Please ensure Javascript is enabled for purposes of website accessibility

Zumiez Is Primed for More Gains in the Future

By Meetu Anand - Dec 17, 2013 at 12:47PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Zumiez’s solid strategies should lead to better performance.

The apparel retail industry in the U.S. has been facing difficult times due to muted consumer spending, a patchy economic environment, and the additional burden of payroll taxes. During the first week of December, apparel retailers Zumiez (ZUMZ 0.41%), Wet Seal (NASDAQ: WTSL), and Pacific Sunwear (NASDAQ: PSUN) posted their quarterly results. Did any of them perform well in a somber environment? Let's find out.

Strategies are reaping results
Zumiez has been investing in its omni-channel retail strategy, increasing its store count, and making acquisitions in order to grow its business. These initiatives boosted the top line by 6.2% year over year to $191.1 million and helped Zumiez beat the consensus estimate by a whisker .

The improvement in the top line was fueled by a 1.5% increase in comparable-store sales, new store openings, and the good performance of the e-commerce channel, which grew to 11% of sales. Comparable e-commerce sales registered an increase of 7.9%.

Zumiez reported 1.7% comps growth for the four-week period ended Nov. 30, which compares to a 4.2% decrease for the four-week period ended November 24 last year. This came despite a weak retail environment where even deep discounts could not do much to trigger a spending spree . This indicates that investments in omni-channel sales initiatives and other growth drivers are yielding good results, and these results might improve as the retail environment gets better.

Some good moves
In the first three quarters of the year, Zumiez opened 57 of the 59 stores it had planned to open during the full year. The growth story based on store expansion remains on track. In addition, in order to instill confidence in investors the company's board approved a new share repurchase program of $30 million, effective from Dec 4, 2013. This will replace Zumiez's earlier share buyback program of $12.5 million. 

The e-commerce sales channel can be a good growth driver going forward, as the U.S. is the second-largest country in terms of digital buyers . This indicates that Zumiez's ongoing investment in its omni-channel sales strategy is a good strategy that can deliver results in the future.

How are peers doing?
On the other hand, Pacific Sunwear seems to be writing a turnaround story of its own. Its share price this year has more than doubled, and the recent third-quarter results proved to be a shot in the arm.

Comps increased by 1%, which made it the seventh consecutive quarter of positive comps for Pacific Sunwear, a good sign for a company that's trying to come out of the red. Most importantly, comps increased 6% for November on the back of robust Black Friday sales, strong emerging brands, and an exclusive range of products.

In contrast to Pacific Sunwear's turnaround story, Wet Seal slipped further into the red as its loss widened to $0.12 per share from $0.11 in the same period last year. This was primarily due to flat comps and a decline in revenue to $127.7 million from $135.5 million in the prior-year period.

As if this was not enough, the company issued weak guidance for the fourth quarter, and this was enough to wipe off the year-to-date gains that the stock had seen. Wet Seal expects a net loss in the range of $0.14 to $0.17 per share on revenue in the range of $134 million to $137 million. In addition, comps are expected to decline in the high-single to low-double digits .

Takeaway
Pacific Sunwear has been turning around, but I would rather wait for the company to get back into the black. Meanwhile, Wet Seal is in a tough situation. It looks like Zumiez is the best-positioned of the three apparel companies here, and it is the only one which shows a profit. Its strategies look sound and its omni-channel focus should result in strong gains.

Also, Zumiez is relatively cheap at a P/E ratio of 17.63 when compared to its expected earnings compound annual growth rate of 15% for the next five years. All said, Zumiez is performing well in a tough retail environment, and this should continue.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Zumiez Inc. Stock Quote
Zumiez Inc.
ZUMZ
$31.63 (0.41%) $0.13

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
331%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/20/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.