We have exited Zumiez (NAS:ZUMZ). Since our initiation report on 6/1/2023 (link here), Zumiez is up 11.3%. In it, we believed that Zumiez had significant upside potential of 70%. While we still believe that Zumiez is a fundamentally sound retailer and undervalued, the below factors have influenced our decision to sell.
1. Communication with Management Ended: We believe Zumiez has made significant missteps in their buyback programs. While the current low stock price mitigates the issue, the absence of public or private acknowledgment of these mistakes by management leads us to anticipate a repeat in the future. We discussed this thoroughly in our activist letter on 7/7/2023 (link here). Before the submission of this open letter to Zumiez board we had previously maintained email and video exchanges with management. Regrettably, after the letter, management ceased all communications with us. In the realm of small-cap companies, where public information is less abundant compared to larger firms, maintaining an open dialogue with management is essential to our process. The loss of this communication channel significantly hampers our ability to conduct ongoing due diligence.
2. Increased Consumer Discretionary Exposure: As part of our commitment to sound portfolio management, we continuously assess our risk exposures. Since our original investment in Zumiez, we have built positions in other compelling consumer discretionary companies. For instance, we have highlighted Doc Martens in Stock Sonar several times, and we have begun accumulating shares in another promising consumer discretionary company, which we will share with readers on February 1st. Both companies have recently become available at attractive valuations, offering substantial upside potential with a strong margin of safety. We believe in maintaining a concentrated portfolio, and when strong opportunities arise within the same sector, we reevaluate our positions.
INVESTMENT DISCLAIMERS & INVESTMENT RISKS
Past performance is not necessarily indicative of future results. All investments carry significant risk, and it’s important to note that we are not in the business of providing investment advice. All investment decisions of an individual remain the specific responsibility of that individual. There is no guarantee that our research, analysis, and forward-looking price targets will result in profits or that they will not result in a full loss or losses. All investors are advised to fully understand all risks associated with any kind of investing they choose to do.