One of the hottest teen retailer two years ago was Zumiez, which caters to the extreme sports set. Its shares shot up more than 100% in 2010. But 2011 has been a different story, even though the company’s offerings remain hot. The stock is down 15% this year, but that’s more due to profit-taking than a reflection of operating performance.
In each of the last four quarters Zumiez has exceeded analyst expectations. And on Nov. 2, it announced same-store sales for October that beat Wall Street estimates. For the month, Zumiez stores open for a year or more had a 3.3% sales increase versus an estimate of 2.8%. That performance sets up Zumiez for another earnings beat for the quarter ending Oct. 31.
For the full year ending Jan. 31, Wall Street expects Zumiez to make $1.08 per share. Earnings for the following year are anticipated to grow by 18%. At current prices, its shares trade for 18 times next fiscal year’s estimated earnings.
Given Zumiez’s performance against estimates, it’s reasonable to assume profits will be better than expected. The company deserves a premium valuation for that performance. Any strength in the economy will be an added bonus. I would buy Zumiez at these prices.