Why Zumiez Shares Plunged


Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of apparel retailer Zumiez (NAS: ZUMZ) had a gnarly wipeout today, falling by as much as 12% in intraday trading, after the company reported second-quarter results.

So what: The numbers from the past quarter actually looked pretty good. Sales for the three-month period were up 20% from last year, while adjusted earnings per share clocked in at $0.17. The latter tally was above the $0.13 that Wall Street analysts were expecting.

Now what: It was forward expectations that tanked the stock, though, as management said that August comparable-store sales rose just 3.7%, and it expects third-quarter EPS to be between $0.42 and $0.45. Analysts anticipated 4.7% comp-store sales growth for August and a per-share profit of $0.56 in the third quarter. With a price-to-earnings ratio of 24, based on fiscal 2012 (which ended in January) earnings, Zumiez shareholders obviously have the expectation of significant continued growth. The $0.56 in EPS that analysts had been expecting would have notched a 24% year-over-year growth rate for the third quarter. The company's outlook, however, suggests a modest decline.

The question that investors have to wrestle with now is whether this is a bump in the road or a sign of much slower growth ahead. The former isn't unusual for high-growth companies but, if it's the latter, Zumiez's shares may be overpriced, even after today's drop.

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The article Why Zumiez Shares Plunged originally appeared on Fool.com.

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