Zumiez Inc. ZUMZ is currently trading at a low price-to-sales (P/S) multiple, which is below the averages of both the Zacks Retail-Apparel and Shoes industry and the broader Retail-Wholesale sector. With a forward 12-month P/S of 0.44, ZUMZ is priced lower than the industry's average of 1.08 and the sector's average of 1.46.

This makes ZUMZ stock undervalued relative to its industry peers, presenting an attractive opportunity for investors seeking exposure to the retail apparel sector. Furthermore, Zumiez’s  Value Score of A underscores its appeal as a potential investment.

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The stock has gained 16.8%, outperforming the industry’s 3% decline in the past six months. Closing at $21.28 yesterday, Zumiez’s stock is currently trading 32.2% below its 52-week high of $31.37, reached on Sept. 6, 2024.

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Zumiez Drives Growth With Customer-Centricity & Brand Focus

Zumiez's strategic endeavors center around a customer-centric business model, emphasizing strong brands and prudent cost management. The company's focus on providing differentiated assortments and localized merchandising has yielded positive results. By leveraging advanced technology, Zumiez enhances the shopping experience across channels. 

Total sales in the second quarter rose 8.1% year over year to $210.2 million, primarily fueled by 10.4% growth in North America’s sales. Comparable sales increased 3.6%, supported by higher average unit retail prices and a greater number of units sold per transaction. 

Zumiez’s private-label brands, which accounted for 23% of sales in fiscal 2023, continue to resonate with value-conscious consumers. With plans to expand its private-label offerings in 2024, the company is positioned for sustained revenue growth.

In Europe, Zumiez has shifted focus from rapid store expansion to improving the productivity of existing locations, emphasizing full-price selling. This strategy has already boosted merchandising margins. Alongside, the company has been closing underperforming stores in North America while expanding in key global markets and implementing cost-optimization initiatives, including labor and logistics improvements, to enhance long-term profitability.

Zumiez’s Q3 & Fiscal 2024 Outlook

Zumiez remains confident about its third-quarter and full-year outlook. The company expects third-quarter sales to be between $221 million and $225 million, indicating a year-over-year increase of 2-4%, with comparable sales up 12.1% as of Sept. 2, 2024. 

For fiscal 2024, the company guided low single-digit sales growth. Zumiez also anticipated positive operating margins for fiscal 2024, supported by stable sales growth and continued cost efficiencies.

ZUMZ’s International Sales Hurdle

Despite a strong performance in North America, Zumiez’s international sales, particularly in Europe, are facing challenges. In the second quarter of 2024, international net sales, which include Europe and Australia, declined 2.6% year over year to $33.9 million. Even after adjusting for foreign currency translation, international sales were down 1.7%. This ongoing weakness could weigh on Zumiez’s overall revenue growth.

Zumiez’s product mix showed troubling signs during the second quarter, particularly in the accessories and hardgoods categories. While men's, women's and footwear performed well, hardgoods and accessories posted negative comparable sales growth. Hardgoods was the largest declining category, followed by accessories. These categories, which include high-margin products like skateboards and lifestyle accessories, are crucial to Zumiez's brand identity and profitability.

Conclusion

Zumiez stock offers strong growth potential, driven by a customer-centric strategy, successful brand partnerships and resilience in North America, where it has achieved solid sales growth and focused on expanding profitable private-label offerings. Despite challenges in international markets, the company's strategic investments in technology, logistics and omnichannel capabilities enhance its competitive edge.

Additionally, Zumiez's low price-to-sales ratio presents an attractive entry point for value-seeking investors. With a steady growth outlook and cost-efficiency measures in place, Zumiez is well-positioned for long-term profitability, making it a promising hold for investors. ZUMZ currently carries a Zacks Rank #3 (Hold).

Key Picks

Some better-ranked stocks are Abercrombie & Fitch Co. ANF, Gildan Activewear Inc. GIL and Steven Madden, Ltd. SHOO.

Abercrombie is a specialty retailer of premium, high-quality casual apparel. It carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ANF delivered a 16.8% earnings surprise in the last reported quarter. 

The Zacks Consensus Estimate for Abercrombie’s fiscal 2025 earnings and sales indicates growth of 64.2% and 13.2%, respectively, from the fiscal 2024 reported levels. ANF has a trailing four-quarter average earnings surprise of 28%.

Gildan is a manufacturer and marketer of premium quality branded basic activewear for sale principally in the wholesale imprinted activewear segment of the North America’s apparel market. It currently carries a Zacks Rank #2. 

The consensus estimate for Gildan’s current financial-year earnings and sales indicates growth of 15.6% and 1.5%, respectively, from figures of 2023. GIL has a trailing four-quarter average earnings surprise of 5.4%.

Steven Madden designs, sources, markets and sells fashion-forward name-brand and private-label footwear. It currently has a Zacks Rank of 2. 

The Zacks Consensus Estimate for Steven Madden’s 2024 earnings and sales indicates growth of 8.2% and 13.4%, respectively, from the year-ago actuals. SHOO has a trailing four-quarter average earnings surprise of 9.8%.

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Zumiez Inc. (ZUMZ) : Free Stock Analysis Report

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