Zumiez Inc. ZUMZ reported better-than-expected second-quarter fiscal 2024 results, with the top and bottom lines faring better than the Zacks Consensus Estimate and the year-ago quarter’s numbers.
Zumiez posted a quarterly loss of 4 cents per share, narrower than the Zacks Consensus Estimate of a loss of 33 cents per share. The bottom line also improved from a loss of 44 cents per share reported in the year-earlier quarter.
Total net sales of $210.2 million surpassed the Zacks Consensus Estimate of $202 million. Also, net sales increased 8.1% from $194.4 million reported in the prior-year quarter. Net sales benefited from robust North America business, continued momentum in the men’s category and improved women’s category. A retail calendar shift, leading to the shift of one week of heavier back-to-school volume into the second quarter and out of the third quarter, aided the top line by 530 basis points (bps). Growth in North America was partly offset by lower international sales.
Comparable sales (comps) rose 3.6%, fueled by higher dollars per transaction, though partially offset by fewer transactions. An increase in average unit retail and higher units per transaction aided dollars per transaction.
Zumiez Inc. Price, Consensus and EPS Surprise
Zumiez Inc. Price, Consensus and EPS Surprise
Zumiez Inc. price-consensus-eps-surprise-chart | Zumiez Inc. Quote
ZUMZ’s Regional & Category Performance
From a regional perspective, North America’s net sales improved 10.4% year over year to $176.3 million. Other international sales, comprising Europe and Australia, declined 2.6% year over year to $33.9 million.
Excluding the foreign currency translation impacts, North America’s net sales rose 10.6%, while other International net sales slipped 1.7% from the prior-year quarter. Comps were up 5.9% for North America and down 7.6% for the other international business.
We note that North America reported positive comps for the second consecutive quarter. Notably, comps for North America turned positive in June, rising by low single-digits, and gained further momentum in July, with high single-digit growth driven by the onset of the back-to-school selling season.
Regarding sales by category, men's was the largest comping category, followed by women’s and footwear. However, the hardgoods category posted a significant comps decline, followed by accessories.
Additionally, the men's business reported the third straight quarter of year-over-year growth. The women's business, which turned positive in the fiscal first quarter, gained further momentum, improving double digits year over year. Meanwhile, the footwear category turned positive in the fiscal second quarter.
Insights Into ZUMZ’s Margins & Costs
Gross profit jumped 16.4% year over year to $71.8 million, while gross margin expanded 250 bps to 34.2%. The improvement in the gross margin stemmed from a 140 bps decline in store occupancy costs, 90 bps of leverage in shipping costs, and a 20 bps decrease in distribution center costs.
Selling, general and administrative (SG&A) expenses remained flat year over year at $72.2 million. As a percentage of sales, SG&A expenses decreased 280 bps from the year-ago quarter to 34.4%. This decline was driven by 100 bps store wage leverage on higher sales, 80 bps decline in non-wage corporate costs, 50 bps decrease in non-wage store operating expenses, 50 bps benefit from the timing of employee training, and 20 bps of corporate wages leverage, offset by a 30 bps rise in incentive costs.
Zumiez reported an operating loss of $0.4 million, significantly narrower than the operating loss of $10.5 million recorded in the year-ago fiscal quarter.
ZUMZ’s Financial Health
As of Aug. 3, 2024, ZUMZ had cash and current marketable securities of $127 million compared with $140 million as of July 29, 2023. The decline was due to capital expenditures of $14.7 million and share repurchases of $19.4 million, somewhat offset by cash flow from operations of $23.6 million. It had no debt at the end of the fiscal second quarter.
Total shareholders’ equity was $319.8 million. The company ended the fiscal second quarter with $158.8 million in inventory, down 1.3% from the year-ago quarter’s figure.
In the fiscal second quarter, the company repurchased 945,000 shares for a total consideration of $19.4 million under its existing $25 million repurchase authorization approved on June 5, 2024.
Additionally, the company has repurchased another 220,000 shares for $5.6 million in the third quarter-to-date period. This marks the completion of its $25 million share repurchase program. This brings the total shares repurchased under the program to 1.2 million, representing about 5.7% of its outstanding shares. Currently, the company has no share repurchase authorization.
As of Aug. 31, Zumiez operated 752 stores, including 593 in the United States, 46 in Canada, 86 in Europe and 27 in Australia. Management intends to open roughly nine stores in fiscal 2024, comprising three stores each in North America, Europe and Australia. The company anticipates closing 25 stores in fiscal 2024, with most of these closures expected to occur in North America.
