The earnings calendar is getting mighty sparse in fact, just a couple of S&P
500 companies are scheduled to report this week. So we dug a little deeper to
come up with Zumiez (NASDAQ: ZUMZ ), which reports Wednesday after the close.
For those who don't frequent malls, Zumiez specializes in sports-related
apparel, footwear, and accessories. Analysts expect the company to earn five
cents a share compared to a loss of two cents a year ago. The company has a
solid record of beating these estimates, having missed just once in the past 18
quarters. Performance after these reports has been mixed, although competitors
Wet Seal (NASDAQ: WTSLA ) and Hot Topic (NASDAQ: HOTT ) have done well after
their recent reports. ZUMZ shares were knocked lower earlier this month after
disappointing same-store sales numbers in July. But the market appears to have
digested the news, and the stock is rebounding from an 11-month low. On Monday,
the stock was up 3.5% to $19.30. Sentiment toward ZUMZ is tilted toward the
bearish, especially among the shorts. Shorted shares represent about 30% of the
float, meaning that the stock could benefit from short-covering, especially if
the company beats the earnings estimate. Analysts are likewise skeptical, as
fewer than half (eight of 19) consider the retailer a buy. The tide appears to
be turning for ZUMZ. With other specialty mall-based retailers doing well after
their recent earnings report, the stock putting in a bottom, and plenty of
pessimism available to unwind into buying pressure, we like ZUMZ heading into
earnings. We're going deeper in the money on this option play, as the bid/ask
spread is more favorable. Buy the Sept. 17.50 call for around $2.50. Have a
great trading week.
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