By IB Times Staff Reporter: Subscribe to IB's RSS feed
September 2, 2010 1:37 PM EDT
Caris & Co. upgraded rating of specialty apparel retailer Zumiez Inc. on Thursday to ‘buy’ from ‘above average’ with a price target of $25, based on the continued momentum in sales at a time when many retailers are struggling with topline growth as well as an improving competitive picture.
“Zumiez now has 9 months of positive comps under its belt, with strong August comps starting off third quarter on a zippy note, piling up more evidence that its more value-oriented approach has momentum. Plenty of operating margin improvement exists, with operating margin at an estimated 6.8 percent for 2010 compared to management’s goal of low double digits to low teens,” said Dorothy Lakner, an analyst at Caris.
At 396 stores, Zumiez is one of the few teen retailers with growth in its core business, a strong management team, unique concept and a strong balance sheet that boasts $91 million in cash and equivalents (about $3.00 per share) and no debt, Caris said in a report to clients.
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The analyst said Zumiez’s August comps rose 9.1 percent versus down 12.1 percent, better than his comp estimate of 7 percent and the Street’s estimate of 7.5 percent.
Weekly comps were again very consistent throughout the month, with up 7.2 percent, 9.8 percent, 8.9 percent and 10.3 percent respectively for the four weeks. Though BTS selling continues into September, August is the biggest month in third quarter, Caris said.
The analyst said accessories and men’s (50 percent of sales) were the main drivers of positive comp in August, but footwear, hard-goods (first time since first quarter if 2008) and boys were also positive. Juniors segment remained slightly negative, but is only about 10 percent of Zumiez’s sales.
The analyst said Zumiez continues to get more customers in the door and buying as higher transactions once again drove the strong comp. Both average unit revenue (reflecting better values offered) and to a lesser degree units per transactions were down.
“Zumiez also filed an 8-K/A in conjunction with a tentative agreement for the settlement of a previously disclosed lawsuit that requires restating its second quarter earnings for a $0.04 charge. Given the extraordinary nature of the item, we are excluding it from our numbers,” said Lakner.
For third quarter, Zumiez had provided guidance for sales of $124 million to $127 million and comps of 4 percent to 6 percent. EPS was guided to $0.21 to $0.24 with an operating margin of 8 percent to 9 percent. Given the stronger start to third quarter, the analyst’s third quarter remains at $0.26 and his 2010 and 2011 estimates remain $0.66 and $0.95 respectively.
Zumiez shares were trading up 4.75 percent at $16.76 on the Nasdaq in the pre-market session.
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