Zumiez Down 40% In 2015, But Don't Forget About The 'Unique' Concept

In a report published Monday, Susquehanna analyst Thomas A. Filandro upgraded the rating on Zumiez Inc. ZUMZ from Neutral to Positive, while raising the price target from $26 to $29. The analyst believes that the 40 percent decline in the share price year-to-date, offers an attractive opportunity to build a long-term position "in a uniquely positioned concept, operated by a high-quality, disciplined and culture-supportive management team."

According to the Susquehanna report, "In the highly competitive world of specialty mall-based retailing, we believe ZUMZ has developed a sustainable and unique brand concept that can successfully weather ebbs and flows in fashion and style preferences, while maintaining a healthy long-term economic model."

Although the absence of significant fashion trends associated with the action sports lifestyle segment are expected to continue to adversely impact the company's near-term sales, the analyst expressed confidence in the management's ability to make the most of any potential changes in preferences, helping to restore the business back to positive same-store sales and operating margin expansion in the low double digits over the coming few years.

The analyst also believes that Zumiez has been successful in developing a unique brand image, "anchored in the action sports lifestyle which we believe is highly differentiated in the marketplace, representing a significant competitive advantage."

In addition, the company also has a unique merchandizing strategy that involves micro-assortment, enabling Zumiez to offer an attractive range of branded goods, while being able to identify shifts in style and brand preferences quickly.

About 80 percent of the company's mix is private label goods, which offers a strategic opportunity to cater to high-end customers. Zumiez also has store opportunity, both in the US and internationally.

"Given diverse market success, management firmly believes its concepts are portable. With strong store-level economics, ZUMZ is targeting ~57 openings in 2015," Filandro added.