On Friday, B.Riley updated its stance on Zumiez Inc . (NASDAQ:ZUMZ) shares, raising the price target to $20.00 from the previous $16.00 while maintaining a Neutral rating.
The adjustment follows the company's first-quarter earnings report, which surpassed consensus expectations on sales, adjusted EBITDA, and adjusted EPS.
Despite a 3.0% decline in sales from the same quarter last year, Zumiez's performance indicated resilience in a challenging economic landscape marked by inflationary pressures and heightened competition for consumer discretionary spending.
The retailer's sales dip was most pronounced in North America, with a marginal 0.9% decrease from the first quarter of 2023, while comparable sales saw a slight 0.3% uptick. International operations, particularly in Europe, experienced a sharper decline of 10.8%, with comparable sales falling by 13%.
The company's private label expansion, which grew significantly as a percentage of 2023 sales, contributed positively to gross margins.
Zumiez reported a gross margin increase of 230 basis points, bolstered by a combination of product margin improvement, reduced shipping costs, and operational efficiencies.
However, selling, general, and administrative (SG&A) expenses increased, leading to a 190 basis point deleverage. This was attributed to factors such as incentive compensation, employee training timing, non-store wages, and store wage increases.
Looking ahead, Zumiez provided second-quarter guidance that anticipates sales to be above, operating margin in line, and earnings per share below consensus estimates.
The company is emphasizing profitability in its North American and European operations, shifting away from a growth-centric approach in Europe.
Despite persistent headwinds from inflation and fashion trends, Zumiez's differentiated culture and merchandise content may signal a potential inflection point in its performance metrics.
In other recent news, Zumiez Inc. reported a slight year-over-year decrease in total sales for the first quarter of fiscal 2024, with figures reaching $177 million, a 3% dip compared to the previous year.
Despite this, the company's sales and earnings per share outperformed their own high-end guidance. The North American market has shown strength, with an increase in comparable sales in both men's and women's categories.
Moving forward, Zumiez plans to focus on fresh product offerings, expand their Private Label brand, and enhance profitability in Europe through full price selling and optimized store and web operations.
The company closed the quarter with a strong balance sheet, no debt, and plans that include store closures, labor optimization, and a new stock repurchase program.
Zumiez anticipates a 2.5% to 5% increase in Q2 sales with a slight increase in product margins. However, they project a Q2 operating loss between -4.5% to -3% and a loss per share of -$0.30 to -$0.40.
The company also 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.
InvestingPro Insights
In light of Zumiez Inc.'s (NASDAQ:ZUMZ) recent performance and B.Riley's updated price target, insights from InvestingPro provide additional context for investors. Zumiez's liquid assets currently exceed its short-term obligations, suggesting a sound liquidity position which can be crucial for navigating the current economic landscape. Additionally, the company operates with a moderate level of debt, which could afford it some flexibility in its operations and investment strategies.
InvestingPro data highlights a challenging period for Zumiez, with a negative P/E ratio of -5.94, reflecting the company's lack of profitability over the last twelve months as of Q4 2024. However, analysts predict the company will be profitable this year, which may align with B.Riley's outlook and the price target increase. Another positive sign is Zumiez's strong return over the last three months, showing a 19.88% price total return, which could suggest investor confidence in its turnaround potential.
For those interested in a deeper dive into Zumiez's financial metrics and future outlook, there are additional InvestingPro Tips available on https://www.investing.com/pro/ZUMZ. Moreover, readers can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking further valuable insights to inform their investment decisions.
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