ANF Abercrombie and Fitch Co

We have maintained our long-term Neutral recommendation on Zumiez Inc. (ZUMZ) with a target price of $31.00 per share. Moreover, the quantitative Zacks #1 Rank (short-term Strong Buy rating) for the company indicates no clear directional pressure on the stock over the near term.

Zumiez is a mall-based specialty retailer of action-sports related apparel, footwear, equipment, and accessories. The company targets the youth, both men and women in the age group of 12 to 24 who seek popular brands that symbolize a lifestyle representing extreme sports.

Furthermore, the company’s stores are strategically located in busy areas of the mall, such as food courts, movie theatres and music/game stores, which are typically frequented by the company’s target customers.

Moreover, Zumiez is currently in the early phase of its store expansion program and plans to enlarge its network by opening 44 new stores during fiscal 2011, including its first store in Canada. Additionally, in the recent years, Zumiez has launched stores averaging 3,000 square feet, enabling it to offer extended merchandise without compromising on the store ambience. These initiatives provide the company with a strong platform to effectively capitalize on the emerging opportunities.

Additionally, strong merchandising, new stores, effective ecommerce strategies and better margins define Zumiez’s performance.

However, Zumiez’s operations are seasonal in nature and typically generate stronger sales during third and fourth quarters, which are characterized by the back-to-school and holiday seasons. As a result, the company is exposed to significant risks if the seasons fail to deliver expected operating performance.

Above all, the company operates in a highly fragmented specialty retail sector and faces intense competition from larger teenage-focused retailers, such as Abercrombie & Fitch Company (ANF). Furthermore, Zumiez also competes with large-format sporting goods stores, such as Big 5 Sporting Goods Corporation (BGFV) and Dick’s Sporting Goods Inc. (DKS) as well as local snowboard and skate shops. Being in such a competitive industry, Zumiez may find it difficult to execute and implement new business strategies.

 
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