Intrinsic value of Zumiez - ZUMZ

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$12.00

  Intrinsic Value

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  Value-price divergence*

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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of ZUMZ stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2017), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  3.98
  8.30
  7.97
  7.67
  7.41
  7.17
  6.95
  6.75
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
  5.84
  5.75
  5.68
  5.61
  5.55
  5.50
  5.45
  5.40
  5.36
  5.32
  5.29
  5.26
  5.24
  5.21
  5.19
  5.17
  5.16
Revenue, $m
  836
  871
  940
  1,012
  1,087
  1,165
  1,246
  1,330
  1,418
  1,509
  1,604
  1,702
  1,805
  1,912
  2,024
  2,140
  2,262
  2,388
  2,521
  2,660
  2,804
  2,956
  3,114
  3,280
  3,454
  3,636
  3,826
  4,025
  4,234
  4,453
  4,683
Variable operating expenses, $m
 
  794
  856
  922
  990
  1,060
  1,133
  1,210
  1,289
  1,371
  1,457
  1,541
  1,634
  1,731
  1,832
  1,937
  2,047
  2,162
  2,282
  2,408
  2,539
  2,676
  2,819
  2,970
  3,127
  3,291
  3,464
  3,644
  3,833
  4,032
  4,240
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  797
  794
  856
  922
  990
  1,060
  1,133
  1,210
  1,289
  1,371
  1,457
  1,541
  1,634
  1,731
  1,832
  1,937
  2,047
  2,162
  2,282
  2,408
  2,539
  2,676
  2,819
  2,970
  3,127
  3,291
  3,464
  3,644
  3,833
  4,032
  4,240
Operating income, $m
  40
  77
  84
  90
  98
  105
  113
  121
  129
  138
  146
  161
  171
  181
  192
  203
  214
  226
  239
  252
  266
  280
  295
  311
  327
  344
  362
  381
  401
  422
  444
EBITDA, $m
  68
  106
  115
  123
  133
  142
  152
  162
  173
  184
  196
  208
  220
  233
  247
  261
  276
  291
  307
  324
  342
  360
  380
  400
  421
  443
  466
  491
  516
  543
  571
Interest expense (income), $m
  0
  0
  0
  1
  1
  1
  2
  2
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  9
  10
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
Earnings before tax, $m
  40
  77
  83
  90
  97
  104
  111
  118
  126
  134
  143
  157
  166
  176
  186
  196
  207
  219
  231
  243
  256
  270
  284
  299
  314
  331
  348
  366
  385
  404
  425
Tax expense, $m
  14
  21
  22
  24
  26
  28
  30
  32
  34
  36
  39
  42
  45
  48
  50
  53
  56
  59
  62
  66
  69
  73
  77
  81
  85
  89
  94
  99
  104
  109
  115
Net income, $m
  26
  56
  61
  66
  70
  76
  81
  86
  92
  98
  104
  115
  121
  128
  136
  143
  151
  160
  168
  177
  187
  197
  207
  218
  230
  241
  254
  267
  281
  295
  310

