Zumiez Inc. reported total net sales increased 0.6 percent to $281.8 million for the 14-week fourth quarter of fiscal 2023 ended February 3, compared to $280.1 million in the 13-week quarter ended January 28, 2023. Comparable sales were down 3.9 percent.
Comparable sales for North America were down 5.4 percent and comparable sales for other international were up 0.9 percent for the 14 weeks ended February 3, 2024.
The decrease in comparable sales was said to be driven by continued inflationary pressure on the consumer, continued challenges and competition for the discretionary dollar and tougher trends in certain categories of our business.
North America net sales were $212.4 million for the 14-week 2023 quarter, a decrease of 3.4 percent from the 13-week Q4 2022. Other international net sales, which consist of Europe and Australia, were $69.4 million in Q4, up 15.2 percent from the prior-year 13-week quarter.
Excluding the impact of foreign currency translation, North America net sales decreased 3.4 percent and other international net sales increased 12.3 percent compared with Q4 2022.
From a category perspective, Men’s was reportedly the only category with positive comparable sales for the quarter, while all other categories were down from the prior year. Women’s was said to be the most negative category, followed by Accessories, Hardgoods and Footwear.
The decrease in comparable sales was reportedly driven by a decrease in transactions, partially offset by an increase in dollars per transaction. Dollars per transaction were up for the quarter, driven by an increase in units per traction and an increase in average unit retail.
Gross profit was 34.3 percent of sales for the fourth quarter ,compared with 34 percent in the fourth quarter of 2022. The 30 basis point increase in gross margin was said to be primarily driven by 70 basis points of benefit in shipping costs related to better outbound shipping rates, 60 basis points positive impact related to a mix shift away service and related shipping revenue in the prior year results, which carried a negative margin during the prior-year quarter and 30 basis points of leverage in store occupancy costs related to a reduction in total expense year-over-year combined with the modest increase in sales related to the extra week.
These benefits were reportedly offset by a 110 basis point reduction in product margin due to discounted selling to manage aged inventory, which was generally in line with the company’s expectations and a 20 basis points of deleverage in fixed and other costs included in gross margin.
Net loss in the fourth quarter of fiscal 2023 was $33.5 million, or a loss of $1.73 per share, compared to net income of $11.4 million, or EPS of 59 cents per diluted share, in the fourth quarter of the prior fiscal year. Fiscal 2023 fourth quarter results reflect a goodwill impairment charge of $41.1 million, or $2.13 per share after-tax, related to the company’s decision to slow store growth and focus on profitability in Europe and the corresponding impact on the future cash flow projections of its Blue Tomato business.
Total net sales decreased 8.6 percent to $875.5 million for the 53-week ended fiscal 2023 year ended February 3, compared to $958.4 million reported for the 52-week period ended January 28, 2023.
Net loss for fiscal 2023, inclusive of the $41.1 million goodwill impairment charge, was $62.6 million, or a loss of $3.25 per share, compared to net income for fiscal 2022 of $21.0 million, or EPS of $1.08 per diluted share.
“The fourth quarter represented an encouraging finish to what was a challenging year,” expressed company CEO Rick Brooks on a conference call with analysts. “As was the case throughout fiscal 2023, we faced headwinds in the fourth quarter, including highly promotional activity across the soft lines retail sector and an increasingly selective consumer pressured by the multiyear inflationary impact on discretionary income.”
Brooks said the men’s business turned positive in November and growth accelerated in both December and January. Overall, momentum reportedly built throughout the quarter with total sales trends improving month-to-month, culminating January turning to positive comparable sales, fueling fourth quarter sales and adjusted EPS that were both above the high-end of the retailer’s guidance ranges.
“In many ways, the fourth quarter monthly sales trends were a microcosm of the trend we’ve seen throughout the year,” Brooks continued, “To recap our improving trend line, year-over-year total sales were down 17 percent in first quarter, down 12 percent in the second quarter, down 9 percent in the third quarter and down less than 4 percent in the fourth quarter, excluding the benefit of the 53rd week, which drove sales slightly positive for the quarter.”
Fiscal First Quarter-to-Date Sales
Total first quarter-to-date sales for the four weeks ended March 2, 2024 decreased 3.1 percent, from the four weeks ended February 25, 2023. Comparable sales for the four weeks ended March 2, 2024 decreased 6.2 percent from the four weeks ended March 4, 2023.
From a regional perspective, comparable sales for North America decreased 2.6 percent and other international comparable sales decreased 17.8 percent.
“As we enter 2024, we have continued to see some areas of strength in our business,” Brooks noted. “While total sales trends for February were not yet positive, we did see sequential strength as we moved through the month and noted that the primary headwind was tied to seasonal snow sales in Europe, that turned negative in February after being significantly positive in January due to the timing of promotions.”
Europe Issues and Solutions
For October through February, Brooks shared that Europe snow sales were down low single digits despite significant variability across periods that pushed seasonal snow comparable sales positive in January and negative in February.
“To be clear, 2023 was a disappointing year overall, and we’re not satisfied with our results,” he said.
