Will Zumiez's Growth Initiatives Continue to Yield Results? - Analyst Blog

Zumiez Inc. (ZUMZ), a mall-based specialty retailer of action sports related apparel, footwear, equipment and accessories, has created a distinct niche for itself in the market by offering action sports merchandise to young adults aged 12 and 24 years.

Driven by strong top-line performance on the back of a splendid back-to-school season in the U.S. and an excellent start to the fall and winter seasons, the company posted solid earnings results for third-quarter fiscal 2014, with a positive earnings surprise of 7.7%.

With these results, this Zacks Rank #3 (Hold) company has now surpassed the Zacks Consensus Estimate 23 times in the past 24 quarters. We expect the company to keep up this trend of posting positive earnings surprises going forward, based on its focus on boosting productivity at existing stores, developing a leading omni-channel platform and enhancing its presence, both domestically and overseas.

We also, specifically, remain encouraged with the company's comps performance trend, which has returned to the growth trajectory this year. This is evident from the comps growth of 1.8%, 3.4% and 3.7% witnessed in the first, second and third quarters of fiscal 2014, respectively.

Additionally, the company's comps for November have improved 6.3% mainly due to the continuation of strong trends from the third quarter and solid sales over the Black Friday weekend. Accordingly, the company has also provided an impressive guidance for the fourth quarter, anticipating 3%–4% growth in comps.

Besides, we believe Zumiez's store expansion policy, along with the improvement of its omni-channel capabilities, will help in boosting the company's top and bottom lines. The company remains on track to reach its long-term plan of expanding its store network to 600–700 stores. With the opening of 18 stores in the third quarter, the company has successfully attained its planned target of opening 56 stores in fiscal 2014, bringing the total store count to 602.

However, we remain on the sidelines due to intense competition from its peers, the seasonal nature of its business and risks related to sourcing merchandise from foreign countries, which may undermine the company's results.

Other Stocks to Consider

Other stocks performing well in the apparel-shoe retail space include Pacific Sunwear of California Inc. (PSUN), Shoe Carnival Inc. (SCVL) and Foot Locker Inc. (FL). While Pacific Sunwear and Shoe Carnival carry a Zacks Rank #1 (Strong Buy), Foot Locker holds a Zacks Rank #2 (Buy).

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