Why There's No Need To Keep Buying Zumiez

In a report published Wednesday, B. Riley analyst Jeff Van Sinderen downgraded the rating on

from Buy to Neutral, while reducing the price target from $35 to $30. "We continue to believe that ZUMZ is a differentiated concept, with strong management and longer-term potential for margin recovery," analyst Jeff Van Sinderen said, while adding that the earlier Buy rating reflected that denim would be "a substantial contributor" to Zumiez's performance in the back half of the year. "Given a slow start/late b-t-s and a dearth of newness in other apparel categories to drive ZUMZ' comp for b-t-s this year (especially compared to LY), we are concerned that the promotional backdrop in the denim classification could steal some of ZUMZ "thunder,"" Sinderen wrote. Although the fundamental headwinds do appear to be better priced into the stock, "the way that b-t-s is unfolding raises some concerns relevant to the outlook for comp/margin stabilization that we had previously modeled for ZUMZ in 2H," the Morgan Stanley report stated. "Further, we note recent multiple contraction in the space for companies without clear near-term catalysts for upside, which now seem tougher to confidently argue for at ZUMZ," Sinderen mentioned, while adding that comps would become "increasingly challenging" in the back half of 2015 and there was a "lack of identifiable drivers for near-term comp/margin stabilization." The EPS estimate for FY15 has been reduced from $1.61 to $1.52.