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Can Zumiez Keep Going After Last Week's 22% Pop?

By Rick Munarriz – Oct 9, 2016 at 5:30AM

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The mall chain moves higher after an encouraging performance update.

Image source: Zumiez.

Don't say the mall is dead. Shares of Zumiez (ZUMZ 2.43%) soared 21.8% last week, fueled by an upbeat sales update that inspired a couple of analyst upgrades. 

The West Coast-themed retailer of apparel, footwear, and accessories announced that net sales for the five weeks ending Oct. 1 rose 11.5% to $75 million. The double-digit top-line pop is in part the handiwork of new stores but mostly an encouraging 6.3% spike in comps. The strong showing finds Zumiez boosting its guidance for its fiscal third quarter from an initial range of $209 million to $213 million to a new one of between $216 million and $217 million. It's now eyeing a profit of $0.29 to $0.30 per share, a boost of $0.08 on the low end and $0.04 on the high end.

The stock has now soared 90% since bottoming out late last year. Wall Street was impressed. B. Riley and William Blair upgraded Zumiez stock following the rosier-than-expected sales update. 

Running back into fashion

William Blair analyst Sharon Zackfia boosted her rating on the stock to "outperform." You have to go all the way back to February of last year to find the last time the chain's monthly comps clocked in as high as they did in September.

B. Riley analyst Jeff Van Sinderen also upgraded Zumiez stock, taking his rating to "buy" following the strong update. He's pushing his price target on the shares from $18 to $25. The stock, coincidentally enough, kicked off the week at $18. 

Of course, fashion is fickle, and the same can be said about mall shoppers. Zumiez is riding high right now, but it hasn't always been that way. Zumiez stock shed 61% of its value last year. 

One can also argue that Zumiez is merely clawing its way back to where it was just before it posted a disappointing outlook along with its fiscal second-quarter results last month. Analysts were eyeing a profit of $0.31 a share when Zumiez initiated its guidance for the current quarter, calling for a profit between $0.21 and $0.26 a share.

Getting a good fit

The strong spike in comps last month is encouraging, but this was stacked on top of negative comps during last September, so the comparison was easier. Comps also slipped 4.9% during this year's fiscal second quarter. Zumiez will need a few more positive quarters to convince the market that the mall brand is truly back.

The chain itself is growing. Zumiez expects to add 22 new stores in North America this year, and another seven locations in Europe. Store-level sales are moving in the right direction now, but keeping it that way will be the ultimate challenge.

Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not 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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