Shares of Zumiez Inc. shot up on Friday after the action-sports themed chain reported better-than-expected fiscal second-quarter results and provided strong guidance for the third quater.
In the quarter ended June 29, sales increased 7.8 percent to $192.2 million. Comparable sales climbed 4.7 percent compared to a comparable sales decrease of 4.9 percent in the same period a year ago.
The net loss in the period was trimmed to $608,000, or 2 cents a share, from $838,000, or 3 cents, a year ago.
Previously, Zumiez said it expected sales for the quarter to be in the range of $185 million to $189 million resulting in net loss per diluted share of approximately 6 cents to 11 cents. Same-store sales were expected to be up in the 1 percent to 3 percent range.
On a conference call with analysts, Rick Brooks, CEO, said the quarter marked Zumiez’s fourth consecutive quarter of positive comparable sales and transaction gains and saw “meaningful acceleration” over the 1.8 percent gain seen in the first quarter.
Increases in transaction volume was partially offset by a decrease in dollars per transaction. The decrease in dollars per transaction resulted from lower units per transaction, partially offset by an increase in average unit retail. Men’s and junior’s categories comped positive, while hardgoods, accessories and footwear comp down for the quarter.
From a regional perspective, North America increased 6.4 percent to $176.6 million while International, which consists of Europe and Australia and its Blue Tomato and Fast Times chains, increased 27.1 percent to $15.7 million.
Besides the top-line acceleration, the lower loss was due to a 30-basis point increase in gross margin, to 31.1 percent, The increase was driven by 60-basis point improvement related to leverage of store occupancy, partially offset by 20-basis point increase in inventory shrinkage. SG&A expense as a percentage of sales was flat to the prior-year at 31.5 percent. The operating loss shrunk to $762,000 from $1.14 million.
Brooks said the quarter’s performance marked a continuation of strong trends the chain has been experiencing since the middle of last year. So far in the current quarter, August comps are up 7.4 percent and its September month-to-date comparable sales through Labor Day had increased 11.4 percent.
“Our ability to outperform expectations in a retail environment marked by weak mall traffic is a testament to the work our teams are doing executing on key strategies,” said Brooks. “Our intense focus on serving the customer with differentiated assortments and providing them with a great shopping experience is fueling market share gains and strengthening our leadership position in the industry.”
Among the steps Zumiez has take is working to connect with its core core consumers “more frequently and on a more personalized level” while “remaining disciplined” on spending.
Upbeat guidance was provided for the third quarter. Same-store sales are expected to rise between 4 percent and 6 percent. Total sales are expected to range between $236 million to $241 million. Gross margins are projected to range between down 20 basis points to plus 20 basis points compared to the third quarter of 2016. EPS is expected to land between 43 and 48 cents compared to 43 cents a year ago.
Discussing Zumiez’s strategies to build on its recent momentum, Brooks said the company continues roll out new customer engagements to further engage with consumers online. Said Brooks, Through this level of engagement in conjunction with face-to-face interaction in stores, we’ll be able to keep our finger on the pulse of local trends, allowing us to provide hyper localized, authentic product assortments and a superior personalized brand experience for our customers.”
Zumiez plans to launch over 100 new brands this year to bring “the newness in localized fashion that our customer is looking for.”
Regarding real estate, the pace of new store openings in North America continues to moderate with 12 set to open for the full year. Zumiez will work on reducing rent and shortening lease terms at less-productive locations. Brooks noted that of the of the 20 percent of its stores seeing the weakest contribution, 80 percent of leases can exit in three years.
“To close,” said Brooks, “I want to stress that while our company has and will continue to evolve in response to marketplace changes, the pillars of our success to date have been and remain our authentic lifestyle positioning, our unique approach to product and our commitment to driving world-class customer experiences, all anchored by the deeply ingrained Zumiez’s cultural values.”
He added, “By staying true to these guiding principles, while diligently managing expenses we’ve been able to navigate through the recent volatility and outperform relative to the industry. I’m confident that our efforts have us well-positioned to drive improved results and deliver increased value to our shareholders over the long-term.”
Photo courtesy Zumiez