ANF Abercrombie and Fitch Co

Zumiez Inc. (ZUMZ) reported robust fourth-quarter 2011 result on March 8, 2012. The Wall Street analysts had almost a week to ponder on the earnings results and eventually make their estimates revision. In the subsequent paragraphs, we will cover the results of the recent earnings announcement, estimate revisions by analysts as well as the Zacks Rank and long-term recommendation on the stock.

Earnings Report Review

Zumiez posted quarterly earnings of 60 cents per share, ahead of the Zacks Consensus Estimate of 59 cents and surged 22.4% from 49 cents in the prior-year quarter.

Net sales climbed 17.7% to $183.9 million from $156.2 million a year ago. Comparable store sales rose 9.7% in the quarter compared with an increase of 13.0% in fourth-quarter 2010. Moreover, total revenue also surpassed the Zacks Consensus Estimate of $182 million.

(Read our full coverage on this earnings report: Zumiez Beats by a Penny)

Earnings Estimate Revisions- Overview

Following the earnings announcement, estimates for Zumiez displayed an uptrend, reflecting that the analysts are optimistic on the company. Let’s get into the details of the earnings estimate.

Agreement of Estimate Revisions

Clearly, a positive sentiment is evident among analysts, signifying that they are hopeful on the company’s future earnings outlook. In the last seven days, of the 17 analysts covering the stock, 14 have raised estimates for fiscal 2012, while none lowered the same. Looking out to fiscal 2013, 6 analysts raised their earnings estimates, while none moved in the opposite direction. 

The upward revision signifies that the analysts remain positive about the upcoming quarters as the company’s focus on teenage action-sport based merchandise, commitment toward store expansion and a healthy balance sheet position it well to deliver strong results.  

Turning to the current quarter, analysts’ remained optimistic on the stock as 6 analysts raised their estimates, while 1 lowered the same in the last seven days.

However, as the operations of the company are seasonal in nature and typically generates strong sales during third and fourth quarters, hence, 5 analysts made a downward revision, while 2 moved in the opposite direction for second-quarter 2012.

Magnitude of Estimate Revisions

In the last 7 days, the Zacks Consensus Estimate for fiscal 2012 and 2013 increased by 3 cents and 4 cents to $1.43 and $1.63, respectively.

However, estimates have not changed for first-quarter 2012. The Zacks Consensus Estimate remained stable at 8 cents, and for the second-quarter 2012, it inched down by a penny to 9 cents a share in the last 7 days.

The current Zacks Consensus Estimate for first-quarter 2012 is pegged from a low of 7 cents to a high of 10 cents. For fiscal 2012, the estimates range from $1.38 to $1.48.

Our View

Zumiez targets youth, who seek popular brands that symbolize a lifestyle representing extreme sports. Keeping it in mind, 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.

The company’s new stores enable it to offer extended merchandise without compromising on the store ambience. These initiatives provide a strong platform to effectively capitalize on the emerging opportunities.

The company’s strong focus on merchandising, implementing effective ecommerce strategies and better cost control measures drive margins while boosting bottom-line results.

However, 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 new business strategies.

Currently, we maintain a long-term ‘Neutral’ recommendation on Zumiez. Moreover, the company holds a Zacks #1 Rank, which translates into a short-term ‘Strong Buy’ rating.

About Earnings Estimate Scorecard

As a PhD from MIT, Len Zacks 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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