A Red Light for Zumiez
By John Mylant, founder and CEO of OptionsWeekly.Org
I made the chart below using the company's reported yearly revenue. It clearly shows shows steady growth for the last four years at this retailer of clothing aimed at skateboarders and snowboarders.
Meanwhile, net income has continued to increase as a percentage of revenue. In 2009, net income was 2.24% of annual revenue. By 2012 it was 6.35%. This appears healthy, but at the same time, same-store sales have been declining as my chart below shows. (Note that 2012 is on the left.) This metric tracks sales at stores that have been open for at least a year. Generally speaking, a rise or fall in same-store sales can be caused by rising/falling prices or because of the number of customers that frequent the store. New competitors could have entered the market, causing customers to frequent others stores. If we take same-store sales and evaluate Zumiez's financial health with it, a rising rate would be a sign that the retailer is doing well and growing. A declining rate, especially over a period of time, could mean trouble for the company. Do the last three years of declining same-store sales for the company mean that management needs to revisit its marketing strategies or operational procedures? The last half of this summer proved to have mixed results for sales. Although the company reported an increase in same-store sales for July of 0.8%, this figure is not as favorable as last year. In 2012 the company saw comps rise over the same period by 7.5%. Ironically, net sales for July increased year over year by 19.3%. In a rare feat this quarter, Zumiez showed itself profitable, beating Wall Street's expectations on both earnings and revenue. The company posted earnings per share of 20 cents, topping the average analyst estimate of 17 cents. Revenue increased by 16.9% to $157.9 million from the year-earlier quarter. Next quarter's EPS is expected to be about 55 cents, and this estimate hasn't change for the past 90 days, so it looks pretty stable.
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