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Zumiez (ZUMZ) Posts Q1 Loss; May Comps Slide, Stock Down

Zacks Equity Research
Updated

Shares of Zumiez Inc. ZUMZ dropped 9.4% in the after-hours trading session following the company’s first-quarter fiscal 2016 results, wherein both the top and bottom lines fell on a year-over-year basis. Moreover, this Zacks Rank #4 (Sell) company posted dismal comparable store sales (comps) data for May and issued a drab second-quarter outlook.

Zumiez posted a loss of 8 cents per share for the first quarter, narrower than the Zacks Consensus Estimate of a loss of 12 cents, thereby keeping its positive streak alive for the third time. However, in the year-ago period, the company had recorded adjusted earnings of 12 cents per share.

Falling prey to a tough retail environment, net sales declined 2.6% year over year to $173.0 million, while marginally surpassing the Zacks Consensus Estimate of $172.6 million. Further, quarterly comps tumbled 7.5%, as against a 3% increase registered in the year-ago quarter.

Concurrent with the first-quarter results, Zumiez reported dismal sales data for the month of May, which marked its 14th consecutive month of negative comps. Comps for the month fell 7.6%, compared to a 2.2% drop recorded in the same month a year ago. Net sales for the month ended May 28, 2016, declined 2.9% year over year to $50.0 million.  

Quarter in Detail

In the reported quarter, gross profit slumped 11.5% to approximately $50 million, with the gross margin contracting 290 basis points (bps) to 28.9%.

Zumiez’s selling, general and administrative expenses climbed 2.9% to $53.9 million and as a percentage of sales, the same escalated 170 bps to 31.2%.

The company posted an operating loss of $3.9 million in the quarter, as against an operating income of $4.1 million recorded in the year-ago period.

Financial Update

As of Apr 30, 2016, cash and marketable securities were $62.1 million, down 58.8% year over year owing to share buybacks and capital expenditures, offset by cash flow from operations. Total shareholders’ equity at the end of the quarter was $289.3 million.

Store Update

In fiscal 2016, Zumiez intends to introduce nearly 29 new stores, which include around 7 stores in Europe and up to 6 stores in Canada.  

Guidance

While comps witnessed some improvement toward the end of the quarter, the overall retail environment remained challenging, mainly owing to weak consumer demand. In the face of such headwinds, Zumiez remains on track with its expansion strategies, which are aimed at placing the company on the growth track and generating profit in the near term.

Among the several initiatives, the company is in the process of enhancing its merchandise assortments, optimizing supply chain and implementing a completely integrated new point-of-sale system. Management believes that these efforts are likely to improve brand experience through all networks and boost market share over the long haul.  

Based on the current scenario, management issued a subdued outlook for the second quarter of fiscal 2016. The company envisions net sales for the quarter in the $172–$176 million range, while comps are expected to decline 6%–8% over the same period.

Further, for the second quarter, the company expects to post a loss of 9–13 cents per share. The Zacks Consensus Estimate is currently pegged at earnings of 7 cents per share.

Stocks to Consider

Better-ranked stocks in the same space include The Children's Place, Inc. PLCE and Destination XL Group, Inc. DXLG, each with a Zacks Rank #2 (Buy). Another stock worth considering in the related textile-apparel industry is Delta Apparel Inc. DLA, with a Zacks Rank #1 (Strong Buy).

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ZUMIEZ INC (ZUMZ): Free Stock Analysis Report
 
CHILDRENS PLACE (PLCE): Free Stock Analysis Report
 
DESTINATION XL (DXLG): Free Stock Analysis Report
 
DELTA APPAREL (DLA): Free Stock Analysis Report
 
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