Zumiez: Results Q1 2023

Stocks, ZUMZ-Zumiez

On June 2nd, Zumiez published its results for the 13 weeks ending on April 30th and held the correspondent conference call.

Results were in line with the guidance and with the results being reported for the rest of discretionary consumer businesses with significant exposure to the US. The sales were down 20.9% concerning the same period last year, and they incurred a net loss of minus $0.4 million.

The main reasons for the decrease in sales are the comparison with a period when consumers had more available cash due to the pandemic stimulus and the inflation, which restricts the amounts destined for Zumiez’s types of products.

 

In terms of capital allocation, Zumiez fully completed the repurchasing program. It bought back 1.9 million shares at an average cost of $43.51. There is no current authorization for more share purchases.

 

During the call, Rick Brooks, CEO of Zumiez, pointed out that if we skip the pandemic, they grew revenue at a cagr of 8% and EPS by 15% from 2011 to 2021. He expects to continue returning value to shareholders based on the strong brand and culture of the company. This quarter, despite the challenging conditions, it is remarkable that they could sell at full price, maintaining margins. It is also important to note that Zumiez carries a strong financial position with cash and equivalents of $173 million.

 

For 2022, they expect an EPS in the range of $3.55-$3.80. With a capex in the range of $30-$32 million due to the plan to open 34 new stores (15 in the US, 14 in Europe, and 5 in Australia).

 

My take on Zumiez

It is important to note that the International segment, where they plan to open more shops this year, has grown 13% from last year. This means that, as they say, one of the main reasons is the US stimulus due to the pandemic, but also that its business model and products are being recognized in the international markets where they are operating. So we can expect that this growth can be sustainable there.

 

What is the intrinsic value of Zumiez?

Analysts’ consensus tells us we can expect an FCF of $94 million for 2024. If, for rough estimation, we apply a multiple of 15 and divide it by the current number of shares (19.46 million), we would get a target price of $72.62 (137% of potential gain).

It might be 

 

 

David Makuen, CEO of Citi Trends, highlighted the company’s achievements in the fourth quarter and throughout fiscal year 2022. He emphasized the following points:

  1. The company achieved a healthy gross margin of 39.1% in 2022 and reduced operating expenses by 9% compared to 2021.
  2. The company managed its inventories well and ended the fiscal year with a better-than-expected cash position of nearly $104 million and no debt.
  3. Citi Trends has been investing in enhancing the in-store experience and its infrastructure, and now 13% of their stores reflect the improved CTX experience.
  4. Despite a challenging economic environment, the strong balance sheet enables the company to invest in key product categories to continue delighting customers with fresh, exciting products at affordable prices.

For 2023, the company will focus on four main priorities:

  1. Driving comparable store productivity, focusing on opportunities to capture market share in areas such as footwear, beauty, kids’ apparel, and juniors and missy ladies’ apparel.
  2. Managing inventory and maximizing margin, expanding select categories, recouping sales in specific categories, and broadening the brand’s appeal to new multicultural families.
  3. Controlling SG&A expenses and leveraging the balance sheet, using analytics to eliminate unnecessary costs and establishing solid controls for spending decisions.
  4. Executing technology enhancements, continuing to develop the technology infrastructure to improve operational efficiency across the business.

However, the first quarter of 2023 has had a slower start than expected due to unfavorable economic factors affecting Citi Trends’ customers. The company remains cautiously optimistic and expects an improvement in the economic situation throughout the year.

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