Zumiez Inc. ZUMZ released stellar results for the third quarter of fiscal 2021, in which its top and bottom results rose year over year, while the latter exceeded Zacks’ consensus estimate.
The results were supported by Zumiez’s strong efforts to meet strong consumer demand. A strong back-to-school season, driven by strong full-price sales coupled with a robust operating model, further helped results. ZUMZ is confident to drive its growth through its distinct merchandise offering, strong services and a smooth shopping experience.
Shares of the Lynnwood, WA-based player are up 14.7% year-to-date compared to industrygrowth of 13.1%.
Results in detail
Zumiez posted adjusted quarterly earnings of $ 1.25 per share, beating Zacks’ consensus estimate of $ 1.08. The net result improved by 7.8% compared to the figure for the previous year for the comparable quarter and by 66.7% compared to the count for the third quarter of fiscal 2019.
While total net sales of $ 289.5 million did not meet Zacks’ consensus estimate of $ 292.9 million, the same jumped 6.8% from the reading of the period of last year. This year-over-year growth was driven by the reopening of stores, efforts to take advantage of current trends and a very standardized back-to-school period. In addition, net sales improved 9.6% from actual figures for the third quarter of fiscal 2019.
During the current quarter, Zumiez stores were open for approximately 99% of potential operating days, compared to 95% in the previous year quarter and 100% in the second quarter of 2019. Zumiez continued to attend temporary store closures related to the pandemic during the quarter in Australia.
By region, North America net sales increased 7.1% year-over-year and 8% from fiscal 2019 level to $ 257.5 million. Other international net sales including Europe and Australia are up 4.5% from last year’s levels and 25.2% from two years ago at $ 32 million . Excluding the effects of foreign currency fluctuations, net sales in North America jumped 6.8% year-over-year, while other international net sales improved 5%. Category wise, men were the biggest growth category in the quarter, followed by footwear and accessories. Hardgoods were the worst performing category, followed by women.
Gross margin increased 8.4% year-over-year and 21.2% from the third quarter of fiscal 2019 level to $ 114.7 million. The gross margin also increased by 60 basis points (bps) and 380 bps from the full year 2019 figure to 39.6%. The year-over-year expansion in gross margin was primarily aided by a 60 basis point drop in web shipping costs, a 60 basis point decrease in write-downs on rights to operating and leasing assets and a 50 basis point jump in the product margin. The growth was offset somewhat by a 110 basis point increase in inventory contraction.
Selling and administrative expenses jumped 10.2% year-on-year to $ 74.8 million in the quarter under review. As a percentage of sales, selling and administrative expenses increased 80 basis points year over year to 25.8%.
Zumiez said operating profit of $ 39.8 million, up 5% year on year, while operating margin was down 20 basis points year on year to 13.8%.
Financial and other updates
As of October 30, 2021, ZUMZ had cash and current marketable securities of $ 338.1 million, compared to $ 316.2 million as of October 31, 2020. The increase was driven by cash generated by operations, offset by cash flows. capital spending and share buybacks.
Total equity at the end of the quarter was $ 531.7 million. ZUMZ had no debt at the end of the third fiscal quarter and was maintaining fully unused credit facilities. It ended the quarter with inventories of $ 175.1 million, up 8.8% year-on-year.
During the third fiscal quarter, management repurchased 2.2 million shares for $ 91.6 million. In the fiscal fourth quarter through November 30, 2021, Zumiez repurchased 0.4 million additional shares for $ 17.5 million. That brings the buybacks since the start of fiscal 2021 to 2.8 million shares for $ 120 million. For the fourth fiscal quarter, management expects repurchases of nearly 23 million shares.
As of November 27, 2021, Zumiez operated 739 stores, including 607 in the United States, 52 in Canada, 63 in Europe and 17 in Australia. During fiscal 2021, management intends to open 23 stores, of which approximately seven are in North America, 12 in Europe and four in Australia. At the same time, it plans to close around five to six outlets during the current fiscal year.
Fourth Quarter Updates
Management said the fourth fiscal quarter got off to a good start. Zumiez’s consumer-centric strategy, anchored in strong brands, looks encouraging.
Zumiez provided details for the fiscal fourth quarter. Total sales for the fourth quarter of the fiscal year for the 31 days ended November 30, 2021 increased 11.5% from the level for the same period ended December 1, 2020. In addition, total net sales increased by 8.6% compared to the same period in fiscal 2019. Comparable total sales for the current 31-day period increased 8.4% year-over-year and 6.5% % of the number in the comparable period of fiscal 2019. While men were the most important positive category, followed by shoes, women and accessories, material goods continued to be the worst.
Regionally, net sales for the North American operations for the 31-day period increased 7.5% year-over-year, while the metric for other international operations jumped 39%. During the aforementioned period, Zumiez experienced closures in Europe due to the pandemic.
This update assumes the closures of existing stores in Austria, which are expected to reopen by mid-December. This does not include other closures or the impacts of current or future pandemic variants.
Management has not issued any specific indication for the fourth quarter or the full year. Currently Zacks Rank # 4 (Sell) Zumiez continues to witness headwinds in the global supply chain, labor shortages, inflation, closures caused by a pandemic and risks associated with the Omicron variant.
For fiscal 2021, management expects net sales to improve in mid-teens compared to actual fiscal 2019 numbers. This translates into net sales growth over fiscal year levels. previous to just over 20%. Gross margin is likely to grow significantly year over year, supported by increased occupancy costs on higher sales, lower shipping costs and increased product margins. It is estimated that operating margins will increase year over year to achieve low teenage rates as a sales rate.
Additionally, general and administrative expenses are expected to increase alongside sales growth in FY2021 from FY2020 level for a number of reasons, mostly associated with the pandemic. The increase will be due to higher salaries and benefits in stores with increased opening hours in shopping malls thanks to reductions in 2020, government grants received in 2020, high incentive compensation and other provisions. discretionary, higher marketing events and other related expenses, as well as higher travel expenses in the back half of this fiscal year.
For the fiscal fourth quarter, Zumiez expects single-digit sales growth compared to the previous year’s figure published in the comparable quarter. In addition, the gross margin is expected to increase during the same quarter.
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