Zumiez June Comps Rise

Zumiez Inc. (ZUMZ - Analyst Report), a U.S. Specialty retailer with a focus on teenage action-sports based merchandise, reported an increase of 8.2% in comparable store sales for the five-week period ended June 30, 2012 compared with the comparable prior-year increase of 9.8%.

Net sales for the period surged 18% to $51.3 million from $43.5 million reported in the five weeks ended July 2, 2011. An increase in sales was primarily driven by better performance at the company’s men’s wear, footwear, juniors, and accessories categories. However, Zumiez reported weaker sales in its boy’s category.

We believe the company’s well-balanced store expansion and e-commerce strategies will drive its top line further. Zumiez is currently in the early phase of its store expansion program and plans to enlarge its network by opening 50 new stores during fiscal 2012, including its 10 new stores in Canada.

Additionally, in the recent years, Zumiez has launched stores averaging 3,000 square feet, which enables it to offer extended merchandise without compromising store ambience. These initiatives provide the company with a strong platform to effectively capitalize on the emerging opportunities.

Moreover, we believe the company’s recent acquisition of Blue Tomato will provide Zumiez broader avenues to strengthen its international base. Expecting synergies from the acquisition Zumiez raised its second-quarter sales guidance in the range of $134 - $136 million, inclusive of nearly $2 million sales from Blue Tomato. Earlier the company was expecting revenue in the range of $128 to $130 million.

However, the company kept its earnings per share guidance unchanged at 4 cents to 6 cents, inclusive of the acquisition related costs and expenses. The current Zacks Consensus Estimate for the upcoming quarter stands at 13 cents per share, which is way above the company’s guidance range.

Everett, Washington-based Zumiez targets young men and women in the age group of 12 to 24 years, who seek popular brands that represent a lifestyle centered on extreme sports activities. The company competes head-to-head with Hot Topic Inc. (HOTT) and Pacific Sunwear of California Inc. (PSUN - Snapshot Report).

Zumiez's stores offer couches and video game stations to entice customers to shop for extended periods. These stores are strategically located near busy areas of the mall, such as food courts, movie theatres, music/game stores and other popular teenage hang-out destinations. As of June 30, 2012, the company operated 453 stores in the United States and 15 stores in Canada.

Currently, Zumiez carries a Zacks #2 Rank, implying a short-term Buy rating on the stock. We retain our long-term Outperform recommendation on the stock.