Clothing and footwear retailer Zumiez (NASDAQ:ZUMZ) beat analysts' expectations in Q2 FY2023, with revenue down 11.6% year on year to $194.4 million. However, next quarter's revenue guidance of $213.5 million was less impressive, coming in 1.99% below analysts' estimates. Turning to EPS, Zumiez made a GAAP loss of $0.44 per share, down from its profit of $0.16 per share in the same quarter last year.

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Rick Brooks, Chief Executive Officer of Zumiez Inc., stated, “While our North American business remains under pressure, second quarter sales trends improved month-to-month and our year-over-year top-line performance was meaningfully better compared with the first quarter. With continued headwinds facing consumer discretionary spending combined with a heightened promotional marketplace, we are pleased with the progress we’ve made positioning our business for the second half of 2023. The back-to-school season, which is historically a good indicator for holiday demand, is continuing to show improvement from the last few quarters. Despite the challenges year-to-date, we are confident that the global consumer centric operating model we have built and refined over the past four decades will continue to deliver great long-term value for our shareholders.”

With store associates called “Zumiez Stash Members”, Zumiez (NASDAQ:ZUMZ) is a specialty retailer of street and skate apparel, footwear, and accessories.

Apparel sales are not driven so much by personal need but by seasons, trends, and innovation, and over the last few decades, the category has shifted meaningfully online. Retailers that once only had brick-and-mortar stores are responding with omnichannel presences. The online shopping experience continues to improve and retail foot traffic in places like shopping malls continues to stall, so the evolution of clothing sellers marches on.

Sales Growth

Zumiez is a small retailer, which sometimes brings disadvantages compared to larger competitors that benefit from economies of scale.

As you can see below, the company's revenue has declined over the last four years, dropping 2.61% annually despite opening new stores and expanding its reach.

This quarter, Zumiez's revenue fell 11.6% year on year to $194.4 million but beat Wall Street's estimates by 2.25%. The company is guiding for a 10.1% year-on-year revenue decline next quarter to $213.5 million, an improvement from the 17.9% year-on-year decrease it recorded in the same quarter last year. Looking ahead, Wall Street expects revenue to decline 4.7% over the next 12 months.

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Number of Stores

A retailer's store count often determines on how much revenue it can generate.

When a retailer like Zumiez keeps its store footprint steady, it usually means that demand is stable and it's focused on improving its operational efficiency to increase profitability. Zumiez's store count increased by 8 locations, or 1.06%, over the last 12 months to 761 total retail locations in the most recently reported quarter.

Over the last two years, the company has only opened a few new stores, averaging 2.39% annual growth in new locations. This sluggish pace lags the broader sector. A flat store base means that revenue growth must come from increased e-commerce sales or higher foot traffic and sales per customer at existing stores.

Key Takeaways from Zumiez's Q2 Results

With a market capitalization of $370.1 million, Zumiez is among smaller companies, but its more than $57.9 million in cash on hand and near break-even free cash flow margins puts it in a stable financial position.

Zumiez beat revenue and EPS expectations. However, guidance was below for revenue and EPS. Management called out "continued headwinds facing consumer discretionary spending combined with a heightened promotional marketplace". The company is down 4.18% on the results and currently trades at $17.87 per share.

So should you invest in Zumiez right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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The author has no position in any of the stocks mentioned in this report.