Zumiez Inc. upgraded to "positive" on valuation
Attention long-term investors, Zumiez Inc. (Nasdaq: ZUMZ) is on sale. Susquehanna Financial upgraded the action sports-related specialty retailer to “positive” from “neutral” on a positive risk/reward profile.
“With ZUMZ shares off 47% from a 52-week high set in October of this year, and currently trading at a P/E of 23 times our 2008 EPS projection, an 8% discount to the company’s stated minimum 25% per annum EPS growth target, we believe the shares offer a compelling risk/reward profile for longer term investors,” Susquehanna Financial analyst Thomas Filandro wrote in a client note today.
Although macroeconomic overtones are against this small-cap retailer, Filandro says it appears Zumiez’s underlying business is bucking the trend as the company’s Thanksgiving weekend comp jumped 14% to 16%. However, he notes that while shares are trading at a premium valuation to the sector, the shares are susceptible to downside risk if the broader consumer environment weakens further.
Zumiez reported third-quarter results after Thursday’s close in line with the Street and reiterated guidance. For the three months ended Nov. 3, the Everett, Wash.-based company posted net income for the quarter of $8.1 million, or $0.28 per diluted share, compared with $6.8 million or $0.24 per diluted share in the third quarter of 2006. Bottom-line results for the quarter were in line with the Thomson Financial mean estimate.
Total net sales increased 26.5% to $104 million from $82.3 million reported in the third quarter. The consensus on Wall Street, as polled by Thomson Financial was for revenues of $103.8 million.
Comparable store sales increased 13.2% for the third quarter, compared with a 10.7% increase in the third quarter of fiscal 2006.
The company also reiterated its EPS guidance for fiscal 2007 of $0.92 to $0.94. 14 analysts polled by Thomson Financial are on average forecasting $0.94 per share.
Filandro was shrewd to point out, however, that although Zumiez management indicated that the snow category has not only been soft, it carries “incremental risk to earnings” if the winter season does not materialize. The analyst capped that with the statement that any seasonal shortfall should be viewed as “one-time in nature.”
Filandro is maintaining his fourth quarter EPS projection of $0.49 and 2007 EPS estimate remains of $0.94.
Shares of Zumiez (ZUMZ) gained 5.98%, or $1.62, to $28.72 at 1:35 p.m. ET. Shares of Zumiez have been trading in the range of $25.37 to $53.99 for the past 52 weeks.
