ANF Abercrombie and Fitch Co

Recently, specialty retailer Zumiez Inc. (ZUMZ) announced its financial results for the second-quarter of 2011. Street analysts had nearly a week to ponder on the news. In the subsequent paragraphs, we cover the recent earnings announcement, analysts' estimate revisions as well as the Zacks Rank and long-term recommendation on the stock.

Earnings Review

Zumiez posted earnings of 8 cents a share for second-quarter 2011, beating the Zacks Consensus Estimate of 5 cents a share. The company also outpaced earnings of 2 cents a share posted in the second quarter of fiscal 2010. Net income from operations was $2.6 million compared with $1.9 million in the prior-year quarter.

Net sales in the reported quarter increased 14.9% year over year to $112.2 million from $97.7 million a year ago. Comparable-store sales rose 7.5% in the quarter compared with an increase of 9.3% in second-quarter 2010. However, total revenue fails to meet the Zacks Consensus Estimate of $152.0 million.

Guidance

For the third quarter of 2011, management expects comparable-store sales to increase in the low-single-digit range and net income to come in a band of 37 cents to 39 cents per share.

(Read our full coverage on this earnings report: Zumiez Beats EPS, Misses Sales)

Agreement of Estimate Revisions

Despite better quarterly performance, Estimate Revision trends for the upcoming third and fourth quarter of fiscal 2011 portrayed negative sentiments among the analysts. Over the last 7 days, 17 out of 19 analysts revisited their estimates for third-quarter 2011 and all have adjusted it in downward direction. While for fourth-quarter 2011, 15 analysts revisited their estimates and all have downgraded it.

Further, for fiscals 2011 and 2012, analysts have negative sentiments. For fiscal 2011, 15 out of 19 analysts revisited their estimates, of which only 2 analysts have upgraded and 13 have lowered it, over the last 7 days. Similarly, 12 analysts following the stock revisited their estimate over the last 7 days for fiscal 2012, and all have lowered their estimates.

Magnitude of Estimate Revisions

As a result of the bearish sentiment seen among analysts over the past one week, the Zacks Consensus Estimate for fiscal 2011 has moved down by 5 cents (from $1.11 to $1.06), while the 2012 Consensus Estimate decreased by 5 cents to $1.26.

Meanwhile, for the third quarter of 2011, the Zacks Consensus Estimate has decreased by 5 cent (from 44 cents to 39 cents) in the last 7 days. While for fourth-quarter 2011, the Zacks Consensus Estimate has been lowered by 3 cents from 55 cents to 52 cents per share.

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.

We expect Zumiez' to focus on teenage action-sports based merchandise and expand 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 Neutral recommendation on Zumiez. The quantitative Zacks #4 Rank (short-term Sell rating) for the company indicates downward 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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