WWD.com/beauty-industry-news/financial/zumiez-s-stock-price-outperforms-competitors-479569/
government-trade
government-trade

Zumiez’s Stock Price Outperforms Competitors

Zumiez Inc. is skating past the competition by settling into a profitable niche. The board sports retailer has managed to garner a 44 percent gain in stock price for the year-to-date period, despite the sluggish performance of specialty retailers,...

Zumiez Inc. is skating past the competition by settling into a profitable niche.

The board sports retailer has managed to garner a 44 percent gain in stock price for the year-to-date period, despite the sluggish performance of specialty retailers, including direct competitor Pacific Sunwear of California.

“While so many comp stories begin and end when fashion trends change, Zumiez’s ability to adapt to fashion changes as well as lifestyle changes, such as surf, skate, snow…makes the business model far more defensive than other retailers,” said Brad Stephens, retail analyst at Morgan Keegan & Co., in a research note.

In September, Zumiez’s same-store sales increased 13.9 percent on top of a 14.9 percent gain last year. Analysts expected a 7 percent increase. In the second-quarter period, earnings surged 90 percent to $3.1 million, or 11 cents a diluted share, on sales that climbed 47 percent to $82 million.

Pacific Sunwear has been unable to ride the wave.

For the year, the stock price at the surf-inspired retailer is down 24 percent. And while the company reported a 2.4 percent boost in September same-store sales, it was up against a 9.4 percent decline last year.

Zumiez’s success comes from its strong corporate culture and knowledgeable employees that are truly immersed in the skate and surf lifestyle, said Dorothy Lakner, retail analyst at CIBC World Markets. “Some companies as they get larger become more corporate-driven, but that has not been the way Zumiez has operated,” she said.

What also makes Zumiez stand out from competitors is the number of brands they offer and selection of action sports equipment.

While the company sells big names like Quicksilver, Roxy and Billabong, they also stock small niche brands that customers cannot find at other retailers.

The company carries more than 400 brands a year, and often the niche brands command higher price points, Stephens said.

Pacific Sunwear offers fewer brands and a more edited assortment, Lakner said.

“Zumiez is more like a core surf and skate shop than any other mall retailer and is more focused on action sports brands than any other teen specialty store,” she said.

This story first appeared in the October 22, 2007 issue of WWD.  Subscribe Today.

Zumiez’s strength has been primarily in their men’s business. “Guys buy these boards like [women] buy shoes,” said Christine Chen, specialty retail analyst at Needham & Co.

But management says women are showing an increased interest in areas such as skateboarding, giving the company an opportunity to expand its junior lines.

Zumiez had 235 stores as of Feb. 3, while PacSun operated 843 as of Mar. 28. “There are so few Zumiez stores that many customers don’t even realize it’s part of a chain,” Chen said.

Zumiez is growing its store base at 20 percent square footage a year and will continue to expand at that rate, Lakner said, adding that the biggest challenge will be maintaining the corporate culture as it get bigger and figuring out where to go once it reaches a saturation point.

“Unlike other retailers who approached the end of the growth curve and then started a second and third concept, management is already kicking around five different additional concepts with high-level business plans already completed on the first couple,” Stephens said.

Meanwhile, the skate and surf market as a whole is growing rapidly and becoming more mainstream. “It is not only for participants in the sports, but about anyone who wants the lifestyle. Not everyone may learn to surf, but there are many teens who love the beach,” Chen said.

The spotlight has been on the sector with enhanced media coverage of the X-Games on MTV and the release of surf- and skate-inspired movies.

According to the Surf Industry Manufacturers Association, Americans spent $5.51 billion on surf and skate apparel, equipment and accessories in 2006, up from $4.87 billion in 2004. Spending on skate, which was $2.85 billion, slightly exceeded spending on surf, which was $2.65 billion.

Apparel accounted for $1.8 billion in sales, with men’s clothing growing 17.4 percent to $1.07 billion, since 2004. Sales of women’s apparel were up 3 percent to $506.9 million.

“Surf and skate is timeless. The laid-back, slacker lifestyle is one [to which] every teen aspires,” Chen said.