How High Can Zumiez Fly?

Shares of Zumiez (Nasdaq: ZUMZ  ) hit a 52-week high on Friday. Let's take a look at how it got here and whether clear skies remain in the forecast.

How it got here
Over the past few months, it's been easy to blame the exceptionally warm weather for some very robust same-store sales growth figures in retail. Wintry weather holed up many consumers last year, leaving retailers with some easy same-store comparisons through the first quarter of the year.

Zumiez is one of the few retailers that I suspect would be killing it whether or not the sun was shining. The mall-based teen retailer, which is focused on action sportswear, has reported some of the strongest same-store growth in the sector: 14.1% in March and 10.1% in April. For the first quarter, Zumiez comparable-store sales were up 12.9%. This is in comparison to other mall-based retailers that got that dose of reality I've been calling for. Macy's (NYSE: M  ) , Gap (NYSE: GPS  ) , and Saks (NYSE: SKS  ) each reported April same-store sales growth of 1.2%, -2%, and 2%, respectively, which fell below Wall Street's expectations.

Zumiez has capitalized on putting a good mix of product in its stores, as well as rapidly expanding its store base -- opening 45 stores just over the past year. Most importantly, Zumiez has recognized the importance of its direct-to-consumer e-commerce segment and focusing on the grow-out of that part of its operations.

How it stacks up
Let's see how Zumiez stacks up next to its peers.

ZUMZ Chart

ZUMZ data by YCharts.

I'm not sure who saw that coming; perpetual underperformer Gap is leading the charge over the past five years?

Company

Price/Book

Price/Cash Flow

Forward P/E

5-Year Revenue CAGR

Zumiez 4.4 17.3 22.9 13.3%
Macy's 2.9 8.3 10.7 (0.4%)
Gap 5.0 11.0 13.4 (1.9%)
Abercrombie & Fitch (NYSE: ANF  ) 2.3 12.4 11.2 4.6%

Sources: Morningstar and author's calculations. CAGR = compound annual growth rate.

Now I'm pretty much convinced that the five-year performance chart above is inexplicable! Gap has had stagnant sales for a decade after attempting multiple turnarounds. Suffice it to say, I'm skeptical of its apparent cheapness on paper, even here. Abercrombie & Fitch has demonstrated erratic -- but still decent -- growth as it has struggled with lower-price-point retailers producing similar items and undercutting them in price. Even Macy's, whom many had written off for dead during the recession, has staged a comeback by focusing on its core brands. Still, it has failed to grow its revenue over the past five years. The true standout of this group is Zumiez, which is rapidly expanding its store count and growing its comparable-store sales at an impressive rate. It's easy to see now why this stock is at a new 52-week high.

What's next
Now for the real question: What's next for Zumiez? That question is really going to depend (as it does for all retailers) on whether or not it can continue to put the right product in front of consumers and whether it can keep itself expanding beyond its own means. The last thing Zumiez needs is to tarnish its debt-free balance sheet with debt incurred through store expansions.

Our very own CAPS community gives the company a two-star rating (out of five), with 91.4% of members expecting it to outperform. Although I haven't personally made a CAPScall of outperform on Zumiez, I have to admit I am leaning toward doing so during its next pullback (if that ever comes).

Clothing retailers are notorious for going through boom-and-bust cycles, but clearly Zumiez has the right products for its customers at the moment. I'm not sure if I see its current growth trajectory as sustainable, but it's still doing so much more --and more successfully -- than its peers that I'm willing to overlook the fact that its comparable-store sales will eventually fall from where they are now. Retailers focused on sportswear are hot and Zumiez continues to look like a great way to play that trend. Now where's the pullback?

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Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

Motley Fool newsletter services have recommended buying shares of Zumiez. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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