Q2 2022 Zumiez Inc Earnings Call
Okay.
Good afternoon, ladies and gentlemen, and welcome to the Zumiez, Inc. Second quarter fiscal 2022 earnings conference call.
At this time all participants are in a listen only mode. We will conduct a question and answer session to watch the end of this conference.
Before we begin I'd like to remind everyone of the company's safe Harbor language.
Today's conference call includes comments concerning Zumiez, Inc. Business outlook and contains forward looking statements. These forward looking statements and all other statements that may be made on this call are not based on historical facts.
And our subject.
And are subject to risks and uncertainties.
Actual.
Additional information concerning a number of factors that could cause actual results to differ materially from the information that will be discussed is available in <unk> filings with the SEC.
At this time I would like to turn the call over to Rick Brooks, Chief Executive Officer, Mr. Brookes, Nicole The conference it's yours.
Hello, and thank you everyone who's joining us on the call.
With me today is Chris work, our Chief Financial Officer.
I'll begin today's call with a few remarks about the second quarter and back to school before I hand, the call over to Chris who will take you through our financial results and outlook in more detail.
After that we'll open the call to your questions.
Reflecting back on this time last year the U S portion of our business is benefiting from several very strong tailwind.
The U S consumer, which prime just bandwidth of wallet fortified by another round of government stimulus and further enabled by local commies more broadly reopening after many months of closure.
Jeremy it's fresh off a record first quarter in 2021 posted the best second quarter in the company's history as we captured our fair share of that outsized demand.
Over the past 12 months dose tailwind have dissipated.
Headwinds materialized, and then intensified, particularly in our U S business.
On top of difficult sales comparison, a year ago, the operating drivers come increasingly more challenging due to lingering supply chain disruptions higher logistics costs tight labor market negative foreign currency exchange impacts and most acutely high levels of inflation, leading to intense competition for declining discretionary.
Dollars.
While each of these factors was incorporated into our outlook for this quarter and thoughts on the year inflationary pressure on the consumer intensified as the quarter unfolded.
Beyond the macroeconomic factors. We are also continuing to feel the pressure of skate hardgoods declines on the business as well.
On the business as well a push to more value added offerings away from our higher price point branded product.
The combination of these factors led to our sales coming in $12 million beneath the bottom of our expected range.
The sales shortfall, coupled with inflationary cost pressures.
Partially offset by other savings during the quarter and resulted in earnings well below our stated range.
We're disappointed that our recent performance fell short of expectations.
As we mentioned last quarter, we intend to remain flexible and agile in adjusting inventory expense and capital allocation plans based on any changes in the macroeconomic environment.
We are actively adjusting our merchandise assortments and managing expenses in order to better position ourselves for the current operating environment.
While comparisons do begin to moderate in the back half of the year based on recent trends. We believe it is prudent to adopt a more cautious view on the remainder of 2022 that account for the increased pressure we've seen on the consumer.
Despite the challenges with their business there were bright spots on the quarter.
<unk> fast times in Australia, performing exceptionally well to our plan.
Product margins remain strong while they were down slightly from the prior year, we are not giving back the vast majority of gains we've made over the past few years that our teams are able to mitigate the challenging operating environment as well as a negative country and product mix impacts.
Inventory.
It was managed very well with an overall foreign exchange adjusted increase of only four 4%.
A substantial work was complete our long term initiatives, including the opening of 34, new stores across our business since the same time last year.
While the current environment has caused a near term pause in our quarterly sales growth our focus remains on creating long term shareholder value.
<unk> four decade history of adept management through multiple business in fashion cycles, coupled with our strong balance sheet gives me confidence that this slowdown is temporary.
We've been through recessionary cycles before and our experience has been that we lead into that given the discretionary nature of our business and the impact of tough economic times on our customer base.
2008, 2009, we saw annual comparable sales down, 6.5% and 10% respectively only to be followed by comparable sales increases of 11, 9% eight 7% and 5% over 2010, 2011 and 2012, respectively.
Our customer centric strategy and strong brand and culture are driving force toward sustainable growth over time.
Our brand partnerships that enable unique self expression for our customers our enviable footprint that informs us of global trends our channels organization that allows us to create synergies across sales channels and our business model. It gives our customers full control of their shopping experience will continue to defer a differentiator zumiez in this challenging environment.
That differentiation will allow us to capture new opportunities and emerge as an even stronger competitor when these market forces subside.
That I will turn the call to Chris discuss the financials.
Thanks, Rick and good afternoon, everyone I'm going to start with a review of our second quarter results. I will then provide an update on our third quarter to date sales trends before providing some perspective on how we're thinking about the full year.
