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S&P 500   3,811.15
DOW   30,932.37
QQQ   314.14
S&P 500   3,811.15
DOW   30,932.37
QQQ   314.14
S&P 500   3,811.15
DOW   30,932.37
QQQ   314.14
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Is Zumiez Inc. Another Retail Winner For The 2nd Half?

Friday, September 11, 2020 | Thomas Hughes
Is Zumiez Inc. Another Retail Winner For The 2nd Half?Tailwinds Drive Zumiez To Surprise Profits

Zumiez Inc. (NASDAQ:ZUMZ) produced a surprising 2nd quarter in more ways than one. The company is heavily reliant on brick&mortar not to mention malls so was not expected to rebound very strongly but it did. The market failed to account for a couple of factors that helped drive other retailers to profit. Those include the company’s position as a shoe/apparel retailer (Shoe Carnival (NASDAQ:SCVL) delivered a blow-out report) and Zumiez already substantial eCommerce presence. Just to recap, nearly every single business with an eCommerce presence is reporting at least a double-digit increase in YOY digital sales and some have gained in the high triple-digits.

And that doesn’t account for the company’s history. Zumiez has been steadily growing for the last five years and is on track to continue that trend this year and next. The consensus for fiscal 2021 earnings is for revenue to dip slightly but that figure doesn’t include the 2Q results. Q2 results are far above consensus and point to at least flat revenue on a YOY basis if not a small gain. Longer-term? This company is on track for sustained growth.

Zumiez Q2 Results Blow Past Consensus

Zumiez 2Q was not without struggle but results prove the resilience of the brand. Top-line revenue came in at $250.39 million or up 9.6% from the previous year. The analysts had been expecting revenue closer to $229 million, a difference of 940 basis points.

The bottom-line results were even more impressive. The company cut back on spending drastically and leveraged those savings to the tune of $1.01 per share, more than $0.80 ahead of consensus. On a YOY basis, GAAP EPS is up nearly 200% and cost-leveraging is expected to linger into the 3rd quarter at least.

To keep results in perspective, the company was not open 100% of the quarter. Shut-downs and re-shut-downs had the business operating at 73% capacity in terms of open store-days. The comp-store sales for open stores came in at 37.7% and were underpinned by eCommerce and robust full-price selling of merchandise.

The company’s cash position increased significantly over the past year but there are some takeaways. One is that deferred rent and taxes will have to be paid at some point and inventory is down double-digits. The reduction in inventory is ultimately a good thing though because it means leaner operations and better-positioning going into the holiday season. Regardless, with $299 million in cash the company has more than enough to cover obligation and rebuild inventory. Oh yeah, and there is no debt on the balance sheet.

No Guidance, Weak Outlook, But There Is A Mitigating Factor

The company declined to give 3rd quarter or full-year guidance but did offer a business update for reference. To-date, 3rd quarter sales are running about 14% below the prior year but there is a mitigating factor. The 3rd quarter is the traditional back-to-school shopping season and that season hasn’t really materialized yet. What investors need to consider is that schools are abandoning the virtual model and Zumiez says sales have been normalizing in the post-back-to-school period. Looking forward, those back-to-school sales may be recouped later in the season.

There is also the reopening to consider. The company is still not operating at full capacity. Operations were running at 90% at the end of the quarter and another 5% has come online since. Management didn’t break out the eCommerce sales for the 2nd quarter but says it’s up 27.4% so far in the 3rd.

The Technical Outlook: Shares Pop, It May Be Time To Buy

Shares of Zumiez have been wallowing well below the pre-pandemic highs but may be ready to move up again. The 2Q news has price action up about 10% in the premarket and trading just below resistance. The move may be short-covering more than anything else so caution is warranted. If price action is able to hold the gains and move above the $28 level I would be a buyer. Conversely, if price action fails to hold the early gains I’d be interested in the range of $25 to $26.

Is Zumiez Inc. Another Retail Winner For The 2nd Half?

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Zumiez (ZUMZ)1.4$45.08-3.1%N/A18.78Hold$35.60
Shoe Carnival (SCVL)1.4$48.96-2.3%0.74%59.71Buy$39.50
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