Is The Bottom In For Zumiez?

Is The Bottom In For Zumiez?

Short-Sellers Fail To Set New Low In Zumiez, Inc.

Price action in Zumiez (NASDAQ:) was volatile in the wake of the Q2 but one thing is evident—there are bulls present at the $37.75 level and they are buying up the stock.

While price action was volatile and closed at the low of the session, the post-release activity suggests this could be the bottom for Zumiez. A specialty mall-based retailer of fashion and equipment targeting young adults, Zumiez has weathered the pandemic storm and come out stronger. The company is not only growing at above the pre-pandemic levels, but the guidance is favorable, margins are widening, and the company is providing value to its shareholders.

Zumiez began repurchasing shares earlier this year in evidence of its strong capital position. The company’s cash position has improved more than 33% over the past year to $412 million with very little debt to hinder it. The 2nd quarter repurchases are worth about $11 million or 1.1% of the market cap and the company is planning to continue the share repurchases. To date, 3rd quarter repurchases are worth about $20.5 million or an additional 2.0% of the market cap. These will not be the last.

Mixed Results But Great Quarter

Zumiez’s results were mixed in regards to the analyst’s expectations but still reveal the strength of the business. The $268.66 million in consolidated revenue is up 7.3% over last year and 17% over the past two years to set a second-quarter record. The problem is that analysts had been expecting about 420 basis points more in revenue but that miss is offset by other factors.

The company says revenue was driven by “stronger than expected” full-price selling that drove substantially higher-than-expected earnings. On the bottom line, the GAAP earnings were hit by one-time charges related to a California class-action lawsuit but still beat the consensus by $0.17 and adjusted earnings are even better. On an adjusted basis, EPS of $1.02 beat the consensus by $0.23 and resulted in strong cash and free cash flow.

Turning to the outlook, the company did not give formal guidance for Q3 or full-year results but it did give an update on the quarter-to-date performance. So far, Q3 sales are tracking about 23% above the 2020 levels putting the company on track for both sequential and two-year growth above the analyst’s consensus.

The data from shows the analysts are still iffy on Zumiez, but we see this changing soon. There has been very little chatter over the past 6 months and the latest, just days before the earnings release, lowered their price targets. The consensus price target is still worth about 27% of upside and we think that is just the beginning of what this stock could do.

The Technical Outlook: Zumiez Could Be At A Bottom

Shares of Zumiez were unable to hold their gains on Friday but there are two things to consider. The first is that a high 8% short-interest has something to do with the price action, the second is that bears were unable to set a new low. In our view, the candle formed is a Tombstone Doji marking the end of a downtrend, if not the actual bottom in prices.

Price action may remain weak in the near term but we are expecting to see support-buying gain strength and lead to short-covering and higher prices. Longer-term, considering the company is going into the holiday season with some strength, we see this stock setting a new all-time high before the end of the year.

ZUMZ Chart

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