Shares of Zumiez, Inc. are trading down about 13 percent in mid-day trading Friday after the action-sports chain reported fourth-quarter earnings that were short of expectations and forecast a steep decline in first-quarter earnings as sales sharply deteriorated in recent weeks.

For the first quarter, Zumiez expects sales in the range of $215 million and $221 million, down at least 20 percent from $279.1 million in the prior year.

EPS for the quarter is expected to be break-even to a positive 10 cents, well down from $1.03 reported in a record 2020 first quarter.

“After the lapping the impact of the January 2021 stimulus payments, we are now expecting the first half of the year to be much tougher as we anniversary the larger March 2021 economic stimulus,” said Chris Work, CFO, on a call with analysts. “In addition, since the start of Russia’s invasion of Ukraine 14 days ago, we have experienced a noticeable change in consumer spending and expect the complex impact on global inflation will be an added headwind in the near term. For the back half of the year, we are more optimistic that trends will improve as our customer shops during the important back-to-school and holiday seasons. As always, we intend to remain flexible and agile in adjusting inventory, expense, and capital-allocation plans based on any changes in these events.”

For 2022 overall, sales are anticipated to decline in the low-single-digit levels against record sales in 2021. The U.S. business is expected to remain challenged heading into the second quarter before returning to normal during the peak selling seasons. Internationally, strong growth for 2022 is expected across Canada, Europe, and Australia as those regions are expected to benefit from more normalized operations, albeit with some expected near-term softness in Europe due to the ongoing situation in Ukraine. The company operates Blue Tomato and Fast Times overseas.

The fourth quarter came in short of Zumiez’s expectations due to several factors, including a tough comparison against stimulus-fueled spending in January 2021, store traffic likely being impacted this year by the fast-spreading Omicron COVID variant, and the fact that some sales patterns started to resemble pre-pandemic seasons with volume focused around peak periods. Inventory shortages from global supply chain disruptions and added pressure on consumer spending from rising inflation were further cited as other headwinds.

Zumiez had announced in early January that total sales for the combined November and December period increased 9 percent, fueled by another strong holiday season, but warned that we expected trends to slow over the remaining month of the fourth quarter.

In the quarter ended January 29, sales increased 4.6 percent to $346.7 million, missing Wall Street’s consensus estimate of $353.18 million. Compared to 2019 fourth quarter, sales increased 5.5 percent.

From a regional perspective, North America sales were $287 million, an increase of 0.6 percent over 2020 and up 2.2 percent compared with the same period in 2019. Other international sales, which consist of Europe and Australia, were $59.6 million, up 28.8 percent from last year and up 24.6 percent from two years ago.

During the quarter, the men’s category was the largest growth category, followed by footwear, accessories, and women’s. Hardgoods was the only negative category for the quarter.

Gross margin was 38.6 percent compared to 39.1 percent a year ago. The 50-basis-point was primarily driven by 40 basis points of increased costs related to inventory shrinkage and obsolescence, 30 basis points of deleverage in occupancy costs, and 20 basis points of deleveraging in distribution fulfillment costs that were all partially offset by a 40-basis-point increase in product margins.

SG&A expense was 23.7 percent of sales in the quarter compared to 22.9 percent of net sales a year ago and 24.1 percent two years ago. The increase as a percent of net sales year over year was primarily driven by a 90 basis point increase in store wages due to continued expansion of mall hours in 2021 and also a higher rate tied to wage inflation.

Operating income was $51.7 million, or 14.9 percent of sales, compared to $53.8 million, or 16.2 percent, last year

Net earnings in the quarter declined 10.7 percent to $38.2 million, or $1.70 per share, short of analyst’s consensus estimate of $1.76. Compared to the pre-pandemic 2019 fourth quarter, earnings improved 0.8 percent from $37.9 million, or $1.48.

In the year, earnings reached $119.3 million, or $4.85 a share, up 56.6 percent from $76.2 million, or $3.00, a year ago, and ahead 78.3 percent from $66.9 million, or $2.62, on a two-year basis. Sales totaled $1.18 billion, up 19.5 percent from a year ago and ahead 14.5 percent on a two-year basis.

“While the prior-year stimulus payments and current market conditions made it difficult to lap last year’s January, our performance to close out the fourth quarter does not diminish the incredible year we delivered,” said Rick Brooks, CEO, on the call.

He noted that the latest results bring the last five years’ compound annual growth in EPS to over 36 percent. He cited a number of “positive catalysts” for 2021.

“We start the year with a historic stimulus fueled first and second quarters and were then able to capitalize on an outsized back to school season as the majority of school districts around the country resumed in-person learning this year, and finally, experienced a growth in the fourth quarter,” said Brooks.

He also pointed to the full-year benefit of “strong full-price selling,” reflecting pent-up demand and strong appeal for Zumiez’s curated product mix and omnichannel shopping flexibility.

Said Brooks, “Despite numerous challenges, including global supply chain disruption and labor shortages inflation, and closures tied to COVID, we again proved our ability to adapt and capitalize on strong consumer demand and expand our market share this year. Looking ahead, we remain confident in our ability to execute over the long term to serve our customer and drive total shareholder return.”

As of February 26, Zumiez operated 738 stores, including 602 in the U.S., 52 in Canada, 67 in Europe, and 17 in Australia. Plans for 2022 call for opening 34 stores, including 15 in North America, 14 in Europe and five in Australia.

Photo courtesy Zumiez