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Zumiez (ZUMZ) Q1 Loss Wider Than Expected, Sales Plunge Y/Y

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The coronavirus-induced stay-at-home orders, social distancing and mandatory store closures adversely impacted Zumiez Inc.’s (ZUMZ - Free Report) first-quarter fiscal 2020 performance. This specialty retailer of apparel, footwear, accessories, and hardgoods posted wider-than-expected loss for the quarter under review. Also, the company’s top line missed the Zacks Consensus Estimate and fell sharply from the year-ago period.

Management highlighted that the quarter did commence on a strong note with both sales and earnings marching ahead of expectations through early-March. However, due to the COVID-19 crisis, the company had to close stores in accordance with state and local guidelines. Nonetheless, the company concentrated on improving financial flexibility and directed resources toward digital platforms in order to engage with customers. But this was not enough to make up for loss of revenues from brick-and-mortar.

To address challenges tied to the pandemic, Zumiez suspended hiring, eliminated all planned bonuses for fiscal 2020, delayed most of the merit increases, curbed capital spend, extended payment terms for vendor invoices, and reduced inventory receipts by canceling or delaying orders. Also, management has been minimizing operating costs, which consist of travel, marketing and other non-essential items. Moreover, it announced suspension of rent payments and deferred store openings for the time being. It has also chosen to put share repurchases on hold for now.

We note that shares of this Zacks Rank #5 (Strong Sell) company have lost 17.7% in the past six months compared with the industry’s 25.5% decline.

Zumiez Inc. Price, Consensus and EPS Surprise

Zumiez Inc. Price, Consensus and EPS Surprise

Zumiez Inc. price-consensus-eps-surprise-chart | Zumiez Inc. Quote

Results in Detail

Zumiez posted adjusted loss of 79 cents a share, wider than the Zacks Consensus Estimate of loss of 47 cents. The reported figure also compared unfavorably with earnings of 3 cents reported in the year-ago period. Lower net sales hurt the company’s bottom line.

Net sales plunged 35.3% year over year to $137.8 million and missed the Zacks Consensus Estimate of $144.1 million due to the impact of coronavirus and closure of brick-&-mortar stores globally. However, gains in online sales partly offset the same.

Region-wise, North American net sales fell 38% to $116.6 million, while other International net sales, consisting of Europe and Australia, declined 15% to $21.2 million. Excluding foreign currency impact, North American net sales tumbled 37.9%, while other International net sales slid 11.7%.

Zumiez’s net sales for the four-week period ended May 30, 2020 fell 8.6% against an increase of 2.6% for the four-week period ended Jun 1, 2019. The metric declined owing to store closures continuing into May with some areas not expected to open until June. This was partly offset by greater-than-anticipated results in stores opened and e-commerce demand. Notably, comparable sales, consisting of stores opened and e-commerce traffic, increased 79.6% during the month of May. By channel, comparable store sales for locations opened in May rose 38.5%, while e-commerce comparable sales soared 181.6%.

Gross profit came in at $23.7 million, down from $66.5 million reported in the year-ago quarter. We note that gross margin shrunk to 17.2% in the quarter under review from 31.2% in the prior-year period owing to increase in store occupancy costs, higher order fulfillment and distribution costs due to increased online activity because of store closures, and deleverage across distribution center fixed costs.

We note that SG&A expenses declined 21.2% to $51.6 million during the quarter. This can be attributed to lower store operating costs on account store closures and efforts undertaken to contain overall expenses in response to the pandemic. However, as a percentage of sales, SG&A expenses expanded 670 basis points to 37.4%.

Furthermore, Zumiez reported first-quarter operating loss of $27.8 million against operating income of $1 million in the prior-year period.

Financial Update

Zumiez ended the quarter with cash and current marketable securities of $217.2 million, reflecting year-over-year increase of 29.3%. Total shareholders’ equity at the end of the quarter was $431.2 million. The company had no debt at the end of the quarter. During the quarter, the company bought back shares worth $13.4 million, prior to store closings. The company has $86.6 million remaining under its share buyback program.

For fiscal 2020, Zumiez anticipates capital expenditures to be approximately $11 million, down from the prior projection of $18-$20 million. A major portion of the capital expenditure is likely to be incurred for new store openings and planned remodeling.

Store Update

As of May 30, 2020, Zumiez operated 719 stores, including 606 in the United States, 52 in Canada, 49 in Europe and 12 in Australia. During fiscal 2020, management intends to open nearly nine stores, including five stores in North America, three stores in Europe, and one store in Australia. The company had earlier envisioned opening 20 stores in the fiscal year.

Notably, Zumiez started reopening some of its stores in the latter part of the quarter with reduced operating hours per governmental regulations. At the end of the quarter under review, there were 65 or 9% of 719 stores opened. Impressively that count increased to 493 at the end of May with 432 Zumiez stores in North America, 49 Blue Tomato stores in Europe and 12 Fast Times stores in Australia opened.

Key Picks

Levi Strauss & Co. (LEVI - Free Report) has a trailing four-quarter positive average earnings surprise of 15% and carries a Zacks Rank #2 (Buy) currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Sportsman's Warehouse Holdings (SPWH - Free Report) , also a Zacks Rank #2 stock, has a positive earnings surprise of 5% for the last reported quarter.

Office Depot (ODP - Free Report) has a long-term earnings growth rate of 6.8%. Currently, it carries a Zacks Rank #2.

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