Zumiez (ZUMZ) Up On Q3 Earnings & Sales Beat, Upbeat View

Zumiez Inc. (NASDAQ:ZUMZ) reported robust third-quarter fiscal 2019 financial numbers. While the company’s earnings surpassed the Zacks Consensus Estimate for the seventh straight quarter, revenues outpaced the consensus mark for the third consecutive quarter. Also, both the top line and the bottom line grew year over year. Notably, the company delivered 13th successive quarter of positive comparable sales (comps). Better-than-expected results prompted management to raise fiscal 2019 view.

Following the quarterly results and upbeat guidance, this Lynnwood, WA-based stock has gained around 9% during the after-market trading session on Dec 5. In the past six months, shares of this Zacks Rank #3 (Hold) company have surged approximately 64% against the industry’s 7.6% decline.

Q3 Highlights

Zumiez reported earnings of 75 cents per share, which surpassed the Zacks Consensus Estimate of 60 cents. Also, the bottom line increased substantially from 55 cents reported in the prior-year quarter. Notably, higher sales and margin expansion were the primary reasons behind its bottom-line growth in the reported quarter.

Net sales rose 6.1% year over year to $264 million and also exceeded the Zacks Consensus Estimate of $260 million. The top line benefited from comps growth and the addition of 15 stores since the end of third-quarter fiscal 2018, partly offset by adverse foreign currency rates.

Zumiez Inc. Price, Consensus and EPS Surprise

Comps grew 5.5% during the reported quarter. Comps benefited from higher transaction volume and growth in dollars per transaction. Strength in the hard goods, accessories, footwear and men’s categories aided comps. However, the upside was somewhat offset by negative comps in the women’s categories.

Zumiez’s comps for the period beginning Nov 3, 2019 through Dec 3, 2019 (fourth quarter to date) increased 3.3% compared with the same period last year.

Gross profit increased 8.9% to $94.6 million in the fiscal third quarter, with gross margin expansion of 90 basis points (bps) to 35.8%. The improvement was mainly backed by leveraged store occupancy costs, better write-off of excess and lower shipping and distribution costs.

Zumiez’s SG&A expenses increased 2.6% to $70.3 million. However, SG&A expenses, as a percentage of sales, declined 90 bps to 26.6% due to leverage in store expenses.

Consequently, operating income amounted to $24.3 million, up 32.2% from $18.4 million in the prior-year quarter. The company’s operating margin increased approximately 180 bps to 9.2% of net sales.

Financial Update

Zumiez ended the third quarter with cash and marketable securities of $31.9 million. Total shareholders’ equity at the end of the fiscal third quarter was $426.8 million. During the first nine months of fiscal 2019, the company generated $29.5 million as cash flow from operations.

For fiscal 2019, Zumiez continues to anticipate capital expenditures between $19 million and $21 million.

Zumiez approved the repurchase of its common stock of up to an aggregate of $100 million. The Repurchase Program is expected to continue through the fiscal year 2020 that will end on Jan 30, 2021.

Store Update

As of Nov 30, the company operated 719 stores including 608 in the United States, 52 in Canada, 48 in Europe and 11 in Australia.

In fiscal 2019, the company opened 15 new stores, which include five stores in North America, seven stores in Europe and three stores in Australia. Zumiez has no more store opening plan for the current fiscal year.

Guidance

Management issued guidance for fourth-quarter fiscal 2019. Net sales are anticipated to be $314-$320 million, which indicates an improvement from $304.6 million recorded in the year-ago quarter. Comps are likely to grow between 2% and 4%.

Furthermore, consolidated operating margins are projected to be 12.5-13%. Earnings per share for the fiscal fourth quarter are envisioned in the band of $1.26-$1.32. Zumiez delivered earnings of $1.18 per share in the prior-year quarter. Notably, the Zacks Consensus Estimate for fourth-quarter sales and earnings stands at $318.7 million and $1.16, respectively.

The company raised its view for fiscal 2019. It now expects comps to rise between 4% and 4.5% compared with prior view of 2-4% growth. Operating margins are expected to be 25-30%. Adjusted earnings per share are anticipated to be $2.38-$2.46, up from prior view of $2.10-$2.20. The Zacks Consensus Estimate for fiscal 2019 earnings stands at $2.15. Zumiez delivered earnings of $1.79 per share in the prior year.

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