King of the Comps

 | Jun 01, 2012 | 11:00 AM EDT
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Many of the nation's retailers reported May same-store sales results Thursday. As usual, there were good stories and bad stories, but clearly the star of the show was small-cap Zumiez (ZUMZ), an underfollowed retailer but still a company with a great track record of execution.

The company targets a demographic of 12-to-24-year-olds, offering action-sports-related apparel, footwear, equipment and accessories mostly to the skateboard, surfing, snowboarding and motocross crowd. As of May 26, the company operated 448 stores in the U.S. and 11 in Canada, mostly in shopping malls. It has plans to open about 50 stores in 2012, including up to 10 in Canada.

Same-store sales -- which exclude sales at newly opened stores -- jumped 13.7%, more than double analyst expectations of a 6.6% rise. Total sales in May rose 24% from a year earlier to $37.4 million. Zumiez is widely regarded as the "go-to" store for its target market, and has little competition. Pacific Sunwear (PSUN) is a competitor, but that company continues to struggle with execution, as evidenced by its sub-$2 share price.

It hasn't been completely smooth sledding for Zumiez, despite nice growth in recent quarters. Last month, on May 18, the stock fell 7.3% after the company reported strong earnings but issued soft guidance for the second quarter. The company reported earnings rising 150% from a year earlier to $0.15 a share, and sales growth accelerated for the second straight quarter, up 23% to $129.9 million. Operating margin expanded 320 basis points to 5.6%, up from 2.4% in the year-earlier period. But Zumiez forecast second-quarter profit of $0.04 to $0.06 a share, below the consensus estimate of $0.10.

Zumiez has a market capitalization of nearly $1.2 billion and an average daily volume of close to 400,000 shares. Mutual-fund sponsorship is solid, but there's plenty of room for more, as 266 funds had a position in the stock at the end of the first quarter. I see no reason why mutual-fund ownership won't continue to grow in coming quarters.

A quick look at Zumiez's chart shows a stock that's been consolidating gains since early April. It's recovered nicely in recent days, and is back above its 10-week moving average. With the market acting as weak at is, I'm not yet a buyer of Zumiez. For now, I'll watch how its current consolidation plays out. It's acting well, but the broad market is not. If a buy signal comes soon in the major averages, I'll be watching Zumiez for continued outperformance.

Zumiez (ZUMZ) -- Weekly

Zumiez wasn't the only retailer to deliver strong sales results Thursday.

Discount retailers such as TJX Cos. (TJX) and Ross Stores (ROST) each reported an 8% increase in May same-store sales, much better than the consensus estimate of 5.3%. Both stocks have great institutional sponsorship and have delivered huge gains in recent months, but I'm not interested in chasing them up here.  It's always best to buy in the early stages of price run, and both stocks have been running higher for a while.

Further, shares of Target (TGT) outperformed Thursday. Same-store sales rose 4.4%, better than expectations. Headed into Friday, Target was in a bullish technical setup, poised to take out a swing point of $58.95. If market conditions were healthier, I'd say Target would have a good chance for an upside breakout. But with the indices on the ropes here, this scenario isn't likely -- at least in the near-term.

Target (TGT) -- Weekly

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