Things Look Grim For Zumiez Inc. (NASDAQ:ZUMZ) After Today's Downgrade

The latest analyst coverage could presage a bad day for Zumiez Inc. (NASDAQ:ZUMZ), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Both revenue and earnings per share (EPS) estimates were cut sharply as analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.

Following the latest downgrade, the four analysts covering Zumiez provided consensus estimates of US$964m revenue in 2023, which would reflect a not inconsiderable 11% decline on its sales over the past 12 months. Statutory earnings per share are anticipated to crater 63% to US$1.35 in the same period. Before this latest update, the analysts had been forecasting revenues of US$1.1b and earnings per share (EPS) of US$3.48 in 2023. Indeed, we can see that the analysts are a lot more bearish about Zumiez's prospects, administering a measurable cut to revenue estimates and slashing their EPS estimates to boot.

View our latest analysis for Zumiez

It'll come as no surprise then, to learn that the analysts have cut their price target 32% to US$24.50. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. There are some variant perceptions on Zumiez, with the most bullish analyst valuing it at US$25.00 and the most bearish at US$24.00 per share. This is a very narrow spread of estimates, implying either that Zumiez is an easy company to value, or - more likely - the analysts are relying heavily on some key assumptions.

Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. We would highlight that sales are expected to reverse, with a forecast 20% annualised revenue decline to the end of 2023. That is a notable change from historical growth of 5.0% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 6.4% per year. It's pretty clear that Zumiez's revenues are expected to perform substantially worse than the wider industry.

The Bottom Line

The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for Zumiez. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Zumiez's revenues are expected to grow slower than the wider market. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.

There might be good reason for analyst bearishness towards Zumiez, like its declining profit margins. For more information, you can click here to discover this and the 1 other concern we've identified.

Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are downgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.