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U.S. Specialty retailer in action sports related apparel, footwear, equipment and accessories, Zumiez Inc. (ZUMZ - Analyst Report), is scheduled to release its third-quarter 2012 results on Thursday, November 29, 2012.

The current Zacks Consensus earnings per share (EPS) estimate for the third quarter is 47 cents, reflecting a year-over-year increase of 4.4%. Estimate revision trend over the last month has trended downwards, mainly due to the lesser-than-expected sales results in October and a continued decline in the rate of increase of comparable store sales so far this year.

Nevertheless, Zumiez has outperformed the Zacks Consensus Estimate in the trailing four quarters, exhibiting continued strength and consistent with its history of delivering positive earnings surprises. Zumiez’s second quarter witnessed a positive surprise of 30.8%. The company’s average surprise for the trailing four quarters comes to nearly 19.7%.

Second-Quarter 2012 Synopsis

On August 30, Zumiez reported better-than-expected results for the second quarter of fiscal 2012 based on robust sales and improved gross margin. Quarterly adjusted earnings of 17 cents per share beat the Zacks Consensus Estimate of 13 cents, reflecting an escalation that more than doubled from the prior-period level of 8 cents.

Net sales in the reported quarter elevated 20.4% to $135.1 million from $112.2 million a year ago, marginally beating the Zacks Consensus Estimate of $135 million. The year-over-year growth in sales was primarily driven by the company’s strong merchandise, store expansion and e-commerce strategies. In the second quarter of fiscal 2012, comparable store sales at Zumiez were up 9.5% compared with an increase of 7.5% reported in the previous-year quarter.

Guidance

For third quarter 2012, management anticipates revenue in the range of $181–$185 million, on the back of 3%–5% growth in comparable store sales. 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.

Further, the company is still on track to open 50 new stores during fiscal 2012, of which 10 are to be opened in Canada.

Agreement

Estimate revision trend have been largely negative, with estimates moving down in the last 30 days. For the third quarter, 15 out of 17 estimates were lowered over the past month. For fiscal 2012, the company witnessed a negative shift in 11 out of 12 estimates in the last 30 days.

In the last 7 days, however, third quarter estimates remained stable with no movement in either direction, while for fiscal 2012 the company saw one estimate move down with no upward movement.

Magnitude

For the third-quarter of 2012, the Zacks Consensus Estimate moved down by 6 cents to 47 cents a share in the last 30 days. Similarly, the Zacks Consensus Estimate for fiscal 2012 slipped by 8 cents to $1.52 per share in the last 30 days. There was no change in estimates in the last 7 days.

Our Take

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 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 on the store ambience. These initiatives provide the company with a strong platform to effectively capitalize on the emerging opportunities.

Further, the Everett, Washington-based sporting goods retailer targets young men and women in the age group of 12 to 24 years, who seek popular brands that represent a lifestyle centered around extreme sports activities. This provides the company a distinct market niche, which in combination with its store expansion strategy should help deliver solid performances in the upcoming quarters.

However, intense competition from other specialty retailers like Hot Topic Inc. and Pacific Sunwear of California Inc. (PSUN - Snapshot Report), seasonal nature of the business and risks associated with sourcing merchandise from foreign countries may weigh upon the company’s results.

Currently, Zumiez holds a Zacks #3 Rank, implying a short-term ‘Hold’ rating on the stock. We retain our long-term ‘Neutral’ recommendation on the stock.

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