Did Zumiez Finally Bottom? (ZUMZ)

Zumiez Inc. (NASDAQ: ZUMZ) saw shares rocket in after-hours trading after the company posted earnings.  The apparel and equipment retailer for young adults in extreme sports )snowboarding etc.) posted earnings of $0.42 EPS on $126.6 million in revenues, while First Call estimates were $0.38 and $126.1 million.

It has also predicted that its 2008 profits would see $0.90 to $0.93 EPS, while First Call has estimates at $0.92; it also see a low-single digit same store sales gain.  2007 came in at $0.86 EPS on same store sales gains of 9.2%.

Zumiez didn’t try to hide recent woes as it did address near-term environment as challenging.  But the hope here is that since shares have fallen by more than two-thirds from high to low is that even a maturing Zumiez with less than 10% EPS growth and a low-single d-git same store sales growth represents value here.

At $0.86 EPS for 2007, it now has a trailing P/E ratio of 16.4 based on the close of $14.10.  Its forward P/E ratio at the mid-point of guidance would be 15.4 based on that $14.10 close, but with shares up at $16.40 after the close its forward P/E ratio at the mid-point of guidance would be 17.9.  That isn’t grossly expensive and it isn’t grossly cheap.

The "cheap" aspect is that this one can show incredible outperformance when it does beat, and Wall Street may be giving the company the benefit of the doubt and hoping for very conservative guidance being the case.  The other energizer is the short interest as this had 7.45 million shares in the short interest, which is around 40% of the free float and almost 12-days to cover.

All in all, it’s probably a safe bet that the worst has been seen so long as it doesn’t disappoint ahead.  Just don’t go out on a limb looking for the old growth days and the old performance in the near-term.

Jon C. Ogg
March 13, 2008