Zumiez (ZUMZ) Q3 Earnings Beat Estimates, Sales Increase Y/Y
Zumiez's (ZUMZ) third-quarter fiscal 2021 results reflect gains from robust strategic efforts.
Zumiez Inc. ZUMZ reported stellar third-quarter fiscal 2021 results wherein both its top and the bottom line increased year over year while the latter surpassed the Zacks Consensus Estimate.
Results were backed by Zumiez’s solid efforts to meet robust consumer demand. Robust back-to-school season, driven by strong full-price selling coupled with a sturdy operating model, further aided results. ZUMZ is confident of boosting growth on the back of its distinct merchandise offering, solid services and a seamless shopping experience.
Shares of this Lynnwood, WA-based player have gained 14.7% year to date compared with the industry’s growth of 13.1%.
Results in Detail
Zumiez posted adjusted quarterly earnings of $1.25 per share, surpassing the Zacks Consensus Estimate of $1.08. The bottom line improved 7.8% from the last fiscal year’s figure in the comparable quarter and 66.7% from the third-quarter fiscal 2019 tally.
Although total net sales of $289.5 million missed the Zacks Consensus Estimate of $292.9 million, the same jumped 6.8% from the year-ago period’s reading. This year-over-year growth was buoyed by the reopening of stores, efforts to cash in on the current trends and a highly normalized back-to-school season. Additionally, net sales improved 9.6% from the third-quarter fiscal 2019 actuals.
Zumiez Inc. Price, Consensus and EPS Surprise
During the reported quarter, Zumiez’s stores were open for about 99% of the potential operating days compared with 95% in the year-earlier quarter and 100% in the second quarter of 2019. Zumiez continued to witness temporary pandemic-related store closures during the quarter in Australia.
Region-wise, net sales at North America rose 7.1% year over year and 8% from the fiscal 2019 level to $257.5 million. Other international net sales comprising Europe and Australia grew 4.5% from last-year levels and 25.2% from the level achieved two years ago to $32 million. Excluding the impacts of foreign currency fluctuations, North America net sales jumped 6.8% year over year while other international net sales improved 5%. Category-wise, men’s was the largest growth category in the quarter followed by footwear and accessories. Hardgoods was the worst-performing category followed by women’s.
Gross profit increased 8.4% year over year and 21.2% from the third-quarter fiscal 2019 level to $114.7 million. Gross margin also expanded 60 basis points (bps) and 380 bps from the fiscal 2019 figure to 39.6%. The year-over-year expansion in gross margin was mainly aided by a 60-bps decline in web shipping costs, a 60-bps fall in impairment losses with respect to the operate-and-lease rights of the assets and a 50-bps jump in product margin. Growth was somewhat offset by a 110-bps rise in inventory shrinkage.
SG&A expenses jumped 10.2% year over year to $74.8 million during the quarter under review. As a percentage of sales, SG&A expenses increased 80 bps year over year to 25.8%.
Zumiez reported an operating profit of $39.8 million, up 5% year over year, while operating margin was down 20 bps year over year to 13.8%.
Financial & Other Updates
As of Oct 30, 2021, ZUMZ had cash and current marketable securities of $338.1 million compared with $316.2 million as of Oct 31, 2020. The upside was driven by cash provided through operations, offset by capital expenditures and share repurchases.
Total shareholders’ equity at the end of the quarter stood at $531.7 million. ZUMZ had no debt at the end of the fiscal third quarter and maintained fully unused credit facilities. It ended the quarter with $175.1 million inventory, up 8.8% year over year.
During the fiscal third quarter, management bought back 2.2 million shares for $91.6 million. In the fiscal fourth quarter through Nov 30, 2021, Zumiez repurchased additional 0.4 million shares for $17.5 million. This brings fiscal 2021 year-to-date buybacks to 2.8 million shares for $120 million. For the fiscal fourth quarter, management expects repurchases of nearly 23 million shares.