Second quarter net sales were $220 million down 18, 1% from $268 7 million in the second quarter of 2021 and down three 7% from $228 $4 million in the second quarter of 2019.
Excluding the impact of foreign currency translation net sales were down 16, 4% compared with the prior year and down 3% compared to 2019 the year over year decrease in sales was primarily driven by the benefits from domestic stimulus in the prior year as well as increased macroeconomic headwind as inflation weighed on consumer discretionary.
Spending during the current year quarter.
From a regional perspective, North America net sales were $189 9 million a decrease of 21% from 2021 and down eight 2% compared with the same period in 2019 other international net sales, which consists of Europe , Australia were $30 1 million down three 4% from last year and up 42% from <unk>.
Pandemic levels in 2019, excluding the impact of foreign currency translation North America net sales decreased 19, 8% and other international net sales increased 10% compared with 2021 from.
From a category perspective, all categories were down in total sales from the prior year during the quarter with men's being our most negative followed by hardgoods accessories women's and footwear.
<unk> quarter gross profit was $75 $1 million compared to $105 million in the second quarter of last year and $77 $2 million in the second quarter of 2019 gross margin as a percentage of sales was 34, 1% for the quarter compared with 39, 1% in the second quarter of 2021 and 33, 8% in the second.
Quarter of 2019, while product margins were strong in most geographies on full price selling this quarter the sales mix shift away from our higher margin U S business overshadowed this impact at the company level, resulting in a mixed driven decrease of 17 basis points to 500 basis point decrease in gross margin was prime.
Mary driven by lower sales in the quarter driving deleverage on our fixed cost as well as rate increases in several areas.
Store occupancy costs Deleveraged by 220 basis points on lower sales volumes.
Shrink increased by 120 basis points as we saw a return to more normalized pre pandemic levels.
Webb shipping costs increased by 80 basis points and distribution center costs Deleveraged by 70 basis points.
SG&A expense was $70 1 million or 31, 8% of net sales in the second quarter compared to $73 million or 27, 2% net sales a year ago, and $65 5 million or 28, 7% of net sales in 2019.
Compared to 2021, the 460 basis point increase in SG&A expense as a percent of sales resulted from the following.
290 basis points in our store wages tied to both deleverage on lower sales as well as wage rate increases 90 basis points related to other store operating costs, primarily impacted by lower sales levels.
90 basis points in corporate costs.
And 90 basis points and non store wages.
These increases were partially offset by 110 basis point decrease in legal costs due to a settlement recorded in the second quarter of 2021.
Operating income in the second quarter of 2022 was $5 million or two 3% of net sales compared with $32 million or 11, 9% net sales last year in the second quarter of 2019, we had an operating profit of $11 7 million or five 1% net sales net.
Net income for the second quarter was $3 1 million or <unk> 16 per diluted share.
This compares to net income of $24 million or <unk> 94 per diluted share for the second quarter of 2021, and net income of $9 million or <unk> 36 per diluted share for the second quarter of 2019 our.
Our effective tax rate for the second quarter of 2022 was 44, 7% compared with 26, 8% a year ago period, and 37% jazz and <unk>.
The tax rate in the quarter is inflated due primarily to the allocation of income across entities and the exclusion of net losses in certain jurisdictions.
We expect our annual tax rate for the year to be approximately 31%.
Turning to the balance sheet the business ended the quarter in a strong financial position, we had cash and current marketable securities of $166 $2 million as of July 32022, compared to $412 million as of July 31, 2021.
The $245 $8 million decrease in cash and current marketable securities over the trailing 12 months was driven primarily by share repurchases of $271 $2 million, resulting in a reduction of shares outstanding over the last year of 23, 6%.
We also had capital expenditures of $20 6 million, partially offset by cash generated through operations of $58 7 million.
As of July 32022, we had no debt on the balance sheet and continue to maintain our full unused credit lines.
We ended the quarter with $151 $1 million in inventory up one 1% compared with $149 $4 million last year on a constant currency basis, our inventory levels were up.
4% from last year.
Quarter 2022 inventory was flat to our second quarter 2019 inventory overall, the inventory on hand, as healthy and selling at a favorable margin.
Now to our third quarter to date results.
Net sales for the 37 day period ended September <unk> 2022 decreased 18, 1% compared to the same 37 day period in the prior year ended September six 2021 <unk>.
Compared to the 37 day period ended September nine 2019, net sales decreased 12, 6%.
