HOTT Hot Topic, Inc. (MM)

Comparable store sales (comps) of Zumiez Inc. (ZUMZ) – the Washington-based retailer of sports-related teen apparel – increased 2.6% for the 5-weeks ended Feb 2, 2013, compared with an increase of 11.1% in the 5-weeks ended Feb 4, 2012. Net sales for the period surged 57.9% to $50.3 million from $31.8 million reported in the year-ago period.

Further, the company’s comps for the fourth quarter, ended on Feb 2, 2013, edged down 1.0% due to weak performance during the holiday selling season. However, for fiscal 2012 comps improved 5.0%.

On the other hand, the company’s primary competitor, Hot Topic Inc. (HOTT) posted healthy results for the fourth quarter ended Feb 2, 2013. Hot Topic recorded comps increase of 2.6% for the quarter, compared with a rise of 1.9% in the fourth quarter of fiscal 2011. The company’s net sales increased 11.0% year over year to $233.0 million.

During Nov and Dec 2012, Zumiez’s total revenue reached $53.6 million and $120.3 million, respectively. Therefore, the company’s total sales for the fourth-quarter came to $224.2 million, which is above its guidance range of $218.0–$221.0 million.

Bolstered by better-than-expected sales, the company raised its earnings expectation for the fourth quarter. It now anticipates earnings to be between 65 cents and 66 cents per share, up from earlier guidance range of 59–62 cents. The current Zacks Consensus Estimate is pegged at 67 cents per share, which is penny above the company’s upper-end of the guidance range.

We believe that the company’s well-balanced store expansion and e-commerce strategies will drive its top line further. Following the footsteps of its competitors such as Abercrombie & Fitch Company (ANF) and Foot Locker, Inc. (FL), Zumiez is targeting to augment its store network to 600–700 stores in the long run. As of Feb 2, 2013, the company was operating 500 stores.

Moreover, the recent acquisition of Blue Tomato facilitated Zumiez to tap the European market. Steps like this provide the company with a solid platform to effectively capitalize on the emerging opportunities.

Though the company’s overall performance and store expansion strategies are well appreciated, there is slight apprehension surrounding its future comparable-store sales performances following the recent weak comps growth.

Based on such mixed prospects, Zumiez currently carries a Zacks Rank #3 (Hold). Dealing in action sports-related apparel, footwear, equipment and accessories, Zumiez targets young men and women in the 12–24 year age group, who seek popular lifestyle brands centered on extreme sports activities.

 
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