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Why Is Zumiez (ZUMZ) Down 15.9% Since the Last Earnings Report?

It has been about a month since the last earnings report for Zumiez Inc. ZUMZ. Shares have lost about 15.9% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Zumiez Delivers Q1 Loss, Issues Dismal Outlook

Zumiez posted first-quarter fiscal 2017 results. Zumiez posted a loss of $0.18 per share for the quarter, which was wider than the year-ago loss of $0.08, though it fared better than the Zacks Consensus Estimate of a loss of $0.20. This could be partly accountable to increased costs, and a challenging retail environment with sluggish store traffic.

Net sales advanced 4.7% year over year to $181.2 million, beating the Zacks Consensus Estimate of $179.4 million. The improvement in the top line was mainly attributable to 25 net new store additions since last year and favorable comps.

Quarterly comps grew 1.8%, meeting the higher end of the company’s forecasted range. Comps were boosted by Zumiez’ brand value, combined with management’s efforts to improve omnichannel capacity; enhance merchandise choices and deliver better sales quality. Further, comps gained from higher transaction volume, somewhat offset by a drop in dollars per transaction. Comps benefited from robust performance of the men’s and junior’s categories, partly negated by lower comps across footwear, hardgoods and accessories.

The momentum seemed to have continued into May, as reflected by Zumiez’s monthly sales results. Concurrent with the first-quarter results, Zumiez reported its sales data for the four-week period ended May 28, 2017. This marked the company’s third consecutive month of posting positive comps. Comps for May ascended 3.3%, compared with a 7.6% drop recorded a year-ago. Moreover, net sales for the month grew 6.5% year over year to $53.2 million.

In the reported quarter, gross profit jumped 4.2% to about $52 million, though the gross margin contracted 20 basis points (bps) to 28.7%. The gross margin was hurt by inventory shrinkage, somewhat compensated by higher product margins.

Zumiez’s selling, general and administrative expenses increased 8.1% to nearly $58.2 million, while as a percentage of sales, the same escalated 100 bps to 32.2%. Consequently, Zumiez posted operating loss of $6.2 million that rose considerably from the loss of $3.9 million reported in the same period last year.

Financial Update

As of Apr 29, Zumiez’s cash and marketable securities were $76.5 million, up 23.2% year over year. The upside was driven by cash flow from operations, partly offset by capital expenditures, share buybacks and cash used for Fast Times’ buyout. Total shareholders’ equity at the end of the quarter was $305.6 million.

Further, the company generated $4.7 million as cash flow from operations during the first quarter. For fiscal 2017, the company expects capital expenditures in a range of $24–$26 million.

Guidance

Management remains pleased with the way the company is progressing toward attaining its near-term goals amid a tough retail landscape. Alongside, the company is undertaking necessary strategies to drive long-term growth. In response to the rapidly changing consumers’ shopping pattern, Zumiez is making significant investments in core areas, to expand its business. This is likely to enable the company to enhance its brand value and consumers’ experience, which in turn will help it capture market share and counter competition.

Thus, the company remains confident of achieving the top and bottom-line growth in the long run, which is likely to generate greater shareholders value. However, based on the current situation and the retail hurdles, management issued a dull earnings outlook for second-quarter fiscal 2017.

The company expects net sales for the quarter in the $185–$189 million range, while comps growth is expected in a range of 1–3% growth, over the same period. Gross margin is expected in a band of down 20 bps to increase 20 bps, while consolidated operating margins are projected to range from negative 1% to negative 2%. Finally, the company projects a loss of $0.06–$0.11 per share, wider than the year-ago loss of $0.03.

Management stated that this cautious stance includes the impact from investments, as well as higher incentive compensation levels, planned for this fiscal year.

In fiscal 2017, the company plans to introduce 19 new stores, including four in Europe, two in Australia and up to 3 in Canada.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. There have been four revisions lower for the current quarter. In the past month, the consensus estimate has shifted lower by 571.4% due to these changes.

Zumiez Inc. Price and Consensus

VGM Scores

At this time, Zumiez's stock has an average Growth Score of 'C', though it is lagging on the momentum front with an 'F'. The stock was allocated a grade of 'A' on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for value investors than those looking for growth and momentum.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. It's no surprise that the stock has a Zacks Rank #4 (Sell). We expect below average returns from the stock in the next few months.


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