Zumiez Grows Earnings Faster than Sales in Fiscal Second Quarter

 

The Lynwood, WA-based action sports retailer said a 19.1 percent increase in e-commerce sales contributed to comparable store sales growth of 0.9 percent on top of a 9.5 percent increase in the fiscal third quarter of 2012. E-commerce sales reached 8.8 percent of sales in the recent quarter.

Earnings exceeded expectations, more than doubling to $4.7 million, or 16 cents per share, from $2.1 million, or 7 cents, in the second quarter of the prior fiscal year. Excluding costs related to ZUMZ’s 2012 acquisition of European online retailer Blue Tomato and relocation of the company’s e-commerce fulfillment center and corporate offices, EPS was 20 cents compared with 16 cents in the second quarter of 2012. 
North American sales were up 13.7 percent and European sales grew by $6.0 million in the quarter.

 

Gross margin reached 65.1 percent of sales, down 50 basis points from the second fiscal quarter of 2012.  SG&A rose 10.9 percent to $47.3 million, or 29.9 percent of revenues, down 170 basis points. Hard goods, juniors and footwear were positive while accessories, men’s and boys’ comped negative thanks in part to the shift of the first week of the back-to-school season into the quarter.

 

ZUMZ ended the quarter with inventories valued at $113.2 million, up 13.6 percent from $99.7 million at July 28, 2012. Inventories per square foot were up slightly.

 

For the four-week period ended Aug. 31, total net sales increased 14.3 percent to $85.9 million compared with the four-week period ended Aug. 25, 2012. August comp store sales increased 3.0 percent on top of a 3.7 percent increase for the four-week period ended Aug. 25, 2012. Dollars per transaction were up for the four-week period due to increase in used units per transaction and average unit retail. Juniors, hard goods, accessories and men’s posted positive comps, while footwear and boys posted negative comps with comps growth tapering off as the month went on. Weakness in footwear was attributed primarily to women’s.

 

For the current quarter, which ends Nov. 2, ZUMZ issued new guidance that assumes comparable store sales in the range of 0 percent to 2 percent. The forecast calls for sales to be in the range of $187 to $191 million and net income per diluted share of approximately 39 to 43 cents. ZUMZ still expects to open 58 new stores in fiscal 2013, including 9 in Canada and five in Europe. The retailer still expects lower comps growth for the full fiscal year, due in part to the loss of the 53rd week of sales seen in fiscal 2012.  Merchandise margins are also expected to decline for the full year from their near record high levels of fiscal 2012 due to growing contributions from Blue Tomato and a very promotional environment at the mall. 

 

Brooks said he foresees slow comp store and margin growth for the foreseeable future as the market continues to consolidate and consumers fulfill more of their shopping online.  He sees little occurring in fashion that would drive juniors and young men, who make up the bulk of ZUMZ’s customer base,  back into stores during the third quarter.

 

“We think that there's going to be a very competitive marketplace,” said Brooks. “The root of it all, I think there is still, particularly in the teen world, too many stores.”