Zumiez stock shows improvement, but upside potential limited - Seaport Global

Wednesday, Seaport Global Securities maintained a Neutral rating on Zumiez Inc . (NASDAQ:ZUMZ) stock following an assessment of the company’s sales performance and future outlook.

The retail company's second-quarter performance showed sequential improvement in sales and same-store sales (SSS), particularly in North America and other international markets.

Zumiez reported that its sales for the second quarter to date were stronger than in the first quarter of 2024, with an encouraging trend continuing into the early third quarter. The company provided a sales range for the second quarter that suggests slightly stronger growth than what was observed in the first four weeks.

However, when adjusting for the calendar shift, the guidance appears conservative, indicating less growth expected for the remainder of the quarter.

According to data from Bloomberg Second Measure, Zumiez’s observed sales growth for the second quarter, on a 4-5-4 calendar basis, surpassed that of the first quarter. The company ended the second quarter on a strong note, attributed to the commencement of the back-to-school season, and this momentum has extended into the early third quarter.

For the fiscal year 2024, Zumiez has not provided specific guidance but has expressed confidence in its ability to grow sales and product margins, as well as leverage selling, general, and administrative expenses (SG&A). Seaport Global is modeling second-quarter results at the high end of the company's plan, suggesting that the actual performance may be even better.

Despite the positive trends, Seaport Global indicates that it is challenging to become more constructive on Zumiez shares at the current levels. To justify upgrading to a Buy rating, the firm notes that a price target of at least $33 and fiscal year 2026 earnings per share (EPS) of nearly $2 would be required, thresholds that have not yet been reached.

In other recent news, Zumiez Inc. has been making significant strides in its operations. The company reported first-quarter earnings that surpassed consensus expectations on sales, adjusted EBITDA, and adjusted EPS, despite a 3% decrease in sales from the same quarter last year.

Analyst firms Jefferies and B.Riley have maintained their hold and neutral ratings on Zumiez respectively, while raising their price targets following the company's strong performance.

Zumiez's sales dip was most pronounced in North America, while international operations, particularly in Europe, experienced a sharper decline. However, the company's private label expansion contributed positively to gross margins. The company has provided second-quarter guidance that anticipates sales to be above, operating margin in line, and earnings per share below consensus estimates.

The company is shifting its focus towards profitability in its North American and European operations. Zumiez plans to open 10 new stores and close 20 to 25 stores, mainly in North America, in 2024. These are among the recent developments in Zumiez's business strategy.

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