Zumiez Inc. CEO Rick Brooks told analysts on the company’s fourth quarter conference call that results for the period demonstrate meaningful progress on efforts to improve profitability despite an unexpected lull in demand during the middle of the holiday season. Comparable sales increased 5.9 year-over-year on a 13-week basis, marking the beach, mountain and street lifestyle retailer’s third consecutive quarter of positive comparable sales growth.
Net sales for the 13-week fiscal 2024 fourth quarter ended February 1 decreased 0.9 percent to $279.2 million, compared to $281.8 million in the 14-week fourth quarter ended February 3, 2024.
Comparable sales for the fiscal 2024 fourth quarter increased 5.9 percent year-over-year. Company CFO Chris Work said the consolidated increase in comparable sales was driven by an increase in dollars per transaction, partially offset by a decrease in transactions. Dollar per transaction were reported up for the quarter, driven by an increase in average unit retail, partially offset by a decrease in units per transaction.
Brooks said total sales were $7 million below the midpoint of the company’s initial guidance range and $2 million above the high end of the revised guidance provided at the beginning of January.
“The overall shortfall to our original guidance was primarily driven by the lower-than-planned sales in mid to late December in our North America business,” Brooks explained.
Region Summary
Work reported North America net sales were $214.2 million, an increase of 0.8 percent from 2023. Other International net sales, which consist of Europe and Australia, were $65 million, down 6.4 percent from 2023.
“Excluding the impact of foreign currency translation, North America net sales increased 1.2 percent and Other International net sales decreased 2.7 percent compared with 2023,” added Work.
Comparable sales for North America were up 7.2 percent, marking the fourth consecutive quarter of comparable sales growth. Other International comparable sales were said to be up 1.9 percent for the quarter.
“Beyond sales, we’ve also made meaningful progress improving our cost structure,” offered Brooks. “In 2024, we closed 31 underperforming locations and implemented comprehensive operational efficiencies across our business. These include optimizing store labor through targeted staffing model adjustments, executing structural changes to reduce shipping and logistics costs, significantly reducing discount selling compared to previously elevated levels and driving overall expense management practices aimed at maximizing efficiency. These cost management initiatives are part of our broader effort to streamline operations and improve margin performance.”
The CEO said Europe sales were challenging in fiscal 2024, with comparable sales down 4.1 percent for the year. However, he noted that sales trends improved each quarter throughout the year, with the fourth quarter of 2024 turning positive at 3.7 percent.
“We knew the top line would be a challenge,” Brooks continued. “As we discussed, our focus in Europe is returning to full-price, full-margin sales, and we’re able to improve product margins by over 100 basis points from the prior year. Improved product margins and tight expense controls resulted in a smaller operating loss in 2024 despite the decline in sales.”
Category Summary
Brooks shared that Zumiez continued to see strength in its core businesses in the quarter. Women’s was said to be the largest positive comping category, followed by men’s and then footwear.
“Our men’s category maintained its positive momentum through year-end, delivering growth for the fifth consecutive quarter,” Brooks said. “Our women’s category, which has shown tremendous momentum since turning positive in Q1 continue to post strong results, becoming our largest growth category for the quarter. Footwear also positively contributed for the third quarter in a row. While Hardgoods faced some pressure due to continued downturn in Skate Hardgoods, this was partially offset by gains in our Snow category.” Work added that Accessories was the largest negative comping category, followed by Hardgoods.
Private Label Expansion
Brooks said the private label businesses continued to grow, reaching nearly 28 percent of total sales for the year, up from 23 percent in 2023 and compared to 11 percent just five years ago.
“This growth demonstrates our ability to meet both trend- and value-conscious consumers’ needs,” he added.
Income Statement Summary
Brooks added that the substantial improvement in operating profitability was a particularly encouraging element of the fourth quarter performance
Fourth quarter gross profit was $101.0 million in Q4, compared to $96.7 million in the fourth quarter of 2023. Gross margin was 36.2 percent of sales for the quarter, compared to 34.3 percent in the fourth quarter of 2023. Work said the 190 basis-point increase in gross margin was primarily driven by 160 basis points of improvement in product margin and 30 basis points of benefit in web shipping costs.
SG&A expense in the fourth quarter of 2024 was $80.9 million, or 29 percent of net sales, compared with $129.4 million, or 45.9 percent of net sales, in 2023. The 20023 result includes a $41.1 million non-cash goodwill impairment charge that resulted from the decision to slow store growth in Europe and focus on profitability.
