Zumiez Focuses on Diversifying Brand Portfolio and Expanding Private-Label Products to Drive Growth
In an effort to strengthen its market position, Zumiez Inc. (ZUMZ) is focusing on diversifying its brand portfolio and expanding its private-label products. The company's strategy aims to drive growth by increasing sales and improving profitability. As part of this initiative, Zumiez has been closing underperforming stores in North America, reducing shipping and logistics costs, and implementing cost-optimization initiatives.
Strategic Cost Management Key to Success
In addition to growing its revenues, Zumiez is focusing on cost-optimization initiatives. The company has closed 31 underperforming stores in North America, resulting in a gross profit increase of 7% to $78.3 million and an improvement in gross margin by 140 basis points to 35.2%. Reduced reliance on discounting has further supported profitability.
Strong Operational Momentum Expected
On its last earnings call, Zumiez expected total sales for the fourth quarter between $284 million and $288 million, indicating growth of 0.7-2.2% from the previous year. The company guided comparable sales growth of 6-7.5% for the 13 weeks ending Feb. 1, 2025, demonstrating strong operational momentum.
Guidance for Fiscal 2024
Zumiez anticipates sales growth in fiscal 2024 and plans to leverage its selling, general and administrative (SG&A) costs more effectively compared with the prior year, further supporting its operational efficiency. For fiscal 2024, management guided total sales growth of 2-2.5%. Despite tailwinds, shares of this Zacks Rank #3 (Hold) company have been struggling on bourses declining 15.3% in the past three months against the Retail-Apparel and Shoes industry's 13.9% growth.
Softness in International Sales a Concern
Despite a strong performance in North America, softness in international sales, particularly in Europe, remains a concern. International comparable sales dropped 5.6% in the third quarter, following a 7.6% decline in the second quarter and a 10.8% fall in the first quarter.
Margins Remain Critical Area to Monitor
In the last reported quarter, SG&A expenses rose 20 basis points as a percentage of net sales. Potential concerns stemming from any deleverage in SG&A rate make margins a critical area to monitor.
Better-Ranked Stocks to Consider
Some better-ranked stocks in the Retail-Apparel and Shoes industry include The Gap, Inc. (GAP), Abercrombie & Fitch Co. (ANF), and Deckers Outdoor Corporation (DECK). These companies have demonstrated strong operational momentum and are expected to deliver growth in fiscal 2025.
Gap
Gap is a premier international specialty retailer offering a diverse range of clothing, accessories, and personal care products. It presently flaunts a Zacks Rank #1 (Strong Buy). The company has delivered a trailing four-quarter average earnings surprise of 101.2%.
Abercrombie & Fitch Co.
Abercrombie is a specialty retailer of premium, high-quality casual apparel. It sports a Zacks Rank of 1 at present. The company has delivered a trailing four-quarter average earnings surprise of 14.8%.
Deckers Outdoor Corporation
Deckers is a leading designer, producer, and brand manager of innovative, niche footwear and accessories. It currently carries a Zacks Rank of 2 (Buy). The company has delivered a trailing four-quarter average earnings surprise of 41.1%.