While delivering a better-than-expected fourth quarter, Zumiez said it expects its first-quarter loss to nearly double as it grapples with the traffic challenges facing many mall-based retailers.
Said Rick Brooks, CEO, on a conference call with analysts, “We recognize the changing consumer shopping behaviors will continue to pressure the retail industry and we are not immune. Therefore, we remain focused on managing the things we can control. Investing behind initiatives we believe will bring long-term value to both our customers and our shareholders and tightly managing our expenses.”
On Friday, shares of Zumiez slid $2.60, or 12.4 percent, to $18.40 in over-the-counter trading.
In the fourth quarter, net income jumped 38.3 percent to $18.2 million, or 74 cents a share, from $13.1 million, or 50 cents, a year ago. Year-ago results include charges of $1.2 million, or 3 cents, for exit costs associated with the shutdown of the company’s fulfillment facility in Edwardsville, KS.
On February 1, the action sports retailer had indicated that based on slightly higher than expected sales, it expected fourth quarter 2016 EPS to be at or slightly above the high end of its previous guidance range of 60 to 66 cents a share.
Total sales for the quarter climbed 8.7 percent to $263.6 million. Comparable sales increased 5.1 percent compared to a 9.5 percent decrease in the same quarter a year ago.
Increases in transaction volume partially offset a decrease in dollars per transaction resulting from lower units per transaction. Men’s, Junior’s and accessories categories comped positive, while hardgoods and footwear comped down for the quarter. From a regional perspective, North America net sales increased 7.6 percent to $228.6 million. International sales, which consists of Europe and Australia, increased 17.1 percent to $35 million.
Gross margin in the quarter improved 90 basis points to 35.7 percent, driven largely by a reduction of fixed cost resulting from the closure of its Kansas fulfillment center at the end of the prior year, leverage of its occupancy cost on higher sales and an increase in product margins. SG&A expense was reduced 80 basis points to 25.1 percent of sales, due to better leverage of its store operating expense on higher sales.
For the full year, sales increased 4 percent to $836.3 million. Same-store sales decreased 0.2 percent compared to a 5.3 percent decrease the prior year. Earnings decreased 10 percent to $25.9 million, or $1.04 per share.
Brooks said the better-than expected fourth quarter was driven by efficiencies realized from omni-channel and localization efforts, combined with a more favorable tax rate.
To support sales and reach consumers, Brooks noted that a new customer engagement suite was introduced at select locations in the U.S. and has been rolled out in 2017 across its U.S. network of stores.
“We’re very excited about this system enhancement, which along with our additional investments and our omni-channel capabilities gives us new ways to engage with our customers,” said Brooks. “Through this level of interaction in conjunction with face-to-face dialogue in its stores, we’ll be able to keep our finger on the pulse of local trends, allowing us to provide hyper localized and purely authentic product assortments and a superior personalized brand experience for our customers.”
He noted that the company over the last several years has strengthened and refined its merchandizing capabilities to better tap local demand, transitioned to localized fulfillment at its domestic stores and significantly reduced its order-to-delivery time. Several omnichannel purchase options have been added for consumers, including buy-online, pick up in store, reserve online and pay in store
“We’re excited about the progress that we made,” said Brooks. “However, as we entered 2017, we see heightened macro level economic unpredictability and continue to be impacted by other headwinds that have plagued the retail sector for most of the last few years. While we’re cautious, we remain confident in our position, in our ability to maintain cost consciousness and prudence in our strategy while focusing on the right investments that will benefit both customers and shareholders over the long-term.”
For the first quarter, sales are projected to be in the range of $178 million to $182 million, resulting in a net loss per share of 17 to 21 cents a share. The guidance assumes comparable sales growth between 0 percent and positive 2 percent. In the 2016 first quarter, the company lost 8 cents on sales of $173 million.
For February, comparable sales decreased 3.1 percent compared with a comparable sales decrease of 8.6 percent in February 2016.
The company will moderate expansion in North America compared to prior years as it approaches its targeted store count. It has increased its store count domestically by 39 percent over the past five years. Expansion will continue in more under-penetrated regions in Europe and Australia. The company intends to open 18 new stores this year, including up to 3 stores in Canada, 4 stores in Europe and 2 stores in Australia.
Photo courtesy Zumiez