“With two years of meaningful negative comparable sales trends, the business has deleveraged significantly, and we experienced the first annual net loss in our history this last year,” Brooks said. “As we look to 2024, we expect the macro climate to remain a headwind in the near-term, as Chris will detail in our outlook. However, we are optimistic that the work we are doing will inflect our trend line positive. Overall, we will focus on items within our control to grow sales and drive the business back to profitability. To that end, we plan to take specific actions to adjust portions of our strategy in the new year.”
Brooks said the last few years have been particularly challenging for profitability in the European market. The business was reportedly close to achieving breakeven in 2019 before the onset of the pandemic.
“However, the longer and stricter pandemic area closures in Europe, combined with the inflationary impact to the consumer and instability in the region in the year since, have resulted in earnings declines for our European business since 2020,” he added.
“To correct this negative trend, we are pivoting our focus away from store expansion to enhancing the productivity of the existing European business,” the CEO proclaimed. “With a solid foundation of nearly 90 stores across nine countries and a pan European web business, we believe we have adequate penetration today in the relevant European markets to unlock the potential for the concept and to create value as we work through what has been a difficult cycle. By focusing on increasing the productivity of our current business in Europe, we’ll improve our near-term profitability and cash flow. We’re also creating a profitable platform for long-term growth in the future.
“We have seen positive signs such as double-digits comparable sales growth in Germany, the Netherlands, Norway and Sweden during the year, which gives us confidence that we can achieve profitability in Europe as we’ve done in other international markets like Canada and Australia. There is no doubt that trends emerge locally and grow globally. Remaining relevant in these markets is a significant advantage to Zumiez over the long-term and serving both our customers and our brand partners,” said.
A Broader Solution
Brooks said the heightened emphasis on profitability extends beyond Europe.
“In 2023, we closed 20 underperforming North American stores and expect to close an additional 20 to 25 locations in 2024, should results continue to be challenged,” he suggested. “As a result, we have reduced field and corporate staffing levels to align with reduced store count. We are also further optimizing store labor through several initiatives, including adjustments to staffing models at lower volume stores. We have made structural changes to reducing shipping and logistic costs company-wide and continue to implement other cost savings opportunities in many areas throughout the organization.”
The CEO said the company is also making investments to ensure they continue to win with customers, including injecting assortments with newness.
“In 2023, we launched nearly 200 new brands, almost double a typical year and we expect this newness with relevant and desired brands to continue to attract a broader customer set into 2024 and beyond,” he outlined. “We’re already seeing our new brands launched in the last couple of years represent a larger portion of our sales than we’ve historically seen, which we believe is an indication that they are resonating with our customers.”
He also pointed to private label brands as an area for profitable growth.
“Private Label brands represented approximately 23 percent of sales in 2023 compared to 18 percent in 2022 and 13 percent in 2021, which is a testament to our teams in capturing both the trend and value customer and provides another significant runway for growth,” Brooks said. “And we’re maintaining our best-in-class service in stores and on the web, with continued investment in training and technology that combined are aimed at enhancing our relationship with customers and connecting with them in a more personalized and relevant way.”
Before moving on to the outlook, he made the point that after two challenging years, Zumiez ended 2024 with a strong balance sheet and over $170 million in cash that will allow it to weather the current environment.
Balance Sheet
Company CFO Chris Work reiterated on the call that the business ended the year in a strong financial position.
Zumiez had cash and current marketable securities of $171.6 million as of February 3, 2021, compared to $173.5 million as of January 28, 2023. The slight decrease in cash and current marketable securities over the last year was said to be driven primarily by capital expenditures of $20.4 million, partially offset by cash flow from operations of $14.8 million. As of February 3, 2024, Zumiez had no debt on the balance sheet and continue to maintain its full unused credit facility.
“We ended the year with $128.8 million in inventory, down 4.4 percent compared with $134.8 million last year, Work shared. “On a constant currency basis, our inventory levels were down 4.1 percent from the last year, with decreases in both our North America and European businesses. Given the sales backdrop, we are happy with our ending inventory balance for 2023 and expect to continue to bring newness in as we move through 2024.”
Fiscal 2023 First Quarter Outlook
Zumiez is projecting net sales to be in the range of $167 to $172 million. Earnings (loss) per share are expected to be between a loss of $1.09 and a loss of $1.19 per share.
“With our sales results in early fiscal 2024 showing a small step back from our Q4 trends, we entered 2024 with some caution,” Work noted. “While we are optimistic that we could see continued improvement in the business as fiscal March-to-date sales have trended better with new spring receipts, we are planning more conservatively anticipating total sales for the first quarter between $167 million and $172 million.”
He said they expect first quarter 2024 product margins will be down year-over-year against the current backdrop but an improvement from the fourth quarter run rate.
“We believe that the first quarter of 2024 will see a continued negative impact on product margin related to a mix shift away from service and related shipping revenue in the prior-year results,” he said. “While the product margin impact of this mix shift is negative, the overall impact to gross profit is negligible.”
He said they do not anticipate the mix shift will have a material impact beyond the first quarter of 2024.
“Consolidated operating loss as a percentage of sales for the first quarter is expected to be between negative 15 percent and negative 17 percent, and we anticipate our loss per share will be between $1.09 and $1.19 compared to a loss of $0.96 in the prior year,” Work concluded.
The company currently intends to open approximately 10 new stores in fiscal 2024, including up to three stores in North America, three stores in Europe and four stores in Australia.
Image courtesy Zumiez, Inc.