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  79
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  427
  367
  396
  427
  458
  491
  525
  561
  598
  636
  676
  718
  761
  806
  853
  902
  953
  1,007
  1,063
  1,121
  1,182
  1,246
  1,313
  1,383
  1,456
  1,533
  1,613
  1,697
  1,785
  1,878
  1,974
Adjusted assets (=assets-cash), $m
  348
  367
  396
  427
  458
  491
  525
  561
  598
  636
  676
  718
  761
  806
  853
  902
  953
  1,007
  1,063
  1,121
  1,182
  1,246
  1,313
  1,383
  1,456
  1,533
  1,613
  1,697
  1,785
  1,878
  1,974
Revenue / Adjusted assets
  2.402
  2.373
  2.374
  2.370
  2.373
  2.373
  2.373
  2.371
  2.371
  2.373
  2.373
  2.370
  2.372
  2.372
  2.373
  2.373
  2.374
  2.371
  2.372
  2.373
  2.372
  2.372
  2.372
  2.372
  2.372
  2.372
  2.372
  2.372
  2.372
  2.371
  2.372
Average production assets, $m
  147
  161
  174
  187
  201
  216
  231
  246
  262
  279
  297
  315
  334
  354
  374
  396
  418
  442
  466
  492
  519
  547
  576
  607
  639
  673
  708
  745
  783
  824
  866
Working capital, $m
  137
  58
  63
  68
  73
  78
  83
  89
  95
  101
  107
  114
  121
  128
  136
  143
  152
  160
  169
  178
  188
  198
  209
  220
  231
  244
  256
  270
  284
  298
  314
Total debt, $m
  0
  10
  20
  31
  42
  53
  65
  77
  90
  103
  117
  132
  147
  163
  179
  196
  214
  232
  252
  272
  293
  316
  339
  363
  389
  415
  443
  473
  503
  535
  569
Total liabilities, $m
  120
  128
  138
  149
  160
  171
  183
  195
  208
  221
  235
  250
  265
  281
  297
  314
  332
  350
  370
  390
  411
  434
  457
  481
  507
  533
  561
  591
  621
  653
  687
Total equity, $m
  307
  239
  258
  278
  299
  320
  343
  366
  390
  415
  441
  468
  496
  526
  556
  588
  622
  657
  693
  731
  771
  812
  856
  902
  949
  999
  1,052
  1,106
  1,164
  1,224
  1,287
Total liabilities and equity, $m
  427
  367
  396
  427
  459
  491
  526
  561
  598
  636
  676
  718
  761
  807
  853
  902
  954
  1,007
  1,063
  1,121
  1,182
  1,246
  1,313
  1,383
  1,456
  1,532
  1,613
  1,697
  1,785
  1,877
  1,974
Debt-to-equity ratio
  0.000
  0.040
  0.080
  0.110
  0.140
  0.170
  0.190
  0.210
  0.230
  0.250
  0.270
  0.280
  0.300
  0.310
  0.320
  0.330
  0.340
  0.350
  0.360
  0.370
  0.380
  0.390
  0.400
  0.400
  0.410
  0.420
  0.420
  0.430
  0.430
  0.440
  0.440
Adjusted equity ratio
  0.655
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  26
  56
  61
  66
  70
  76
  81
  86
  92
  98
  104
  115
  121
  128
  136
  143
  151
  160
  168
  177
  187
  197
  207
  218
  230
  241
  254
  267
  281
  295
  310
Depreciation, amort., depletion, $m
  28
  29
  31
  33
  35
  37
  39
  42
  44
  46
  49
  46
  49
  52
  55
  58
  62
  65
  69
  72
  76
  80
  85
  89
  94
  99
  104
  110
  115
  121
  127
Funds from operations, $m
  39
  85
  92
  98
  105
  113
  120
  128
  136
  145
  153
  161
  171
  180
  191
  202
  213
  225
  237
  250
  263
  277
  292
  307
  323
  340
  358
  377
  396
  416
  438
Change in working capital, $m
  -9
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
Cash from operations, $m
  48
  81
  87
  94
  100
  107
  115
  122
  130
  138
  147
  154
  164
  173
  183
  194
  205
  216
  228
  241
  254
  267
  281
  296
  312
  328
  345
  363
  382
  402
  422
Maintenance CAPEX, $m
  0
  -22
  -24
  -26
  -28
  -30
  -32
  -34
  -36
  -39
  -41
  -44
  -46
  -49
  -52
  -55
  -58
  -62
  -65
  -69
  -72
  -76
  -80
  -85
  -89
  -94
  -99
  -104
  -110
  -115
  -121
New CAPEX, $m
  -20
  -13
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -22
  -23
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -41
  -42
Cash from investing activities, $m
  -52
  -35
  -37
  -39
  -42
  -44
  -47
  -50
  -52
  -56
  -59
  -62
  -65
  -69
  -73
  -77
  -80
  -85
  -90
  -95
  -99
  -104
  -109
  -116
  -121
  -128
  -134
  -141
  -149
  -156
  -163
Free cash flow, $m
  -4
  47
  51
  55
  59
  63
  68
  73
  78
  83
  88
  93
  98
  104
  111
  117
  124
  131
  139
  146
  154
  163
  172
  181
  191
  201
  211
  222
  234
  246
  259
Issuance/(repayment) of debt, $m
  1
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
  32
  34
Issuance/(repurchase) of shares, $m
  -21
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -20
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
  32
  34
Total cash flow (excl. dividends), $m
  -23
  57
  61
  65
  70
  75
  80
  85
  91
  96
  102
  107
  113
  120
  127
  134
  142
  150
  158
  167
  176
  185
  195
  205
  216
  227
  239
  251
  264
  278
  292
Retained Cash Flow (-), $m
  -10
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -52
  -55
  -57
  -60
  -63
Prev. year cash balance distribution, $m
 
