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Zumiez (ZUMZ) Q4 Earnings Beat, Soft Q1 View Hurts Stock

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Zumiez Inc. (ZUMZ - Free Report) reported mixed financial numbers for fourth-quarter fiscal 2018. While the company’s earnings surpassed the Zacks Consensus Estimate for the fourth straight quarter, revenues missed the same. Further, the bottom line increased on a year-over-year basis. Additionally, the fiscal fourth quarter marks the 10th straight quarter of positive comparable sales (comps).

However, management provided a disappointing outlook for the first quarter of fiscal 2019. Moreover, the company unveiled sales and comps numbers for February, which failed to impress. Such downsides, combined with soft top-line performance for the reported quarter, were more than enough to dampen investors’ spirits. Markedly, shares of the company declined approximately 9% during aftermarket trading on Mar 14.

In the past six months, this Lynnwood, WA-based company has lost roughly 16% compared with the industry’s 20% decline.

Q4 Highlights

Zumiez reported earnings of $1.18 per share, exceeding the Zacks Consensus Estimate of $1.11. Moreover, the bottom line increased considerably from 80 cents reported in the prior-year quarter. This was mainly backed by lower tax expenses, stemming from the U.S. federal tax legislation.

Zumiez Inc. Price, Consensus and EPS Surprise

Net sales decreased 1.2% year over year to $304.6 million, missing the Zacks Consensus Estimate of $306 million. The top line declined due to calendar shift and deferred revenues related to the company’s Stash loyalty program. However, this was partly offset by comps growth and the addition of nine stores since the end of fourth-quarter fiscal 2017.

Quarterly comps grew 3.9%, up from the company’s forecast of 3% rise. Comps benefited from higher transaction volume and growth in dollars per transaction. Strength in the men’s, women’s, hard goods and footwear categories also aided comps growth.

Gross profit fell 0.6% to $113.9 million in the fiscal fourth quarter, while gross margin expanded 20 basis points (bps) to 37.4%. Gross margin expansion can be attributed to advancement in product margin and improvement in inventory reduction.

Zumiez’s selling, general and administrative (SG&A) expenses declined 1.9% to nearly $76.2 million while SG&A expenses, as a percentage of sales, contracted 20 bps to 25%.

Consequently, operating income amounted to $37.7 million, up 2% from $36.9 million in the prior-year quarter.

February Sales

Comp for the four-week period (ended Mar 2, 2019) decreased 3.8% against a 9.2% increase registered in the four-week period (ended Mar 3, 2018). The decrease in comps was due to lower transactions and fall in dollars per transaction, partly offset by improvement in average unit retail. The company also reported sales decline of 3.1% year over year.

Financial Update

Zumiez ended the reported quarter with cash and marketable securities of $165.3 million, up 35.6% year over year. The upside was driven by cash flow from operations, partly offset by capital expenditures. Total shareholders’ equity at the end of the fiscal fourth quarter was $400.5 million.

Further, the company generated $65.3 million as cash flow from operations, and incurred capital expenditure of $21 million in fiscal 2018.

For fiscal 2019, the company anticipates capital expenditures between $21 million and $23 million compared with $21 million last year.

Store Update

As of Mar 2, 2019, the company operated 705 stores, including 606 in the United States, 50 in Canada, 41 in Europe and eight in Australia.

Zumiez remains on track to open around 14 stores in fiscal 2019, including seven in Europe, five in North America and two in the Australia.

Guidance

Management is boosting brands and adopting strategies to meet consumer demand. This includes making improvements across sales channels and operating networks. Moreover, this Zacks Rank #2 (Buy) company’s differentiated product offering, seamless multi-channel shopping experience, and superior customer service position it well for continued success over the long term.

However, Zumiez issued soft view for first-quarter fiscal 2019. Net sales are anticipated in the range of $202-$206 million, with comps to be flat to 2% lower year over year. Operating margins are projected to decline in the range of 1-2%.

Consequently, the company projects loss in the range of 13 to 7 cents per share. Notably, the company’s sales and earnings projections lie below the current Zacks Consensus Estimate of $213.1 million and a loss of 5 cents, respectively.

3 Stocks to Watch

Abercrombie & Fitch Co. (ANF - Free Report) has a long-term earnings growth rate of 15.3% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Foot Locker, Inc. (FL - Free Report) has a long-term earnings growth rate of 9.2% and a Zacks Rank #1.

Shoe Carnival, Inc. (SCVL - Free Report) delivered average positive earnings surprise of 31.4% in the trailing four quarters. It carries a Zacks Rank #2.

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