Zumiez Takes a Breather

Investors have had quite a wild ride from retail stock Zumiez (Nasdaq: ZUMZ). Although its third-quarter results were impressive, and the shares did rally a bit on that news, its price hasn't begun to return to previous levels. Apparently, once you've ridden that wave, you're a little reluctant to get back on.

Zumiez's net income increased 19% to $8.1 million, or $0.28 per share, in the third quarter. Revenue zoomed 26.5% higher to $104 million, while same-store sales increased 13.2%, compared to a healthy increase of 10.7% this time last year.

If you recall, last month Zumiez gave guidance investors didn't like. If some investors seem a little bit more optimistic about Zumiez now -- its shares increased 8% Friday and Monday -- maybe it's because the stock took a massive hit last month on that lower guidance. It's still hovering pretty close to its 52-week low.

However, the third-quarter results were perfectly impressive. And Zumiez has increased its cash reserve by 88% to $37.6 million, and it has no debt, so it's not like it doesn't have a strong balance sheet to speak for it as well.

The competition is definitely on for Zumiez, though, since it isn't the only chain that tries to appeal to the fans of the board sports lifestyle; consider surf-inspired Pacific Sunwear (Nasdaq: PSUN) and Abercrombie & Fitch's (NYSE: ANF) Hollister.

I believe Zumiez has some degree of competitive advantage over chains like Pacific Sunwear and Hollister, because it sells more than just board sports-related apparel -- it also sells actual gear. However, that doesn't necessarily mean that real diehard surfers and skaters won't gravitate toward the independents -- a Foolish reader recently commented that a lot of skaters can't stand Zumiez (and added that no pro skaters ride for Zumiez, either), and he might have a point there.

That whole authenticity question is why it's smart that Volcom (Nasdaq: VLCM), which supplies merchandise to retailers including Zumiez, works hard at being real for the core of its customer base with competitions, films, and music.

There is certainly food for thought and no reason for blind optimism, but so far Zumiez obviously has appeal, given its high-growth history. For those investors who have been waiting for a chance to get a piece of Zumiez, and believe that its popularity with teens has real staying power, it may be a good time to consider getting in on the action before Zumiez zooms higher once again.

• Last month, Zumiez was going fakie on its guidance.
• The month before that, though, Zumiez pulled off a nice skate trick.
• Last quarter, Zumiez mellowed out.