Comparable sales for the 37 day period ended September five 2022 were down 19, 7% for the comparable period in the prior year and decreased 15, 3% from the comparable period in 2019.
From a regional perspective net sales for our North America business for the 37 day period ended September five 2022 decreased 19, 5% over the comparable period last year and were down 15, 4% compared to 37 day period ended September nine 2019.
While our other international business decreased two 7% versus last year and increased 25% 25, 1% compared with the same period of 2019.
Excluding the impact of foreign currency translation, North America net sales decreased 19, 4% and other international net sales increased 11, 9% compared with 2021.
From a category perspective, all categories were down for the third quarter to date men's was our largest negative category, followed by hardgoods women's accessories and footwear.
With respect to our outlook I want to remind everyone that formulating our guidance involves some inherent uncertainty and complexity in estimated sales product margin and earnings growth given the variety of internal and external factors that impact our performance with that in mind. We are currently expecting that total sales for the third quarter of fiscal 'twenty, two will be between $220 million.
And $228 million.
Consolidated operating profit as a percent of sales for the third quarter is expected to be between 0.5% and two 5% and we anticipate diluted earnings per share will be roughly <unk> to <unk> 18.
Now I want to give you a few updated thoughts on how we're looking at fiscal 2022 with the first half of 2022 behind US we are more cautious in how we're looking at the full year and the potential impacts of the current operating environment, including inflationary pressures on the consumer discretionary spending while comparisons do you begin to moderate in the back half of the year.
Just on recent trends, we believe it is prudent to adopt a more cautious view on the remainder of 2022 that balances the headwinds we are facing.
We now anticipate total sales will be down in the 18% to 19% range in 2022 as compared to 2021. This is inclusive of our third quarter guidance anticipates further pressure in the fourth quarter, given the outsized inflation concerns and the current marketing current trend lines in fiscal 2021, we achieved peak product margins once again.
Renting our six year in a row of product margin expansion as we have moved through the first half of the year. We are closely manage inventory and seen only a slight decline in product margin, despite inflationary pressures and mix pressures between categories and across countries.
We currently believe we will continue to see some product margin erosion in the third and fourth quarter and are planning the back half to be down slightly to the prior year.
We continue to manage costs across the business. However, with our current sales projections, we are anticipating deleverage across our fixed costs of the business with current and currently anticipate year over year operating profit dollars will be down approximately 73% to 77% for fiscal 2022 on the drop in sales inflationary cost pressures and they're turning to <unk>.
Normal for items like mall hours in training and events.
Diluted earnings per share for the full year is currently planned to decreased less than operating profit related to the share repurchases earlier in the year. We currently anticipate 2022 diluted earnings per share to be between $1 30, and $1 55.
We are currently planning our business, assuming an annual effective tax rate of approximately 31%. We are planning to open approximately 35, new stores during the year, including approximately 16 in North America 14 stores in Europe , and five stores in Australia we.
We expect capital expenditures for the full 2022 fiscal year to be between $29 million $31 million compared to $16 million in 2021 with the majority of the increase tied to the addition of stores in 2022.
And we expect that depreciation and amortization, excluding noncash lease expense will be approximately $21 $5 million down slightly from the prior year.
We are currently projecting our share count for the full year to be approximately $19 5 million diluted shares with that operator wed like to open the call up for questions.
Thank you.
As a reminder to ask a question you will need to press star one one on your telephone.
Star one to ask the question.
Please standby, while we compile the Q&A roster.
Okay.
Our first question comes from the line of Sharon Zackfia with William Blair. Your line is open.
Hi, good afternoon.
I guess firstly a question on the.
The October quarter guidance relative to the current trend, it's obviously, assuming kind of a greater falloff and I'm curious if that's kind of what you've seen already as back to school is kind of.
I know you tend to do much better when there is kind of peak shopping periods I'm wondering if that's informing the guidance.
Sure I'll go ahead, and take that Sharon and obviously, we're seeing quite a few different things happening in the business right now.
As we've kind of lived through this roller coaster over the last few years.
As we're thinking about kind of what's happened here in the in the back to school time, just with the pressure on the consumer tied to higher levels of inflation in the competition.
We're seeing a shift away from our higher priced brands to value.
We continue to see challenges as we mentioned in our prepared remarks around scale and the negative impact of FX not to mention some of the more higher.
Evel political challenges like the ore in Ukraine, and other things are impacting supply chain. So.
I'll talk about the quarter here in <unk>, but just kind of to further add some commentary on just what we're seeing as we kind of look at the business I think we're definitely seeing credit card spend has increased pretty meaningfully here as we think about just the domestic business.
