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Zumiez (ZUMZ) Stock Up on Q2 Earnings Beat, Upbeat FY19 View

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Zumiez Inc. (ZUMZ - Free Report) reported robust second-quarter fiscal 2019 financial numbers. While the company’s earnings surpassed the Zacks Consensus Estimate for the sixth straight quarter, revenues outpaced the consensus mark for the second consecutive quarter. Also, both the top line and the bottom line grew year over year. Notably, the company also delivered 12th successive quarter of positive comparable sales (comps). Better-than-expected results prompted management to raise fiscal 2019 view.

Following the quarterly results and upbeat view, this Lynnwood, WA-based stock has gained more than 11% during the after-market trading session on Sep 5. In the past three months, shares of this Zacks Rank #1 (Strong Buy) company have increased approximately 48% against the industry’s 17.1% decline. You can see the complete list of today’s Zacks #1 Rank stocks here.

Q2 Highlights

Zumiez reported earnings of 36 cents per share, which surpassed the Zacks Consensus Estimate of 19 cents. Also, the bottom line increased considerably from 17 cents reported in the prior-year quarter. Notably, increased sales and margin expansion were the primary reasons behind its bottom-line growth in the quarter under review.

Net sales rose 4.3% year over year to $228.4 million and also exceeded the Zacks Consensus Estimate of $223.6 million. The top line benefited from comps growth and the addition of seven stores since the end of second-quarter fiscal 2018, partly offset by adverse foreign currency rates.

Zumiez Inc. Price, Consensus and EPS Surprise

 

Quarterly comps grew 3.6%, up from the company’s guided range of flat to up 2%. Comps benefited from higher transaction volume and growth in dollars per transaction. Strength in the hard goods, accessories and footwear categories aided comps. However, the upside was somewhat offset by negative comps in the men’s and women’s categories.

Gross profit increased 6.4% to $77.2 million in the fiscal second quarter, with gross margin expansion of 70 basis points (bps) to 33.8%. The improvement was mainly backed by leveraged store occupancy costs, lower shipping and distribution costs.

Zumiez’s SG&A expenses slid 0.5% to nearly $65.5 million. Also, SG&A expenses, as a percentage of sales, declined 130 bps to 28.7% due to leverage in store expenses.

Consequently, operating income amounted to $11.7 million, up 74.3% from $6.7 million in the prior-year quarter.

August Sales

Zumiez’s comps for the four-week period (ended Aug 31, 2019) increased 7.1% compared with the 9.5% rise registered in the four-week period (ended Sep 1, 2018). This improvement can be attributed to higher transaction volume and rise in dollars per transaction, partly offset by decline in average unit retail. Positive comps in the hard goods, footwear, accessories and women categories, somewhat offset by men’s category too aided comps growth.

Financial Update

Zumiez ended the second quarter with cash and marketable securities of $188.6 million, up 41.9% year over year. Total shareholders’ equity at the end of the fiscal second quarter was $404.2 million. During the first six months of fiscal 2019, the company generated $35.2 million as cash flow from operations. For fiscal 2019, Zumiez anticipates capital expenditures between $19 million and $21 million. Capital expenditures reported in fiscal 2018 were $21 million.

Store Update

As of Aug 31, the company operated 711 stores including 607 in the United States, 51 in Canada, 43 in Europe and 10 in Australia.

Zumiez remains on track to open around 16 stores in fiscal 2019 including seven in Europe, six in North America and three in the Australia.

Guidance

Management issued guidance for third-quarter fiscal 2019. Net sales are anticipated in the range of $258-$263 million, which showcases an improvement from $249 million recorded in the year-ago quarter. Comps are likely to grow in the range of 3-5%.

Furthermore, consolidated operating margins are projected in the range of 7-7.7%. Earnings per share for the fiscal third quarter are envisioned in the band of 55-61 cents. Notably, the Zacks Consensus Estimate for third-quarter earnings stands at 54 cents. Zumiez delivered earnings of 55 cents per share in the prior-year quarter.

The company raised its view for fiscal 2019. It now expects comps to rise in the range of 2-4% compared with prior view of low single-digit growth. Adjusted earnings per share are anticipated in the band of $2.10-$2.20, up from prior view of $1.84-$1.94. The Zacks Consensus Estimate for fiscal 2019 earnings stands at $1.90. Zumiez delivered earnings of $1.79 per share in the prior year.

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