As of Nov 27, 2021, Zumiez operated 739 stores, including 607 in the United States, 52 in Canada, 63 in Europe and 17 in Australia. In fiscal 2021, management intends to open 23 stores comprising about seven in North America, 12 in Europe and four in Australia. Simultaneously, it plans to close nearly five to six outlets during the ongoing fiscal year.
Management cited that the fiscal fourth quarter kicked off well. Zumiez’s consumer-centric strategy rooted in robust brands appears encouraging.
Zumiez provided details for the fiscal fourth quarter. The fiscal fourth quarter-to-date total sales for the 31 days ended Nov 30, 2021, climbed 11.5% from the same-period level ended Dec 1, 2020. Also, total net sales rose 8.6% from the same-period’s figure in fiscal 2019. Total comparable sales for the current 31-day period grew 8.4% year over year and 6.5% from the comparable period’s number in fiscal 2019. While men's was the largest positive category followed by footwear, women's and accessories, hardgoods continued to be the worst.
Region-wise, net sales for North America business for the 31-day period rose 7.5% year over year while the metric at Other International business surged 39%. During the aforementioned period, Zumiez witnessed closures in Europe due to the pandemic.
This update assumes the existing store closures in Austria, which are likely to reopen by mid-December. This does not include any other closures or the impacts of current or future pandemic variants.
Management did not issue any specific guidance for the fourth quarter or the full fiscal. This currently Zacks Rank #4 (Sell) Zumiez continues to witness global supply-chain headwinds, labor shortages, inflation, pandemic-led closures and risks related to the Omicron variant.
For fiscal 2021, management projects net sales to improve in mid-teens from the fiscal 2019 actuals. This translates to net sales growth from the last fiscal-year levels to just above 20%. Gross margin is likely to grow substantially year over year, backed by leveraged occupancy costs on higher sales, lower shipping costs and increased product margins. Operating margins are estimated to grow year over year in reaching low-teens as a rate of sales.
Also, SG&A expenses are anticipated to rise in line with sales growth in fiscal 2021 from the fiscal 2020 level due to numerous reasons, mainly associated with the pandemic. The increase will be due to higher store wages and benefits with expanded mall hours from reductions in 2020, government subsidies received in 2020, elevated incentive compensation and other discretionary accruals, elevated marketing events and other related spending plus higher travel costs in the back half of this fiscal year.
For the fiscal fourth quarter, Zumiez expects sales growth in high-single digits from the last fiscal year’s reported figure in the comparable quarter. Also, gross margin is expected to grow in the same quarter.
3 Hot Stocks in Retail
Some better-ranked stocks are Boot Barn Holdings BOOT, Tractor Supply Company TSCO and Target TGT.
Boot Barn Holdings, a lifestyle retailer of western and work-related footwear, apparel and accessories, sports a Zacks Rank #1 (Strong Buy) at present. The stock has jumped 69.5% in the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here
The Zacks Consensus Estimate for Boot Barn Holdings’ current financial-year sales and earnings per share (EPS) suggests growth of 54.4% and 183.3%, respectively, from the year-ago period’s corresponding figures. BOOT has a trailing four-quarter earnings surprise of 35.3%, on average.
Tractor Supply Company, a rural lifestyle retailer in the United States, flaunts a Zacks Rank of 1, currently. TSCO has a trailing four-quarter earnings surprise of 22.8%, on average. Shares of TSCO have surged 33.9% in the past six months.
The Zacks Consensus Estimate for Tractor Supply Company’s current-year sales and EPS suggests growth of 19% and 23.9%, respectively, from the year-ago period’s corresponding readings. TSCO has an expected EPS growth rate of 9.6% for three-five years.
Target, a renowned omnichannel retailer, presently carries a Zacks Rank #2 (Buy). TGT has a trailing four-quarter earnings surprise of 19.7%, on average. The stock has rallied 25.8% in the past six months.
The Zacks Consensus Estimate for Target’s current-year sales and EPS suggests growth of 14% and 39.6%, respectively, from the corresponding year-ago period’s levels. TGT has an expected EPS growth rate of 14.4% for three-five years.
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