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Comparable store sales (comps) of the Washington-based retailer of sports-related teen apparel, Zumiez Inc. (ZUMZ - Analyst Report), increased 5.6% for the five-weeks ended September 29, 2012, compared with an increase of 10.1% in the five-weeks ended October 1, 2011. Net sales for the period surged 18.6% to $62.7 million from $52.9 million reported in the year-ago period.

Comps for the nine-weeks ended September 29, 2012, jumped 4.6% against a 6.8% increase recorded in the year-ago period.

Looking ahead, the company forecasts third quarter comps to increase in the 3% to 5% range, while net sales are expected in the range of $181 million to $185 million. Based on sales projections for the quarter, the company expects earnings per share to come in the band of 42 cents– 45 cents. The earnings expectation also includes the estimated costs and expenses of 6 cents and 3 cents per share related to the Blue Tomato acquisition and inventory estimations, respectively.

Operationally, Zumiez’s Blue Tomato business continues to show positive year-over-year growth. Though the projections from Blue Tomato are expected to slightly impact the company’s third quarter earnings, this business is expected to be accretive to the company’s fourth quarter results. Overall, the company expects the Blue Tomato acquisition to provide it with broader avenues to strengthen its international base.  

We believe that the company’s well-balanced store expansion and e-commerce strategies will drive its top line further. The company’s store expansion plans remain on track as the company nears its target of opening 50 new stores during the fiscal 2012, of which 10 are to be opened in Canada.

As of September 29, 2012, the company operated a total of 489 stores, including 466 in the United States, 18 in Canada and 5 in Europe.

During the last few years, Zumiez launched stores averaging 3,000 square feet, which enabled it to offer extended merchandise without compromising on the store ambience. These initiatives provide the company with a strong platform to effectively capitalize on emerging opportunities.

Dealing in action sports related apparel, footwear, equipment, and accessories, Zumiez targets young men and women in the 12 to 24 year age group who seek popular lifestyle brands centered on extreme sports activities. The company competes with Hot Topic Inc. 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.

Currently, Zumiez carries a Zacks #3 Rank, implying a short-term Strong Hold rating. However, we maintain a long-term Outperform recommendation on the stock.

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