Zumiez looks to be quickly exercising an exit strategy probably put in place
when Brentwood Capital re-capped the business back in 2002, when they
took a 41% stake in the action sports retailer and added needed fuel to get
them to an IPO in less than three years. On Thursday, the 140-door retailer
filed registration papers with the SEC for an Initial Public Offering that is
expected to raise approximately $57.5 million. Zumiez is expected to trade
on the NASDAQ exchange under the ticker symbol “ZUMZ”. There were no
further details as to number of shares, share price, or timing of the IPO.
The Everett, Wash.-based retailer plans to use the net proceeds from the
offering to “fund new store openings and growth, for working capital and for
other general corporate purposes.”
As part of the IPO process, Zumiez will re-incorporate in the state of Washington,
from their current status as a Delaware corporation.
The retailer must be looking at the rapid growth of Pacific Sunwear as a bellwether
for the opportunity ahead. The boost given by the 2002 recapitalization
has helped Zumiez grow store count rapidly, adding 83 doors in five
years, while increasing sales per store at a compounded growth rate of
6.4% per year. Zumiez doors produced $1.1 million per store for the last
full fiscal year, or sales per square foot in excess of $440/sf, compared to
$882,000 per store in fiscal 1999. Due to a number of investments intended
to put the company on track for growth, operating profit growth did
not keep pace with revenue growth, increasing 24.5% at a compounded annual
growth rate for the period from fiscal 1999 to fiscal 2003, the retailers
last full fiscal period reported in the S-1 filing. The company has been profitable
in every fiscal year of its 26-year history.
Zumiez reported that net sales increased at a compound annual growth rate
of 27.5% from approximately $44.5 million in fiscal 1999 to approximately
$117.9 million in fiscal 2003. Store count grew from 53 doors to 113 doors
over the same period and the average comparable store sales growth was
10.5% per year. ZUMZ opened 15 new stores in fiscal 2003 and another 27
in fiscal 2004 for 140 total doors in 18 states at the end of fiscal 2004. The
retailer plans to open 35 new stores in fiscal 2005.
Stores were averaging 2,600 square feet and cost about $360,000 to open,
but ZUMZ has been, and plans to continue, opening new stores that average
3,000 square feet. The expanded size is expected to enable the retailer to
broaden its merchandise selection. New stores opened during fiscal 2003
generated average net sales of approximately $1.0 million during their first
full year of operations.
Management said the increase in comp store sales in the nine-month YTD
periods for fiscal 2004 was primarily due to higher net sales of footwear, accessories,
and skateboard hardgoods, partially offset by lower net sales of
snowboard hardgoods at those stores. The total increase was positively impacted
by the opening of 20 new stores versus the comparable quarter-end.
For fiscal 2003, the last full year reported in the filing, the comp store net
sales increase was said to be primarily due to higher net sales of men’s and
juniors apparel and accessories, partially offset by lower net sales of skateboard
hardgoods and boys apparel. Zumiez opened 15 stores in fiscal 2003.
For the most recent quarter reported, sales jumped 31.0% to $45.1 million
from $34.4 million in the year-ago period. Comp store sales for the quarter,
which ended October 30, 2004, increased 9.0% on top of a 5.4% comp store
sales gain in the prior year period. Net income jumped 49.9% to $3.5 million,
compared to $2.3 million in Q3 2003.
The last quarter with negative comp store sales was in the fiscal 2003 first
quarter when comps declined 4.8%. Comps increased 8.3% in Q1 last fiscal
year and grew 6.8% in the second quarter on top of a 3.5% gain in Q2 2003.
Wachovia Securities, Piper Jaffray, and William Blair & Co. will act as joint
book runners in the offering.
Other Key Metrics:
- Internet sales represent less than 1.0% of sales 1999 though 2003
- Private label was 12.8% of sales in 2004 and 12.6% in 2003
- No single brand accounted for more than 7.2% of net sales in fiscal 2004
- In fiscal 2003, the largest brand accounted for just 4.4% of net sales
- Approximately 75% of all stores were opened or remodeled within the
past five years
- All stores except one were opened or remodeled in the past ten years
- Zumiez had 426 full-time and approximately 1,076 part-time employees
at fiscal 2004 year-end