zacks Rank
Zumiez currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the apparel-shoe space include Foot Locker Inc. FL and Express Inc. EXPR, with a Zacks Rank #1 (Strong Buy), as well as Citi Trends Inc. CTRN, carrying a Zacks Rank #2 (Buy).
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