Zumiez Attracts Analysts

EVERETT, WA-Financial analysts at Piper Jaffray and William Blair & Co. have initiated coverage of Zumiez Inc., the mall-based action sports apparel retailer that operates 146 stores and sees the potential for 600 to 800 locations. Piper Jaffray analyst Jeff Klinefelter and William Blair analyst Sharon Zackfia have both started off with an “outperform” rating for Zumiez, which went public in May.

Klinefelter’s report says that as a mall-based specialty retailer of apparel and sporting goods targeting the teen extreme sports enthusiast, Zumiez “is particularly well positioned to benefit from the growing popularity of these sports.” In addition to action sports clothing, Zumiez sells skateboards, snowboards, shoes and other equipment used in those sports and in motocross. That clothing segment in general is growing, the Piper Jaffray analysts says, and “strong teen states” such as California, Texas and Florida in particular represent a significant opportunity for Zumiez. While Zumiez has established itself in the western part of thecountry, it has few or no stores in large areas of the United States,particularly “high teen” states such as California, the Piper Jaffray report points out. With 23 stores in California, Zumiez is dwarfed by Pacific Sunwear’s 134 stores and the higher store count of some of its other competitors. It has only one store in Texas and has yet to open in Florida, where its debut is set for 2006.

One of the strong points in favor of growth for Zumiez is its uniqueness, according to Klinefelter. “While other mall-based stores offer some of the same branded apparel, Zumiez is unique in that it also offers a selection of hardlines, lending the store an aura of authenticity,” his report says. Analyst Zackfia also alludes to the uniqueness of Zumiez, pointing out that it features “a chaotic store format, a broad assortment of more than 700 brands throughout the year, and high-energy sales personnel who ‘live the life.’ ” Zumiez posts sales of more than $460 per sf and has produced positive same-store sales gains in all but one year since its founding in 1978, she notes.

Zumiez is one of a number of chains capitalizing on the popularity of the West Coast lifestyle, according to Klinefelter’s report, which explains that the popularity is not limited to those who are active participants in board sports. Many who do not participate nonetheless like to buy board sport brands for their image. The report cites research showing that the majority of soft good purchases made by board sports enthusiasts are in specialty stores or mall stores, a fact that bodes well for Zumiez as a mall-based retailer.

As Zumiez expands geographically, it is also increasing the average size of its stores, which could help to drive same-store sales increases, according to Klinefelter, who writes, “We’ve seen this strategy work well at other retailers, most notably at Hot Topic, American Eagle, and Pacific Sunwear.”