Work said the 1,690 basis point decrease in SG&A expenses as a percent of net sales was driven by: 1,470 basis-point benefit, driven primarily by the impact of goodwill impairment charges booked in 2023 related to Europe; a 70 basis-point of leverage in non-wage store operating costs; 70 basis points of leverage in other corporate costs; 40 basis point benefit related to store wages; and a 40 basis point benefit related to incentive compensation.
Operating income in the fourth quarter was $20.1 million, or 7.2 percent of net sales, compared to the prior-year operating loss of $32.8 million, or negative 11.6 percent of net sales, inclusive of the $41.1 million goodwill impairment charge.
Net income for the fourth quarter was $14.8 million, or 78 cents per share, compared to a net loss of $33.5 million, or a loss of $1.73 per share, including the goodwill impairment charge, which on an after-tax basis was $41.1 million, or $2.13 per share.
“This improvement reflects the successful execution of our strategic initiatives throughout 2024, which has positioned us to better navigate the challenging retail environment while delivering enhanced value for our shareholders,” said Brooks.
The effective tax rate for the current quarter was 26.1 percent. “A year ago, we recorded a tax expense of $2.2 million or 7 percent despite our pretax operating loss due to the distribution of pretax income across our different tax jurisdictions,” Work detailed.
Full Year Summary
Total net sales for the 52-week fiscal year ended February 1 increased 1.6 percent to $889.2 million, compared to $875.5 million in the 53-week fiscal year ended February 3, 2024.
Full-year comparable sales increased 4.0 percent for 52 weeks ended February 1.
The net loss for fiscal 2024 was $1.7 million, or a loss of 9 cents per share. Net loss for fiscal 2023, inclusive of the $41.1 million goodwill impairment charge was $62.6 million, or a loss $3.25 per share.
Balance Sheet Summary
The CFO said the business ended the year in a strong financial position.
At year-end, the company had cash and current marketable securities of $147.6 million, compared to cash and current marketable securities of $171.6 million as of February 3, 2024.
“The decrease in cash and current marketable securities over the last year was driven primarily by common stock repurchases of $25.2 million and capital expenditures of $15 million, partially offset by cash flow from operations of $20.7 million,” Work explained. “As of February 1, 2025, we have no debt on the balance sheet and continue to maintain our full unused credit facility.”
Zumiez ended the year with $146.6 million in inventory, up $17.8 million, or 13.8 percent, compared with $128.8 million at the end of 2023, driven primarily by the North America business.
“On a constant-currency basis, our inventory levels were up 15.6 percent from last year,” said Work. “As we discussed in our third quarter earnings call, we pulled inventory receipts forward in the fourth quarter in anticipation of the tariffs planned to go into effect late in the quarter. This pull-forward accounts for approximately $7.4 million of the inventory increase at year-end. Beyond that amount, our inventory is still higher than we would have anticipated, primarily due to the sales shortfall leading into the Christmas holiday. Though we are carrying more than we would prefer, we believe in the quality of our inventory on hand and are planning product margin increases in fiscal 2025.”
Outlook
Total first quarter-to-date (QTD) sales for the four weeks ended March 1 increased 1.7 percent, compared to the four weeks ended March 2, 2024. Comparable sales for the QTD period increased 4.3 percent versus the prior-year comparative period.
From a regional perspective, QTD comparable sales for North America increased 6.4 percent and other international comparable sales decreased 3.7 percent year-over-year.
“Our plan for 2025 is to stay the course and focus on executing the product and customer engagement initiatives that have fueled our third consecutive quarter of positive comps while staying nimble and financially flexible to deliver enhanced profitability,” Brook said. “We have demonstrated our ability to navigate challenging cycles and emerge stronger and I am confident that Zumiez is on right course to repeat this accomplishment once again.”
Brooks offered that the company’s strong balance sheet and robust cash position provides it with the flexibility to navigate near-term challenges while continuing to invest in long-term growth opportunities.
“We’ve demonstrated our ability to navigate challenging cycles and emerge stronger throughout our 47-year history. I’m confident that we are on the right course to repeat this accomplishment,” Brooks concluded.
Fiscal 2025 First Quarter Outlook
The company is introducing guidance for the three months ending May 3, 2025.
Net sales are projected to be in the range of $179 to $183 million.
Earnings per share are expected to be between a loss of 72 cents and a loss of 82 cents.
Stores
The company currently intends to open approximately nine new stores in fiscal 2025, including up to six stores in North America, two stores in Europe, and one store in Australia.
Stock Repurchase Authorization
On March 12, 2024, Zumiez Inc. approved the repurchase of up to an aggregate of $25 million of common stock. The repurchase program is expected to continue through March 31, 2026 unless the time period is extended or shortened by the Board of Directors.
Image courtesy Zumiez, Inc.
