Zumiez was recommended by Small Cap Insider at $28.56 in Investment Digest issue 712, dated February 1, 2012.
“I admit it — I was wrong. Not long ago, I told you how Zumiez (ZUMZ) was undergoing slow but steady expansion — opening up 50 new stores over the next two years. A healthy pace — but not overly ambitious.
“Well, throw that comment out the window. Taking advantage of a fantastic quarter, a fat cash balance and Europe’s troubles, Zumiez just took a very ambitious step. Earlier this week, Zumiez announced that it is buying Blue Tomato, one of the largest action-sport retailers in Europe.
“Blue Tomato doesn’t have many brick-and-mortar stores — only five, all in Austria. However, the company’s website is huge — in 14 languages, serving the entire continent and moving more action-sports goods than just about anyone. Blue Tomato’s net sales increased 27% last year, with the vast majority of that coming from Web sales. There’s no doubt — it’s a big player. And at the moment, that’s the prevailing storyline: Zumiez just announced its presence in Europe with authority.
“That’s certainly true. Zumiez has a chance to become not one of the major competitors in the space, but THE dominant action-sports retailer worldwide. But it’s not just because of European expansion. Frankly, that misses the point.
The Future Is Online
“When Apple makes an acquisition, it does so not just for the products or patents that come with the sale — but just as much for the personnel and expertise. That’s just what Zumiez is doing. The management of Blue Tomato is staying in place, as are most of the workers. And you know what those workers are good at doing? Selling online.
“This isn’t just Zumiez expanding into Europe. This is Zumiez expanding onto the World Wide Web. Make no mistake — the European sales alone make this a good move. Zumiez paid 59 million euros for Blue Tomato — which is only about two years’ sales. Blue Tomato sold 29.4 million euros worth of goods last year. But what could make this a transformative deal — the sort of deal that changes Zumiez from a solid retailer into a true force — is the online presence.
“It’s a definite question whether Zumiez can have success online. Competition is fierce, and so much of what makes Zumiez attractive is the way it has set up its retail stores. The couches, the video games, the coffee-shop atmosphere. That sort of character is very difficult to translate online. Is the Zumiez brand strong enough to carry over? We’ll see.
“But again, this is a good deal as it stands now. The European sales alone make the Blue Tomato price tag attractive. But if Zumiez can also become a force online as a result, then this buy is suddenly a steal. And it’s exactly the sort of low-risk, high-reward move I like to see out of the companies that I own. Fail at further online expansion, and it loses nothing. Succeed, though — and Zumiez will enter another stratosphere.
“I’m very much looking forward to seeing what the future holds for Zumiez. And as holders of the stock, you should be too.”
- Ryan Cole, Small Cap Insider, June 22, 2012