ANF Abercrombie and Fitch Co

Recently, specialty retailer Zumiez Inc. (ZUMZ) announced its financial results for the first-quarter 2011.

Street analysts had nearly a week to ponder on the news. In the paragraphs that follow, we cover the recent earnings announcement, subsequent analysts’ estimate revisions as well as the Zacks Rank and long-term recommendation on the stock.

Earnings Review

Zumiez reported first-quarter earnings of 6 cents a share, beating the Zacks Consensus Estimate of 2 cents a share. The company also outpaced a loss of 3 cents a share incurred in the first quarter of fiscal 2010. Net income from operations was $1.9 million compared with a loss of $0.7 million in the prior-year quarter.

Net sales in the reported quarter increased 18.8% year over year to $105.9 million from $89.1 million a year ago. Comparable store sales rose 12.6% in the quarter compared with an increase of 9.1% in first-quarter 2010. Total revenue beat the Zacks Consensus Estimate of $101 million.

(Read our full coverage on this earnings report: Zumiez Thrives, Reverses Loss)

Agreement of Estimate Revisions

Attributable to the reasonably good performance in the quarter, analysts exhibit a positive sentiment regarding Zumiez’ 2011 and 2012 outlook. Out of 21 analysts covering the stock, 17 have revised their estimates for 2011 upward, while none moved in the opposite direction in the last 7 days. For fiscal 2012, out of 19 analysts, 13 analysts have positively revised their estimates with no downward movement in the last 7 days.

Estimates nevertheless followed a more modulated trend for the second quarter of fiscal 2011. For the current quarter, 7 of the 20 analysts have increased their estimates over the last 7 days, compared with 1 negative adjustment.

Magnitude of Estimate Revisions

As a result of the bullish sentiment seen among analysts over the past one week, the Zacks Consensus Estimate for fiscal 2011 has moved up by 4 cents (from $1.07 to $1.11), while the 2012 Consensus Estimate increased by 3 cents to $1.31. Meanwhile, for the second quarter of 2011, the Consensus Estimate has increased by 1 cent (from 4 cents to 5 cents) in the last 7 days.

Our Recommendation

Zumiez is a mall-based specialty retailer of action-sports related apparel, footwear, equipment, and accessories. The company targets young men and women in the age group of 12 to 24 years who seek popular brands that represent a lifestyle centered on extreme sports activities. Furthermore, the company’s stores are strategically located in busy areas of the mall, such as food courts, movie theaters and music/game stores, which are typically frequented by the company’s target customers.

We expect Zumiez’ focus on teenage action-sports based merchandise and expanding store network to deliver solid performance in the upcoming quarters. However, intense competition from other specialty retailers, seasonal nature of the business and risks associated with sourcing merchandise from foreign countries might weigh on the company’s results.

The company operates in a highly fragmented specialty retail sector and faces intense competition from larger teenage-focused retailers such as Abercrombie & Fitch Co. (ANF), Aeropostale Inc. (ARO) and American Eagle Outfitters Inc. (AEO).

We maintain our long-term “Outperform” recommendation on Zumiez. The quantitative Zacks #1 Rank (short-term Strong Buy rating) for the company indicates upward directional pressure on the stock over the near term.

About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/

 
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