Zumiez Inc. is re-examining its commitment to snowsports in the wake of a another “very tough” year for snowboard gear and apparel, its CEO told analysts last week.
“We have to go back to the drawing board on how we think about the risk and reward relationship between inventory and sales in our snow business,” said Rick Brooks, CEO for the mall-based action sports retailer. “Snow in general is just a changing business for many reasons, including the fact that it doesn't snow as much.”
The initiative comes on top of ZUMZ decision to reduce the number of stores selling snow hardgoods this year, although individual stores may have increased selection based on local market demands. ZUMZ hardgoods consist primarily of snowboarding gear.
ZUMZ disclosed last week that it expects same-store sales in the fourth quarter to decline 3 to 4 percent after U.S. same-store sales declined 4.2 percent in the four weeks ended Nov. 24. ZUMZ attributed negative comp store growth in November to warm weather in western U.S. markets, the effects of Hurricane Sandy and “steep declines” in the snow business and men’s footwear, as consumer cycle out of skate and back toward basketball and athletic shoes Zumiez has traditionally not carried. It said snowsports sales were particularly weak at Blue Tomato, an Austrian action sports retailer it acquired earlier this year that derives most of its sales via e-commerce.
ZUMZ’s sales in the third quarter ended Oct. 27 increased 16.9 percent to $180.0 million from $154.0 million a year earlier. Excluding results at Blue Tomato, North American net sales were up $17.9 million, or 11.7 percent over the comparable period last year driven by 43 new stores and the comp store growth of 3.7 percent, which came on top of 6.0 percent comp growth in the third quarter of fiscal 2011.
Men's, juniors, footwear, and hard goods comped positively during the quarter, while accessories and boys comped negatively. Dollars per transaction increased compared with a year ago, driven by higher average unit retail prices. These gains were offset by declines in the number of transactions and the units per transaction. Net sales on Zumiez.com increased 32.3 percent during the quarter.
Gross margin dipped 160 basis points to 37.3 percent of sales, due the step up in estimated fair value of inventory acquired from Blue Tomato and higher web fulfillment and shipping expenses as a percent to total sales. Excluding the Blue Tomato impact, product margins improved slightly in the quarter. SG&A expenses rose 130 basis points to 25.4 percent of net sales, but declined when excluding costs associated with one-time costs, including relocation of a web fulfillment center and corporate offices.
Net income in the third quarter of fiscal 2012 was $12.7 million, or 40 cents per diluted share, compared to net income of $14.1 million, or 45 cents per diluted share, in the third quarter of the prior fiscal year. ZUMZ attributed the nearly 10 percent decline primarily to Blue Tomato sales falling short because of unfavorable weather and “pressure on consumer spending as a result of difficult macroeconomic conditions” in Europe. The lower earnings also reflect $4.0 million, or approximately 10 cents per diluted share, of Blue Tomato acquisition related costs and operations, and $500,000, or approximately a penny per diluted share, of costs associated with the relocation of web fulfillment operations and corporate offices.
ZUMZ ended the quarter with slightly lower inventory on a per square foot basis compared to the end of the prior year third quarter. Comp store sales declines lessened every week in November and comp stores sales grew in the low single digits from Thanksgiving through Sunday. Juniors comped positive during the month, while accessories, footwear, hardgoods, men's, and boys comped negative.
“Despite the relatively high consumer confidence numbers, it feels to us – and I think the promotional environment in the mall reflects it – that there seems to be a lot of anxiety out in the marketplace,” said Brooks.
While Zumiez stores will mark down men’s footwear, snow sports and other products as needed in coming weeks, Brooks said the company’s skate business continues to comp positively and that he sees no evidence that action sports lifestyle brands are becoming less relevant with its target customer, which is boys ages 12 to 15.
