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Why Shares of Zumiez Slumped Today

By Timothy Green - Jun 2, 2017 at 3:52PM

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Comparable-sales growth was a positive, but guidance calling for continued losses sent shares lower.

What happened

Shares of specialty retailer Zumiez ( ZUMZ 2.03% ) tumbled on Friday after the company reported its first-quarter results. While Zumiez beat analyst estimates, its guidance calling for a second-quarter loss was a surprise. The stock was down 12.5% at 2:45 p.m. EDT.

So what

Zumiez reported first-quarter revenue of $181.2 million, up 4.7% year over year and $1.8 million higher than the average analyst estimate. Comparable sales rose 1.8%, a vast improvement over the 7.5% decrease reported during the first quarter of 2016. "The combination of our authentic brand positioning, on-trend merchandise assortments, engaging sales experiences and advanced omni-channel capabilities contributed to first quarter comparable sales that were toward the high-end of our guidance range," commented Zumiez CEO Rick Brooks.

A Zumiez store front.

Image source: Zumiez.

Zumiez posted a net loss of $0.18 per share, down from a loss of $0.08 during the prior-year period, but $0.02 better than analysts were expecting. Gross margin dropped 20 basis points year over year, to 28.7%, while operating expenses increased 8.1% year over year.

While Zumiez performed better than expected during the first quarter, the company's guidance fell short of expectations. Zumiez expects comparable sales to increase by 1% to 3%, but an expected net loss per share between $0.06 and $0.11 was well below analyst estimates calling for $0.01 per share of profit.

Now what

Comparable sales are growing again at Zumiez, but with gross margin slumping and operating costs growing faster than sales, the bottom line is moving in the opposite direction. Zumiez will need to reverse those trends while maintaining sales growth for the stock to recover.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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