Teen action sports retailer Zumiez, Inc. reported a 70% spike in profit for the fiscal fourth quarter ended Jan. 29, but management expressed significant concern going forward as rising material costs, tough comparisons and soaring food and fuel prices paint an uncertain picture for the short-term outlook.


In a conference call with analysts, CEO Rick Brooks noted that “there are potential headwinds on the horizon” as the retailer forecasted a fiscal first quarter net loss of 3 cents per share to flat earnings. Brooks warned that rising commodities costs – which he said may be passed on to the consumer – will most likely squeeze margins as fiscal 2011 unfolds. Rising goods prices, along with soaring gas prices fueled by unrest in the Middle East, will likely create a much more cautious buying environment. He added.

 

“There are too many retailers, too many stores – and the stores are too big. I think those things need to be adjusted,” he said during the conference call. “The cost pressures are real and it appears they are here to stay….” Brooks added that management for Zumiez, coming off a very strong final quarter of 2010, is poised to deal with input cost issues.


Fiscal fourth quarter sales increased 17.9% to $156.2 million from $132.4 million in the prior-year period on comps that improved 13.0% on top of a 1.7% decrease in the Q4 2009. Sales from the retailer’s website jumped 130% during the quarter. Brooks said a “very strong” holiday season capped off a year-end comp improvement of 11.9% – the best full-year comp performance for the company in four years. For the quarter, all of the company’s departments – with the exception of boys – had positive comps, with the biggest contributions coming from accessories, men’s and footwear departments, which combined to account for approximately 70% of total sales.


Comparable store transactions drove comp store gains, partially offset by a decline in average value per transaction. Dollars per transaction decreased due to a decline in average unit retail, and to a lesser extent a decrease in units per transaction, according to management.


The retailer posted net income for the quarter of $15.0 million, or 49 cents per diluted share, compared with a prior-year period net income of $8.8 million, or 29 cents per diluted share, which included a non-cash charge of $1.8 million, or 4 cents per diluted share, associated with the impairment of store related assets.

Looking ahead, management expects same-store sales for the first quarter to increase in the mid-single-digit to high-single-digit range with total sales between $100 million and $102 million. Operating margins are planned to be in the negative 2% to flat range with a diluted loss per share of between 3 cents and breakeven. Of note, management added that ZUMZ expects to open 44 new stores in fiscal 2011, including its first store in Canada.