A Closer Look at ZUMZ’s Other Updates
Net sales for the fiscal third quarter-to-date, covering the 30 days ending Sept. 2, 2024, rose 6.8% compared to the same period in the prior year ending Aug. 28, 2023.
Regionally, net sales in North America for the same period climbed 7.8%, while sales in the other international region fell 0.9% year over year. Excluding the foreign currency translation impacts, North America sales for the four weeks ended Sept. 2, 2024, rose 8%, while other international sales dipped 2.1% compared with 2023.
Comps for the four weeks ending Sept. 2 were up 12.1% from the comparable four-week period in the prior year. Comps for North America increased 14.4% for the 30-day period ended Sept. 2, 2024, and decreased 4.2% for the other international business.
In terms of category, the men's category exhibited the highest growth in comps, followed by women’s and footwear. Meanwhile, the accessories category reported the largest comps decline, followed by hardgoods. The increase in comps is attributed to a rise in dollars per transaction and higher transactions. Dollars per transaction increased for the 30-day period on higher average unit retail and units per transaction.
ZUMZ’s Guidance
Zumiez has launched more than 100 brands in 2022 and more than 150 brands in 2023, with plans to launch similar levels this year. It has also been expanding its Private Label brand portfolio in 2024.
Zumiez provided its guidance for the fiscal third quarter of 2024. It anticipates the fiscal third quarter net sales to reflect the negative impacts of the retail calendar shift, which aided the second quarter performance. Adjusting for this shift, management estimates the fiscal third-quarter sales growth to be 7-9%.
The company anticipates net sales to be $221 million-$204 million, reflecting an increase of 2-4% year over year. It expects consolidated operating income, as a percentage of sales, to be between 0.2% and 1.2%. It envisions the bottom line to be between a loss per share of 4 cents and an income of 6 cents per share, compared with a loss of 12 cents per share reported in the year-ago quarter.
Regarding the fiscal 2024 outlook, management expects to witness uncertainty and volatility in the macro landscape. Considering this, it has refrained from providing any specific financial guidance but has outlined some expectations for the fiscal.
With the business gaining momentum in the second quarter and the success of the back-to-school season, the company notes some emerging trends in brands within its merchandise assortments that resonate well with customers.
The company projects total sales growth in the low single-digit range for fiscal 2024. Driven by the strong sales projection, it expects an increase in product margin for the fiscal. It further anticipates leveraging SG&A costs year over year and returning to positive operating margins. The effective tax rate is likely to be 60% in fiscal 2024.
Management forecasts capital expenditures of $14-$16 million compared with $20.4 million in fiscal 2023 and $25.6 million in fiscal 2022. The reduction is mainly due to a reduction in planned store openings. Depreciation and amortization, excluding non-cash lease expenses, are expected to be $23 million, which is consistent with the preceding year. Management projects shares outstanding to be 19.3 million.
Over the past three months, shares of this Zacks Rank #1 (Strong Buy) company have gained 36.9% against the industry’s decline of 10.9%.
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Solid Picks in ZUMZ’s Sector
We have highlighted three other top-ranked stocks in the broader sector, namely Abercrombie & Fitch Co. ANF, Deckers DECK, and Burlington Stores BURL.
Abercrombie, a leading casual apparel retailer, currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for ANF’s current financial-year sales and earnings indicates growth of 12.6% and 60.9%, respectively, from the year-ago reported figures. Abercrombie has a trailing four-quarter earnings surprise of 27.9%, on average.
Deckers, a footwear and accessories dealer, currently carries a Zacks Rank #2 (Buy). DECK delivered an average earnings surprise of 47.2% in each of the trailing four quarters.
The Zacks Consensus Estimate for Deckers’ current financial-year sales and earnings indicates growth of 11.5% and 8.4%, respectively, from the year-ago reported figures.
Burlington Stores is a nationally recognized off-price retailer of high-quality, branded apparel, footwear, accessories and merchandise for the home at everyday low prices. It currently sports a Zacks Rank #2. BURL has a trailing four-quarter earnings surprise of 18.4%, on average.
The Zacks Consensus Estimate for Burlington Stores’ current financial-year sales and earnings suggests growth of 9.9% and 29.9%, respectively, from the year-ago reported numbers.
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