  76
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  114
  42
  45
  49
  53
  58
  62
  67
  71
  76
  80
  85
  91
  96
  102
  108
  115
  122
  129
  136
  143
  151
  160
  168
  177
  187
  197
  207
  218
  229
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  110
  38
  40
  41
  41
  42
  42
  42
  41
  40
  38
  36
  34
  32
  30
  28
  25
  22
  20
  17
  15
  13
  10
  9
  7
  5
  4
  3
  2
  2
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Zumiez Inc. operates as a specialty retailer of apparel, footwear, accessories, and hardgoods for young men and women. Its hardgoods include skateboards, snowboards, bindings, components, and other equipment. As of August 27, 2016, the company operated 674 stores, including 605 in the United States, 44 in Canada, and 25 in Europe under the names of Zumiez and Blue Tomato. It also operates zumiez.com and blue-tomato.com ecommerce Websites. The company was founded in 1978 and is headquartered in Lynnwood, Washington.

FINANCIAL RATIOS  of  Zumiez (ZUMZ)

Valuation Ratios
P/E Ratio 11.5
Price to Sales 0.4
Price to Book 1
Price to Tangible Book
Price to Cash Flow 6.2
Price to Free Cash Flow 10.7
Growth Rates
Sales Growth Rate 4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -42.9%
Cap. Spend. - 3 Yr. Gr. Rate -11.1%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 6.2%
Ret/ On Assets - 3 Yr. Avg. 7.2%
Return On Total Capital 8.6%
Ret/ On T. Cap. - 3 Yr. Avg. 9.9%
Return On Equity 8.6%
Return On Equity - 3 Yr. Avg. 9.9%
Asset Turnover 2
Profitability Ratios
Gross Margin 32.9%
Gross Margin - 3 Yr. Avg. 33.9%
EBITDA Margin 8.1%
EBITDA Margin - 3 Yr. Avg. 10%
Operating Margin 4.7%
Oper. Margin - 3 Yr. Avg. 6.4%
Pre-Tax Margin 4.8%
Pre-Tax Margin - 3 Yr. Avg. 6.5%
Net Profit Margin 3.1%
Net Profit Margin - 3 Yr. Avg. 4%
Effective Tax Rate 35%
Eff/ Tax Rate - 3 Yr. Avg. 37.4%
Payout Ratio 0%

ZUMZ stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ZUMZ stock intrinsic value calculation we used $804 million for the last fiscal year's total revenue generated by Zumiez. The default revenue input number comes from 2017 income statement of Zumiez. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our ZUMZ stock valuation model: a) initial revenue growth rate of 8.3% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for ZUMZ is calculated based on our internal credit rating of Zumiez, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Zumiez.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of ZUMZ stock the variable cost ratio is equal to 91.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for ZUMZ stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Zumiez.

Corporate tax rate of 27% is the nominal tax rate for Zumiez. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the ZUMZ stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for ZUMZ are equal to 18.5%.

Life of production assets of 6.8 years is the average useful life of capital assets used in Zumiez operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for ZUMZ is equal to 6.7%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $297 million for Zumiez - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 25.206 million for Zumiez is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Zumiez at the current share price and the inputted number of shares is $0.3 billion.


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Stock chart of ZUMZ Financial statements of ZUMZ Annual reports of ZUMZ
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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