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Zumiez Teams Up with Blue Tomato

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Zumiez Inc. , in a drive to be the world’s leading action sports retailer, has agreed to join hands with one of Europe’s leading action sports retail company Blue Tomato. The acquisition will provide Zumiez broader avenues to strengthen its international base while also selectively expanding Blue Tomato's European footprint.

The leading mall-based U.S. retailer of action sports allied apparel, footwear, equipment and accessories, will buy the Austria-based company for about €59.5 million, plus future payments of €22.1 million conditioned upon achieving a certain level of operating performance over the next three years. Zumiez will pay a portion of the contingent future payments in the form of its common stock.

Blue Tomato, the operator one of Europe’s largest action sports ecommerce site in 14 languages, deals in extensive and diverse collection of branded snow and skate hard goods, apparel, footwear, and accessories across Europe. In addition to the ecommerce site, the company also operates 5 stores in Austria.

Blue Tomato posted solid results for the fiscal year ended April 30, 2012. The company’s net sales for the year jumped 27% year over year to €29.4 million. The company’s ecommerce business made for nearly 75% of its total sales for the year. Net income for the year reached €3.5 million.

Zumiez plans to complete the acquisition before the close of the second quarter of fiscal 2012. The company will fund the acquisition from its current cash balances. Upon closing, the company believes the acquisition will be accretive to its fiscal 2012 earnings per share, exclusive of the acquisition and integration-related charges.

Zumiez indicated that Blue Tomato will retain its present headquarters, which is at Schladming, Austria, following the completion of the acquisition. The company also plans to retain all the current Blue Tomato staff, under the leadership of the former European Snowboard champion and founder of Blue Tomato, Gerfried Schuller.

Additionally, Zumiez revised its sales and earnings outlook for the second quarter of fiscal 2012, assuming to fully acquire Blue Tomato by July 1. Zumiez raised its second-quarter sales guidance in the range of $134 - $136 million, inclusive of nearly $2 million sales from Blue Tomato. The company kept its earnings per share guidance unchanged at 4 cents to 6 cents, inclusive of the acquisition related costs and expenses, compared to its earlier forecast, which excluded these charges. Comparable store sales for the second quarter are guided in the range of 8% - 10%.

Further, Zumiez’s revised outlook for the second quarter includes expenses of about $1.6 million or 3 cents per share related to the shifting of the company’s ecommerce fulfillment center to Edwardsville, Kansas as well as its corporate offices to Lynnwood, Washington from Everett, Washington. It also incorporates costs and operating impact of about $2.3 million or 5 cents per share related to the Blue Tomato acquisition.

Everett, Washington-based Zumiez targets young men and women in the age group of 12 to 24 years, who seek popular brands that represent lifestyle centered on extreme sports activities. We expect Zumiez’s focus on teenage action-sports based merchandise and expanding store network to deliver solid performance in the upcoming quarters. The company competes head-to-head with Hot Topic Inc. and Pacific Sunwear of California Inc. .

We maintain our long-term “Outperform” recommendation on Zumiez. The quantitative Zacks #1 Rank (short-term Strong Buy rating) for the company indicates continued success from its growth initiatives and store expansion efforts.

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