Zumiez Inc. (ZUMZ Quick QuoteZUMZ ) reported stellar second-quarter fiscal 2021 results wherein both its top and the bottom line increased year over year while the latter surpassed the Zacks Consensus Estimate.
Results were backed by the company’s solid efforts to meet robust demand for the distinct merchandise offering. Higher-than-expected full-priced selling helped offset a portion of costs, which were reintroduced following the temporary cost savings in the prior fiscal year when the pandemic was at its peak. The company is also steadily benefiting from its one-channel concept, which is effectively catering to the changing consumer needs. This includes ideas, such as the company’s in-store fulfillment capabilities, comprising Zumiez delivery.
Management highlighted that this year’s results mirror a shift to a greater historical mix between the company’s store and digital channels as customers strongly turned to physical shopping. Also, the third quarter commenced on a promising note.
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Shares of this Lynnwood, WA-based company have gained 7.7% year to date compared with the industry’s growth of 3.5%.
Results in Detail
Zumiez posted adjusted quarterly earnings of $1.02 per share that surpassed the Zacks Consensus Estimate of 84 cents. The bottom line increased a penny from the comparable quarter’s figure of the last fiscal year and was up significantly from 36 cents recorded in the second quarter of fiscal 2019.
Although total net sales of $268.7 million missed the Zacks Consensus Estimate of $281 million, the same jumped 7.3% from the year-ago period’s figure. This year-over-year growth was buoyed by the reopening of stores, efforts to cash in on the current trends and gains from the domestic economic stimulus on the business. Additionally, net sales improved 17.6% from the second-quarter fiscal 2019 number. From the second-quarter fiscal 2019 tally, comparable sales grew 16.6%.
During the reported quarter, the company’s stores were open for about 96% of the potential operating days compared with 73% in the year-earlier quarter and 100% in the second quarter of 2019. Zumiez witnessed significant pandemic-related store closures during the quarter in Canada, Australia and Europe, opened for roughly 68%, 77% and 88%, respectively, of the available operating days.
Zumiez Inc. Price, Consensus and EPS Surprise
Zumiez Inc. price-consensus-eps-surprise-chart | Zumiez Inc. Quote
Regionwise, net sales at North America rose 6.3% year over year and 14.8% from the fiscal 2019 level to $237.5 million. Other international net sales, comprising Europe and Australia, grew 15.7% from last-year levels and 45.1% to $31.1 million from the reading taken two years ago. Excluding the impacts of foreign currency woes, North America net sales jumped 5.8% year over year and other international net sales improved 7.6%. Categorywise, men’s was the largest growth category in the quarter followed by accessories and footwear. Hardgoods was the worst performing category followed by women’s.
Gross profit increased 15.5% year over year and 36% from the second-quarter fiscal 2019 reading to $105 million. Gross margin also expanded 280 basis points (bps) year over year and 530 bps from the fiscal 2019 tally to 39.1%. The year-over-year expansion in gross margin was mainly aided by a 170-bps decline in web shipping costs on lower web sales year over year, a 100-bps jump in product margin and a 70-bps improvement in inventory shrinkage. These were somewhat offset by a 60-bps rise in distribution and inbound shipping expenses.
We note that SG&A expenses escalated 26.5% year over year to $73 million during the quarter under review. As a percentage of sales, SG&A expenses increased 410 bps year over year to 27.2%. Consequently, the company reported an operating profit of $32 million, down 3.3% year over year while operating margin was down 130 bps year over year to 11.9%.
Financial & Other Updates
As of Jul 31, 2021, this presently Zacks Rank #2 (Buy) company had cash and current marketable securities of $412 million compared with $299.1 million as of Aug 1, 2020. The upside was driven by cash provided through operations, offset by capital expenditures.
Total shareholders’ equity at the end of the quarter stood at $594.3 million. The company had no debt at the end of the fiscal second quarter and maintained a fully unused credit line of $35 million. It ended the quarter with $149.4 million inventory, up 17.9% year over year.
For fiscal 2021, capital expenditures are projected in the band of $22-$24 million compared with $9.1 million in fiscal 2020. Most of the capital will be spent on store openings and planned remodels.
During the fiscal second quarter, management bought back 0.2 million shares for $10.9 million. In the third quarter through Sep 7, 2021, the company repurchased 0.5 million additional shares worth $20.5 million. This brings the current fiscal year-to-date share repurchases to 0.7 million shares for $31.4 million.
As of Aug 28, 2021, Zumiez operated 727 stores including 603 in the United States, 52 in Canada, 55 in Europe and 17 in Australia. In fiscal 2021, management intends to open 25 stores comprising about eight in North America, 12 in Europe and five in Australia. Simultaneously, it plans to close nearly five to six outlets during the fiscal year.
Management cited that the fiscal third quarter is off to a strong start owing to a more normalized back-to-school shopping season. It expects to maintain a strong momentum heading into the holidays, given the flexibility of its business model.
Zumiez provided details for the fiscal third quarter. The third quarter-to-date total sales for the 37 days ended Sep 6, 2021 climbed 23.2% from the same-period level ended Sep 7, 2020. Also, total net sales rose 6.7% from the same-period reading in fiscal 2019. Total comparable sales for the 37-day period grew 10.5% year over year and 5.4% from the number achieved in the comparable period of fiscal 2019. From a category point of view, men’s continued to be the largest positive category followed by accessories, footwear and women’s. However, hardgoods was the negative category.
During the third quarter through Labor Day, total sales increased 23% year over year and 7% from the same-period level of 2019.
Management did not issue any specific guidance for the third quarter of fiscal 2021 or the full fiscal, given the fast-moving nature of the ongoing situation and its volatile impacts on revenues and costs. It expects surpassing fiscal 2020 sales levels in the second half of fiscal 2021 despite tougher comparisons and greater competition for discretionary spend.
With the majority of school districts around the nation resuming in-person learning, the company sees a greater normalized start to the back-to-school season, which is likely to provide a solid momentum to the fiscal third quarter.
For fiscal 2021, management projects net sales to increase between high teens and over 20% from the fiscal 2020 level and in low-mid teens from the fiscal 2019 reading. For the back half, it anticipates sales growth above the 2020 levels. For both the third and the fourth quarter of fiscal 2021, management forecasts sales growth in the mid- to high-single digits from the fiscal 2020 tally.
The fiscal 2021 gross margin is likely to grow year over year on leveraged occupancy costs stemming from higher sales and lower shipping costs as web revenues normalize with opened stores and expanded product margins.
SG&A costs are estimated to rise in line with sales growth from the 2020 levels due to numerous reasons, mainly associated with the pandemic. The increase will be on account of store wages and benefit reductions recorded last fiscal as a result of store closures and reduced mall hours, which are not likely to repeat this fiscal, absence of governmental subsidies received in 2020, higher incentive compensation and other discretionary accruals, elevated marketing events and other related spending, and higher travel costs in the back half of this fiscal year.
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