What's Behind Zumiez's Gross Margin Growth Amid Tariff Pressures?
Zumiez Inc. ZUMZ reported gross profit of $55.3 million in the first quarter of fiscal 2025, a 6.6% increase from $51.9 million in first-quarter fiscal 2024. Gross margin rose to 30%, up from 29.3% in the same quarter last year. This 70-basis point improvement was primarily driven by leverage on store occupancy costs as a result of increased sales volume.
A significant contributor to this margin expansion was Zumiez's continued focus on full-price selling, particularly in its North America operations. This pricing discipline allowed the company to preserve stronger product margins even in a challenging retail environment. Additionally, operational improvements carried over from 2024 supported profitability gains. These included the closure of 31 underperforming stores, enhancements to staffing models and structural cost reductions in shipping and logistics functions.
Cost control efforts were evident across several expense categories. Zumiez achieved meaningful cost leverage, with non-wage store operating costs improving 70 basis points, corporate costs 30 basis points, and wages, training and incentive compensation by 40 basis points. These efficiencies highlight Zumiez's disciplined approach to managing expenses while continuing to support long-term strategic investments.
Another key driver of gross margin improvement was the growth of private label sales. In the fiscal first quarter, private label products represented 30% of total sales, up from 28% in fiscal 2024 and 23% in fiscal 2023. Since these products are designed, sourced and priced internally, they generally deliver higher profitability than third-party brands. The expansion of private label offerings provided a significant margin advantage and reinforced the company's ability to meet customer demand with value-driven, exclusive merchandise.
ZUMZ Stock Past-Month Performance
ZUMZ Mitigates Tariff Impact
Zumiez has addressed the impact of tariffs on gross margin. At the start of fiscal 2025, around 50% of products were sourced from China, but the company expects to reduce this to approximately 30% by year-end. For key selling periods like back-to-school and the holiday season, the company anticipates a 50% year-over-year reduction in Chinese-sourced inventory. For the long term, Zumiez aims to ensure that no single country accounts for more than 20% of its sourcing.
To counteract the cost pressure from tariffs, Zumiez took proactive steps, including bringing in $7 million worth of inventory from China ahead of anticipated tariff increases. The company also collaborated with vendors and manufacturers to rethink sourcing and production processes. In addition, pricing strategies, bundling and promotional adjustments were implemented to offset rising costs.
Looking ahead, Zumiez expects modest year-over-year growth in product margin for fiscal 2025, building on the 70-basis-point improvement achieved in fiscal 2024. Management anticipates additional gross margin leverage through continued efficiencies in occupancy, distribution and logistics. Despite uncertainty in global trade dynamics and the macroeconomic environment, Zumiez remains confident in its ability to achieve sales growth, maintain cost control and return to profitability by the end of fiscal 2025.
Zumiez's Valuation Picture
Zumiez is currently trading at a forward 12-month price-to-sales (P/S) multiple of 0.25X, which positions it at a discount compared with the industry's average of 1.69X. The stock is also trading below its median P/S level of 0.41X observed over the past year. Also, Zumiez is priced lower than the sector's average of 1.60X.
ZUMZ Looks Attractive From a Valuation Standpoint
ZUMZ's Stock Performance
Shares of this Zacks Rank #3 (Hold) company have gained 5.3% in the past month against the industry 's modest 4% decline.
Key Picks
Some better-ranked stocks are Stitch Fix SFIX, Canada Goose GOOS and Allbirds Inc. BIRD.
Stitch Fix delivers customized shipments of apparel, shoes and accessories for women, men and kids. It carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Stitch Fix's current fiscal-year earnings implies growth of 69.7% from the year-ago actuals. SFIX delivered a trailing four-quarter average earnings surprise of 51.4%.
Canada Goose is a global outerwear brand. GOOS is a designer, manufacturer, distributor and retailer of premium outerwear for men, women and children. It carries a Zacks Rank #2 at present.
The Zacks Consensus Estimate for Canada Goose's current fiscal-year earnings and sales indicates growth of 10% and 2.9%, respectively, from the year-ago actuals. Canada Goose delivered a trailing four-quarter average earnings surprise of 57.2%.
Allbirds is a lifestyle brand that uses naturally derived materials to make footwear and apparel products. It carries a Zacks Rank of 2 at present.
The Zacks Consensus Estimate for BIRD's current financial-year earnings implies growth of 16.1% from the year-ago actual. The company delivered a trailing four-quarter average earnings surprise of 21.3%.
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Zumiez Inc. (ZUMZ): Free Stock Analysis Report
Canada Goose Holdings Inc. (GOOS): Free Stock Analysis Report
Stitch Fix, Inc. (SFIX): Free Stock Analysis Report
Allbirds, Inc. (BIRD): Free Stock Analysis Report
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