Zumiez delivered the company’s “strongest second quarter in several years,” according to Rick Brooks, CEO, with a big boost from Vans.

Overall, comparable sales increased 6.3 percent in the quarter ended August 4, topping initial guidance calling for increases of 3 percent to 5 percent. The men’s category led the comp gains, but footwear came in second and then women’s. Hard goods was the largest negative comping category, followed by accessories.

For the month of August, comps accelerated to 7.4 percent growth, led by footwear and followed by men’s, women’s and accessories. Hard goods saw the only negative comp in the month.

On a conference call with analysts, Brooks noted that the chain had seen about five years of comp declines in footwear because the trends had been geared toward athletic footwear and basketball, remarking that’s “not really a cycle we could play in.” But the trends have cycled back.

Said Brooks, “It’s been steadily rebounding for us over the last couple of years, and I will tell you that our buyers planned well for this holiday or this back to school season to take advantage of what we felt was a trend in footwear that we could ride.”

While Zumiez has a policy of not specifying brands on the company’s conference calls for competitive reasons, Brooks implied Vans has been the driver of the footwear strength and is leading the cycle. Said Brook, “I like to think this is a steady trend, and the only caution we have for you it is really being driven by a particular brand, and that would be the only caution I would put on that. But this is what customers want to buy now, and we’re a great place for them to come to get it, and I think we can also do it in a way that we can build the whole outfit for our customers.”

Footwear represented 15 percent of sales in 2017 and remains down from the company’s peak of 22 percent about five years ago.

Brooks said a similar phenomenon is happening in apparel where three brands that he did not specify have “moved from emerging to growth brands” and are helping drive momentum. Overall, he said Zumiez has seen some consolidation in the company’s top 10 and top 20 brand groups as certain brands have stepped up as primary drivers.

Said Brooks, “This is exactly the kind of things we expect in a strong cycle where we have real drivers.”

According to the company’s website, popular brands on Zumiez.com currently include Vans, Obey, Adidas, Thrasher, Sketchy & Tank, Champion, HUF, Diamond Supply, Herschel, Off Future and Empyre.

Brooks stressed that Zumiez remains committed to bringing in new brands with the company’s business model relying on emerging brands bringing newness to offerings while also developing into bigger top-line drivers in the years ahead. Zumiez typical turns over 20 to 30 percent of the company’s brand mix and the company is just slightly below those figures even with the consolidation in the company’s bigger brands.

Said Brooks, “The pipeline seems to be strong, and I think our goal is to continue to help those young brands achieve their potential in the marketplace, and as they grow then to take them across our global platform.”

Overall, sales in the quarter rose 13.9 percent to $219.0 million, topping guidance calling for sales in the range of $213 million and $217 million. The 6.3 percent comp gain built on a 4.7 percent gain last year.

The quarter benefited by approximately $10 million from the movement caused by last year’s 53-week of the calendar which shifted several back-to-school selling days in early August into Q2 this year versus Q3 last year.

Earnings reached $4.4 million, or 17 cents a share, rebounding from a loss of $608,000, or 2 cents, in the second quarter of the prior fiscal year. Earnings came in well ahead of guidance calling earnings between 4 cents and 9 cents.

Gross margin was 33.1 percent in the quarter, an increase of 200 basis points. The increase was primarily driven by 160 basis points of leverage in store occupancy costs, 30 basis points of improvement in product margin, and 30 basis points of lower inventory shrinkage. These increases were partially offset by 30 basis points of increase in shipping expenses.

SG&A expense was reduced to 30 percent compared to 31.5 percent in the prior year. The 150 basis point decrease was primarily driven by 140 basis points of leverage and a 40 basis points decrease due to the timing of the company’s annual training events, partially offset by 40 basis point increase related to incentive compensation.

Brooks said Zumiez notched the company’s eighth consecutive quarter of comp growth and transaction gains, and he credited the adjustments Zumiez for the “empowered consumer” with access to “so much information,” the quicker trends cycle and the blending of physical and digital retail.

The four priorities Zumiez has emphasized:

  • Continue to identify new brands and trends in the marketplace both locally and globally. Brooks said this enables Zumiez “to offer the product our consumers are looking for no matter when or where they choose to interact with our brands.”
  • Use a strong recruiting, training and sales culture to drive more personalized human-to-human connections. He said, “We continue enhancing our customer service aspect of our business across a physical and digital sales experiences optimizing the speed in which our customers get what they’re looking for and learning more about the customers lifecycle.”
  • Establishing a strategic presence in six countries across three continents with a digital presence. This enables Zumiez to support the company’s branded partners on a global basis as well as emerging local brands.
  • Continuously testing and learning from customers that drive enhancements in areas such as localized fulfillment and the Zumiez STASH rewards program.

For the third quarter, comparable sales are expected to increase between 4 percent and 6 percent. Total sales are projected in the range of $247 million to $252 million. EPS is expected to range between 45 cents and 51 cents compared to 48 cents in the prior year third quarter. The calendar shift is expected to negatively impact Q3 sales by approximately $10 million, operating profit by approximately $3.2 million and EPS by 10 cents, the same amounts that benefited Q2.

The guidance in the third quarter is also negatively impacted by approximately 3 cents per share related to the company’s inability to recognize a tax benefit on losses in certain jurisdictions within Europe, an issue that has also negatively impacted the first and second quarters of this year.

For the full year, comparable sales are now expected to expand in the mid-single-digit range, up from previous expectations of low single-digit growth

Operating profit growth is expected in the mid to high teens, up from expectations calling for high single-digit operating profit growth. The gains are expected despite the headwind of the 53rd week in 2017 and the STASH loyalty program deferred revenue adjustment which benefited operating profit by $3.8 million in the fourth quarter of 2017.

Photo courtesy Zumiez