Credit Suisse Weighs In On Zumiez Post-Q1 Results

Shares of Zumiez Inc. (NASDAQ: ZUMZ) were trading lower by more than 10 percent during Friday's pre-market session after the company reported its first quarter results on Thursday that fell short of expectations.

Zumiez reported that it earned $0.09 per share in the first quarter, $0.03 less than analysts were expecting. Sales of $177.6 million also fell short of the $179.3 million expected. In addition, the company guided its second quarter earnings to a range of $0.12 to $0.15 per share, missing the $0.30 analysts were expecting.

Credit Suisse: Losing Steam

Christian Buss of Credit Suisse commented in a note that Zumiez's first quarter results shows it is suffering from a lack of a "clear" fashion trend, especially in men's where the company is "over-indexed."

Shares remain Neutral rated with a price target lowered to $27 from a previous $35.

Buss pointed out that Zumiez expects its second quarter same-store sales to decline in a range of -5 percent to -3 percent, marking a "disappointment" as the analyst previously modeled a 2.7 percent growth while the consensus was at a 2.5 percent growth. In addition, compares will only get tougher through the end of the year, especially in the fourth quarter.

Buss did note, however, that gross margins rose 80 basis points year-over-year to 31.8 percent, topping his estimate of 31.2 percent. The company's margin levels are "healthy" but soft demand trends may force the company to become more promotional and investors need to monitor this possibility.

Bottom line, the downshift in demand and resulting margin pressure could result in negative earnings per share growth in 2015, even with a "somewhat optimistic" scenario in which same-store sales rebound in the bottom half of 2015 driven by Back-to-School and Holiday sales.