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Why Zumiez Shares Plunged

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of apparel retailer Zumiez (Nasdaq: ZUMZ  ) had a gnarly wipeout today, falling by as much as 12% in intraday trading, after the company reported second-quarter results.

So what: The numbers from the past quarter actually looked pretty good. Sales for the three-month period were up 20% from last year, while adjusted earnings per share clocked in at $0.17. The latter tally was above the $0.13 that Wall Street analysts were expecting.

Now what: It was forward expectations that tanked the stock, though, as management said that August comparable-store sales rose just 3.7%, and it expects third-quarter EPS to be between $0.42 and $0.45. Analysts anticipated 4.7% comp-store sales growth for August and a per-share profit of $0.56 in the third quarter. With a price-to-earnings ratio of 24, based on fiscal 2012 (which ended in January) earnings, Zumiez shareholders obviously have the expectation of significant continued growth. The $0.56 in EPS that analysts had been expecting would have notched a 24% year-over-year growth rate for the third quarter. The company's outlook, however, suggests a modest decline.

The question that investors have to wrestle with now is whether this is a bump in the road or a sign of much slower growth ahead. The former isn't unusual for high-growth companies but, if it's the latter, Zumiez's shares may be overpriced, even after today's drop.

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Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool’s disclosure policy prefers dividends over a sharp stick in the eye.

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Related Tickers

10/21/2016 4:00 PM
ZUMZ $22.50 Up +0.20 +0.90%
Zumiez CAPS Rating: **