Zumiez: Zacks’ Bear of the Day Play

The traditional retail apparel segment continues to lose customers to online market giants like Amazon.com, Alibaba.com, and even Walmart.com.   These online behemoths are dominating the market and squeezing out the more traditional brick and mortar stores.  While these retail stores are building out their online presence, it looks to be too little too late.  The online giants are eating into the profit margins of stores like Zumiez (ZUMZAnalyst Report) , who is the Zacks Bear of the Day.

This Zacks Rank #5 (Strong Sell) is a leading specialty retailer of action sports related apparel, footwear, equipment and accessories. Their stores cater to young men and women between ages 12-24, focusing on skateboarding, surfing, snowboarding, motocross and BMX.

Q1 Earnings Below Expectations

In their most recent earnings report, the company posted year over year Q1 (ending April 30) losses in net sales -2.6%, comparable sales -7.5%, and posted a net loss of $2.1 million after posting a net gain of $2.8 million in Q1 15.  To add to the company’s recent difficulties, management stated that May 2016 net sales fell -2.9%, and the company’s comparable sales fell -7.6%.

Because of the less than expected sales numbers, management decreased Q2 16 guidance for comparable sales to a range from -6% to -8%, which was below expectations of -2%.  Further, management guided down EPS for Q2 from an expected $0.06 to a range of -$0.09 to -$0.13.

According to Rick Brooks, CEO, “While our monthly comparable sales trends improved as the quarter progressed, the quarter was more challenging than expected. We did experience pockets of strength within our merchandise assortments, however it wasn’t enough to offset the general weakness in consumer demand for our major categories. During this period of instability for the retail industry, we are taking actions aimed at preserving near-term profitability while continuing to make the necessary investments in the business to best position the company for future success. We remain confident that we have the right strategies in place to capitalize on the domestic and international growth opportunities that lie ahead and return greater value to our shareholders over the long-term.”

Price and Consensus Graph

As you can see in the price and consensus graph below, earnings estimates, and price levels have been dropping since the first quarter 2015.

Declining Estimates

Due to the poor Q1 performance, and subsequent downgrade in guidance, earnings estimates for Q2 16, Q3 16, FY 16 and FY 17 have all seen negative revisions over the past 30 days.  Q2 16 fell from $0.07 to -$0.10, Q3 16 dropped from $0.40 to $0.32, FY 16 slipped from $0.99 to $0.75, and FY 17 tumbled down from $1.18 to $0.97.

Bottom Line

The retail apparel segment has been struggling for quite some time now, and the increased competition by the likes of Amazon, and other online retailers is making it difficult for brick and mortar stores to post profits of late.

If you are inclined to invest in the Retail-Apparel/Shoe segment, it would be wise to look into Christopher & Banks Corp (CBKSnapshot Report) , currently carrying a Zacks Rank #1 (Strong Buy), Childrens Place (PLCESnapshot Report) , currently carrying a Zacks Rank #2 (Buy), or Destination XL (DXLGSnapshot Report) , who also holds a Zacks Rank #2 (Buy).

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