Zumiez, Inc.'s (ZUMZ) second quarter EPS beat the street by $0.02, but the management lowered its full-year EPS guidance forecast from $0.90-$0.93 to $0.80-$0.86. We are again lowering our estimates for the second half of the year. Our 2008 EPS estimate goes from $0.86 to $0.79 and our 2009 EPS estimate goes from $1 to $0.90.
We continue to expect a weak consumer into 2009 because macro headwinds (housing, debt and food/energy prices) will persist for some time. The stock is now trading at 17.7x our 2008 EPS estimate and 15.6x our 2009 EPS estimate. We think this valuation is reasonable and we prefer to remain neutral on the stock. Our six-month target price is $15, or about 16x to 17x our 2009 EPS estimate.
The investment case for Zumiez is supported by its competitive strengths and long-term growth strategy. The company targets those customers who are interested in action sports such as skateboarding and snowboarding. This is an attractive retail market. Zumiez seeks to capitalize on this strong market niche.
Moreover, Zumiez hosts interactive events and live entertainment and contests. This store layout allows the company's energetic and well-trained associates to interact with customers, which helps drive Zumiez's comp-store sales.
We previously believed that teen apparel retailers like Zumiez would be able to work through these conditions because teens are not directly affected by falling house prices, tightening credit standards and higher energy prices. However, it appears that parents have cut back on the discretionary spending for their kids. So, we now expect Zumiez's sales and earnings growth to be tempered for the next few quarters.
Read the full analyst report on ZUMZ
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