Stock Story -
Clothing and footwear retailer Zumiez (NASDAQ:ZUMZ) reported results ahead of analysts' expectations in Q3 FY2023, with revenue down 8.9% year on year to $216.3 million. Guidance for next quarter's revenue was also optimistic at $278 million at the midpoint, 5.5% above analysts' estimates. It made a GAAP loss of $0.12 per share, down from its profit of $0.36 per share in the same quarter last year.
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Zumiez (ZUMZ) Q3 FY2023 Highlights:
- Revenue: $216.3 million vs analyst estimates of $213.6 million (1.3% beat)
- EPS: -$0.12 vs analyst estimates of -$0.18 (34.5% beat)
- Revenue Guidance for Q4 2023 is $278 million at the midpoint, above analyst estimates of $263.4 million
- EPS (non-GAAP) Guidance for Q4 2023 is $0.29 at the midpoint, below analyst estimates of $0.41
- Free Cash Flow was -$2.99 million compared to -$19.72 million in the same quarter last year
- Gross Margin (GAAP): 33.8%, down from 34.5% in the same quarter last year
- Store Locations: 771 at quarter end, increasing by 8 over the last 12 months
With store associates called “Zumiez Stash Members”, Zumiez (NASDAQ:ZUMZ) is a specialty retailer of street and skate apparel, footwear, and accessories.
Apparel RetailerApparel sales are not driven so much by personal needs but by seasons, trends, and innovation, and over the last few decades, the category has shifted meaningfully online. Retailers that once only had brick-and-mortar stores are responding with omnichannel presences. The online shopping experience continues to improve and retail foot traffic in places like shopping malls continues to stall, so the evolution of clothing sellers marches on.
Sales GrowthZumiez is a small retailer, which sometimes brings disadvantages compared to larger competitors that benefit from economies of scale.
As you can see below, the company's revenue has declined over the last four years, dropping 3.6% annually despite opening new stores and expanding its reach.
This quarter, Zumiez's revenue fell 8.9% year on year to $216.3 million but beat Wall Street's estimates by 1.3%. The company is guiding for revenue to rise 0.8% year on year to $278 million next quarter, improving from the 19.2% year-on-year decrease it recorded in the same quarter last year. Looking ahead, analysts expect revenue to decline 3.9% over the next 12 months.
Number of StoresA retailer's store count often determines on how much revenue it can generate.
When a retailer like Zumiez keeps its store footprint steady, it usually means that demand is stable and it's focused on improving operational efficiency to increase profitability. Since last year, Zumiez's store count increased by 8 locations, or 1%, to 771 total retail locations in the most recently reported quarter.
Over the last two years, the company has only opened a few new stores, averaging 2.3% annual growth in new locations. This sluggish pace lags the broader sector. A flat store base means that revenue growth must come from increased e-commerce sales or higher foot traffic and sales per customer at existing stores.
Key Takeaways from Zumiez's Q3 Results With a market capitalization of $376.6 million, Zumiez is among smaller companies, but its more than $48.97 million in cash on hand and near break-even free cash flow margins puts it in a stable financial position.
We were impressed by how significantly Zumiez blew past analysts' EPS expectations this quarter. We were also glad this quarter's revenue and next quarter's revenue guidance came in higher than Wall Street's estimates. The company also opened more new stores than expected, which is a tailwind to revenue growth. Zooming out, we think this was a fantastic quarter that should have shareholders cheering. The stock is up 3% after reporting and currently trades at $19.5 per share.
