Zumiez (ZUMZ)

Clothing and footwear retailer Zumiez (NASDAQ:ZUMZ) beat Wall Street’s revenue expectations in Q1 CY2025, with sales up 3.9% year on year to $184.3 million. Guidance for next quarter’s revenue was better than expected at $210.5 million at the midpoint, 1.3% above analysts’ estimates. Its GAAP loss of $0.79 per share was 3% below analysts’ consensus estimates.

Company Overview

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 needs 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.

Competitors that offer street or skate apparel and footwear include Tilly’s (NYSE:TLYS), Genesco’s (NYSE:GCO) Journeys banner, Foot Locker (NYSE:FL), and private company PacSun.

A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years.

With $896.2 million in revenue over the past 12 months, Zumiez is a small retailer, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with suppliers.

As you can see below, Zumiez struggled to generate demand over the last six years (we compare to 2019 to normalize for COVID-19 impacts). Its sales dropped by 1.6% annually as it closed stores.

This quarter, Zumiez reported modest year-on-year revenue growth of 3.9% but beat Wall Street’s estimates by 1.2%. Company management is currently guiding for flat sales next quarter.

Looking further ahead, sell-side analysts expect revenue to remain flat over the next 12 months. While this projection implies its newer products will catalyze better top-line performance, it is still below the sector average.

Number of Stores

The number of stores a retailer operates is a critical driver of how quickly company-level sales can grow.

Zumiez listed 731 locations in the latest quarter and has generally closed its stores over the last two years, averaging 1.1% annual declines.

When a retailer shutters stores, it usually means that brick-and-mortar demand is less than supply, and it is responding by closing underperforming locations to improve profitability.

Same-Store Sales

The change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales gives us insight into this topic because it measures organic growth for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year.

Zumiez’s demand within its existing locations has barely increased over the last two years as its same-store sales were flat. This performance isn’t ideal, and Zumiez is attempting to boost same-store sales by closing stores (fewer locations sometimes lead to higher same-store sales).

In the latest quarter, Zumiez’s same-store sales rose 5.5% year on year. This growth was a well-appreciated turnaround from its historical levels, showing the business is regaining momentum.

Gross profit margins are an important measure of a retailer’s pricing power, product differentiation, and negotiating leverage.

Zumiez’s gross margin is slightly below the average retailer, giving it less room to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged a 33.5% gross margin over the last two years. That means Zumiez paid its suppliers a lot of money ($66.49 for every $100 in revenue) to run its business.

This quarter, Zumiez’s gross profit margin was 30%, in line with the same quarter last year and analysts’ estimates. On a wider time horizon, Zumiez’s full-year margin has been trending up over the past 12 months, increasing by 1.5 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold.

Operating margin is an important measure of profitability for retailers as it accounts for all expenses necessary to run a store, including wages, inventory, rent, advertising, and other administrative costs.

Despite the consumer retail industry’s secular decline, unprofitable public companies are few and far between. Unfortunately, Zumiez was one of them over the last two years as its high expenses contributed to an average operating margin of negative 3.5%.

On the plus side, Zumiez’s operating margin rose by 7.6 percentage points over the last year. Still, it will take much more for the company to reach long-term profitability.

Zumiez’s operating margin was negative 10.8% this quarter. The company's consistent lack of profits raise a flag.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Zumiez broke even from a free cash flow perspective over the last two years, giving the company limited opportunities to return capital to shareholders.

Taking a step back, an encouraging sign is that Zumiez’s margin expanded by 1.2 percentage points over the last year. We have no doubt shareholders would like to continue seeing its cash conversion rise as it gives the company more optionality.

Zumiez burned through $24.3 million of cash in Q1, equivalent to a negative 13.2% margin. The company’s cash burn was similar to its $21.12 million of lost cash in the same quarter last year.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Zumiez historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 5.6%, somewhat low compared to the best consumer retail companies that consistently pump out 25%+.

Zumiez reported $101 million of cash and $201.8 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $31.2 million of EBITDA over the last 12 months, we view Zumiez’s 3.2× net-debt-to-EBITDA ratio as safe. We also see its $628,000 of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Zumiez narrowly top analysts’ revenue expectations this quarter. We were also glad its revenue guidance for next quarter slightly exceeded Wall Street’s estimates. On the other hand, its EBITDA missed and its EPS guidance for next quarter fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 3.2% to $12.45 immediately after reporting.

Updated: June 19, 2025 at 10:34 PM EDT

Before investing in or passing on Zumiez, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Zumiez doesn’t pass our quality test. To begin with, its revenue has declined over the last six years. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its brand caters to a niche market. On top of that, its declining EPS over the last six years makes it a less attractive asset to the public markets.

Zumiez’s P/E ratio based on the next 12 months is 46.9x. This valuation tells us a lot of optimism is priced in - we think there are better opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $14 on the company (compared to the current share price of $12.33).