It's tough to outperform when the bar is set high, which is exactly what Zumiez
Second-quarter net income at Zumiez increased 90% to $3.1 million, or $0.11 per share. Sales zoomed upward 47% to $82 million, driven by strong same-store sales of 11.6%.
It's particularly impressive because things haven't been uniformly great lately for teen retailers, including some that compete directly with Zumiez. A good example is Pacific Sunwear
Zumiez isn't expecting things to slow down, either. It raised its full-year earnings outlook to a range of $0.97 to $0.99 per share from the previous $0.94 to $0.96 guidance. And it's not as though Zumiez doesn't have other things to speak for it. Its balance sheet is cushioned with twice the cash it had stashed away last year at this time. Additionally, the company doesn't have to worry about using up that cash to pay off interest expenses, as the balance sheet remains debt-free.
Investors bid Zumiez down a bit today, but let's not ignore the fact that the stock jumped yesterday, increasing by 8% in a single day. Zumiez is up nearly 90% in just a year. Maybe it's understandable that some investors think they'd better bail before they wipe out, but I can't help but think they might end up regretting that decision.
Tom Gardner recommended both Zumiez and Volcom
I'm not alone in believing both companies take an authentic route to the hearts of board sports enthusiasts, and that's a competitive advantage. Zumiez stores incorporate not only fashion apparel but board sports gear in their merchandise, and hire only people who know the sports to work on the sales floors. Volcom sponsors board sports competitions and has its own music label; these are just a few examples of how these companies set themselves apart from other retailers and brands that target this market niche. It's a little easier to avoid becoming a fad when you're the real deal.
If you look at typical valuation measures for Zumiez, it probably does look scary-expensive, and this stock is sometimes volatile, as premium-priced stocks often are. For example, Zumiez's forward price-to-earnings ratio of 37 probably doesn't strike anybody as particularly appealing, even if the company does have in place a long-term target of 30% earnings growth annually. However, given Zumiez's success so far and what appear to be real competitive advantages, I'd say it's possible that investors who give up now are giving up on a great long-term holding.
Check out this related Foolishness:
- Zumiez zoomed again when it reported same-store sales in July.
- Last quarter, Zumiez got shredded (there's that volatility).
- The quarter before that, Zumiez was nothing to snooze at.