Despite challenging year-ago comparisons, Zumiez Inc. increased earnings in the third quarter as strength in men’s and footwear drove sales gains, and product margins improved slightly.
In the quarter ended October 30, sales reached $289.5 million, up 6.8 percent year-over-year and 9.6 percent against the third quarter of 2019. Results were slightly below Wall Street’s consensus estimate of $290.81 million.
Net income reached a record for the third quarter of $30.7 million, or $1.25 per share, up 5.5 percent against the 2020 third quarter and surging 60 percent against the 2019 third quarter. Earnings surpassed analysts’ consensus estimate of $1.09.
“Our third quarter was a historic one,” said Rick Brooks, CEO, on Zumiez analyst call. “We’ve adeptly navigated multiple external headwinds over the past 18 months starting with the pandemic in early 2020, continued global supply chain disruptions, labor shortages, inflation, and, in some cases, closures due to COVID. Despite these challenges, this quarter, we grew net income 5.4 percent over Q3 of 2020 and a remarkable 60 percent over the third quarter of 2019 pre-pandemic levels.” He added, “In fact, we’ve now generated more income in the first nine months of 2021 than in any full-year period in the company’s history, and we still have the important holiday season ahead of us.”
Brooks said that with most school districts around the country resuming in-person learning this year, back-to-school is highlighted by strong full-price selling, reflecting pent-up demand. Men’s was Zumiez largest growth category, followed by footwear and accessories. Hardgoods was the most significant negative category, followed by women’s.
Stores were open approximately 99 percent of the potential operating days during the third quarter of 2021, compared to roughly 95 percent of the third quarter of 2020 and 100 percent in the third quarter of 2019.
From a regional perspective, North America sales were $257.5 million, an increase of 7.1 percent over 2020 and up eight percent compared to the same period in 2019. Other international net sales, which consists of Europe and Australia, were $32 million, up 4.5 percent from last year and up 25.2 percent from two years ago. It continued to experience temporary COVID-related store closures during the third quarter in Australia, noting Zumiez was open for approximately 42 percent of the available operating days.
The increase in sales, combined with product margin growth, offset an uptick in SG&A expenses due to the expansion of store hours, increased marketing and the completion of its first national store manager in-person event in 18 months in North America.
Gross margins improved to 39.6 percent for the quarter, compared with 39 percent in the third quarter 2020 and 35.8 percent in the third quarter 2019. The 60-basis-point improvement from the third quarter of 2020 was primarily due to a 60-basis-point decrease in web shipping, a 60-basis-point reduction in impairment losses related to the operate and lease rights of these assets, and a 50-basis-point increase in product margin. These increases were partially offset by a 110-basis-point rise in inventory shrinkage after historically low results in 2020 with stores closed.
SG&A expense rose slightly as a percent of sales to 25.8 percent from 25 percent a year ago, primarily driven by:
- 80 basis points of increased store payroll, as many stores increased operating hours from the pandemic-related reductions in the prior year;
- 50 basis points due to corporate costs consisting primarily of increased travel, training, and marketing; and
- 30 basis points due to a decrease in governmental subsidies.
These increases were partially offset by a 40-basis-point decrease in annual incentive compensation and 30 basis points due to leverage of its nonwage store costs.
Operating income in the third quarter of 2021 was $39.8 million, or 13.8 percent of sales, compared with $37.9 million, or 14 percent of sales, last year. In the third quarter of 2019, operating profit reached $24.3 million, or 9.2 percent of sales.
On a constant-currency basis, inventory levels increased 8.4 percent from last year.
“We continue to be happy with our current inventory position in light of the current sales trends and operating environment,” said Chris Work, CFO, on the call. “We are not immune to the global supply chain challenges facing the industry over the last 18 months but continue to work closely with our brands and suppliers to navigate the challenges that are facing all of us. Overall, the inventory on hand is healthy and selling at a favorable margin.”
Looking ahead, comparable sales in the first month of the fourth quarter through November 30 were up 8.4 percent from the comparable period in the prior year and 6.5 percent from the comparable period in 2019. Zumiez said November was again impacted by closures in Europe due to the pandemic.
Brooks said, “Our performance on Black Friday weekend bodes well for the remainder of this holiday season. While we continue to experience global supply chain challenges, labor shortages, inflation, closures tied to COVID, and, now, the risk associated with the new omicron variant, we are confident that our investments in people, sourcing and fulfillment will allow us to serve our customers with a distinct merchandise offering, great service and a seamless shopping experience that are the pillars of Zumiez’s long-term success.”
Zumiez continues to refrain from providing guidance due to the uncertainties created by the pandemic.
Photo courtesy Zumiez