Zumiez Inc. (ZUMZ - Free Report) , a mall-based specialty retailer of action sports apparel, footwear, equipment and accessories, remains on our Neutral list with a target price of $29.00.
Why the Reiteration?
Zumiez has carved a niche for itself in the specialty retail market, driven by its strategy of offering action-sports merchandise catering to young men and women in the age of group of 12 to 24. Furthermore, the company’s stores are strategically located in busy areas of the mall, such as food courts, movie theatres and music/game stores, which are frequented by the company’s target customers.
Building on its long-term growth strategies and strength in assortments, Zumiez managed to beat earnings expectations in second-quarter fiscal 2013, marking its 19th consecutive beat. The average surprise for the trailing 19 quarters stands at 32.3%. We expect the company to keep up this trend of posting positive earnings surprises in the years ahead, based on its focus on boosting productivity at existing stores, developing a leading omni-channel platform and enhancing its presence both domestically and overseas.
Going forward, we believe that Zumiez’s store expansion policy, along with enhancement of e-Commerce will help boost its top and bottom lines. The company is currently in the early phase of its store expansion program, and plans to increase its network to 600–700 stores in the long run. The company plans to expand its store base by opening 58 new stores in fiscal 2013, comprising 9 stores in Canada and 6 in Europe.
We also remain impressed with the Blue Tomato acquisition, which has provided the company a solid platform to capitalize on rising opportunities.
However, we are skeptical about Zumiez’s future comps performance on account of a decrease in its comparable store transactions in recent times. Analyzing the trailing 8 months’ performance, we note that the company’s comps have been declining every month, with the exception of April and August Additionally, this Zacks Rank #4 (Sell) company is projecting comparable-store sales in the range between flat to a 2% increase in the third quarter of fiscal 2013.
Further, we believe that intense competition from rival specialty retailers, the seasonal nature of the business, and risks associated with sourcing merchandise from foreign countries may undermine the company’s results.
Other Stocks to Consider
Other stocks worth considering among apparel/shoe retailers include Citi Trends, Inc. , L Brands, Inc. and DSW Inc. (DSW - Free Report) . All of these carry a Zacks Rank #2 (Buy).