Zumiez (ZUMZ) Falls Victim To Soft Traffic Trends In Retail

Mall-based specialty retailer, Zumiez Inc.’s (NASDAQ:ZUMZ) story is no different from the other retailers which are struggling at the moment to combat the effects of soft mall and store traffic, volatile consumer spending and a competitive retail landscape. Further, currency headwinds along with a rapid shift in consumer preference toward online shopping have been causes of concern.

While many mall-based retailers have resorted to optimizing store fleet to revive soft sales trends, Zumiez remains focused on omni-channel growth, authentic lifestyle positioning and commitment to customer service to gain market share.

Notably, department store retailers including the likes of Macy’s Inc. (NYSE:M) , Sears Holdings Corp. (NASDAQ:SHLD) , American Eagle Outfitters Inc. (NYSE:AEO) and J. C. Penney Company Inc. (NYSE:JCP) have announced store closure plans in order to stay competitive. Additionally, sporting goods company DICK’S Sporting Goods Inc. (NYSE:DKS) plans to bring a slowdown in its store growth plan.

However, the cumulative impact of the aforementioned factors is quite visible in Zumiez’s stock performance. Shares of this Lynnwood, WA-based retailer have underperformed the broader industry in the last three months. The stock declined a substantial 26.5%, while the Zacks categorized Retail – Apparel and Shoes industry registered a 5.8% fall. Moreover, the stock has considerably lagged the Zacks categorized Retail and Wholesale sector’s growth of 11.2%.

Additionally, these factors hurt Zumiez’s first-quarter fiscal 2017 results, wherein the company posted a loss that was wider than the year-ago period. Moreover, the company witnessed a rise in SG&A expenses, which in turn resulted in an operating loss in the quarter.

Following the results, management issued a drab margin and bottom-line outlook for the second quarter. In the second quarter, gross margin is expected in a band of down 20 bps to up 20 bps, while consolidated operating margins are projected to range from negative 1% to negative 2%. Consequently, management expects a loss of 6–11 cents per share, wider than a loss of 3 cents reported in the year-ago period. Further, the company stated that this cautious stance includes the impact from investments, as well as higher incentive compensation levels, planned for this fiscal year.

Bottom Line

We commend the company’s focus on turning its performance with strategic growth efforts. In response to the changing consumer patterns, the company is striving to expand eCommerce and omni-channel platforms to provide consumers with the facility of quick and easy access to its products and brands. However, the obstacles looming in the retail industry are likely to stay and hurt the company’s performance in the near term. Thus, we remain cautious on the stock for the time being.

Aptly, the stock currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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