We're seeing an increase not only in store, that's pretty dramatic with all of the offset really coming from.
Our debit card and cash spend.
Also see an increase on web that's kind of giving away from other forms of payment and then.
As we talked about kind of this value product our private label offering has really seen a spike were up almost.
450 basis points through the first six months of the year in regards to a percentage of overall sales so.
All of that is kind of playing into how we're thinking about the guidance.
As we think about the Q3 guidance, particularly.
We saw a pretty soft results really across the quarter.
Across the period to date I should say.
And back to school and so as we think about how we're planning Q3.
We're actually planning to see a little more drop off here in the domestic business.
I think there'll be a little tougher than the current trend lines and then internationally, we are expecting to hold the trend lines better about where we're at through the first five weeks is sort of how are planning has played out I think on the on the expense side of the business, where we are planning product margins down in Q3, we start.
Good to see some further fall off through the back to school timeline, although I do want to reiterate we continue to be at what I believe is a full price full margin retailer, we have been really strong margins and if we look at our margins to 19, we're still significantly ahead of where we were pre pandemic. So while we've seen a little bit of a bag.
Drop through 2021 that was our sixth year in a row of positive product margin gains. So so we're feeling really good about how the teams are managing inventory and how they're managing product margin I think the bigger part of our gross margin decline.
Factored into the guidance is really tied to some of the things that have hit us in the first six months of the year, we're seeing de leverage and cost pressure specifically around.
Occupancy and distribution and shipping costs.
On the SG&A side.
We also are showing deleverage again, a large portion of this tied to store wages and store costs as with those types of sales declines we're going to see some pressure there and then on the general corporate SG&A as well, we'll see some some deleverage there. So that's kind of how we how we thought about Q3.
Okay. Thanks for that and then I know you kind of put a lot of numbers out there very quickly, but I think.
I'd benchmark a lot solid 2019 as soon as the last few years have been very hard. So if I think about the third quarter operating margin guidance relative to the 19 I think it's down now maybe 700 800 basis points. It sounds as if the fourth quarter, it's going to be more like maybe 600 basis points Delta.
Is that some sort of cost savings, you're putting in or is there something more favorable happening with margins I'm just trying to reconcile.
A bit of that kind of narrowing of the gap if you will sequentially in the quarters.
Sure totally a fair question I think as we're thinking about Q4, we're also as our annual guidance or annual thoughts implied it.
We're thinking Q4 is going to continue to be tough based on the current trend lines.
It's not quite planned at the same level that what we've shown for Q3 in fact, we are showing that.
We get a little bit better really across all entities heading into Q4 and I think that's just really based on where our overall performance was last year, we did have.
Some pretty important closures in Q4 last year that we're not expecting too.
Happen again this year as we think about kind of the trend lines of the business, we've been pretty clear in the U S. It's been our toughest operating area at this point and the penetration of international really grows in Q4, it ends up being about.
21% of the business.
Versus 16% of the business in Q4, so we are seeing as Rick pointed out Australia has been really strong.
Europe has been performing stronger than the U S <unk>, Canada. So.
We're not seeing as much of our business as part of the business tied to domestic and then I do think there's probably a few other trend lines that we think will be stronger in Q4. So in relation to your question I think.
<unk> sales to be stronger, which will help ease the decline I think is as we've seen in our model we saw during that.
Great recession that Rick referenced in his comments when we see sales fall out of the model. There is a large flow through to the bottom line, but similarly, when were able to beat that kind of leverage point, we should see a huge flow back to the bottom line and so that's how we're thinking about the business I think with that with the sales declining a little bit less in Q4, we won't see as much of a fall.
Sure.
Okay. Thank you.
Thank you.
Please standby for our next question.
Our next.
Comes from the line of Jeff Van <unk> with B Riley Your line is open.
Yes, hi.
So just to kind of follow up on the line of discussion on the P&L given the pressures you're experiencing what would you consider to be a normalized gross margin rate I'm, just wondering if youre thinking that its kind of close to what it was in 2019.
And then also how might you reduce SG&A without cutting muscle so to speak at this moment and what seems like a feasible operating margin target over the next year or two.
Okay.
Quite a bit there.
Let me try to tackle.
Let me try to tackle the SG&A side first because.
This is one that we're obviously spending a lot of time thinking through and this might bleed into a little bit of our fixed costs around gross margin as well just how we're thinking about it but.
I think with this guidance obviously.
A disappointing result for us in a pretty challenging environment.
But we're actively working to reduce costs wherever we can obviously, we're still investing in the business I think I'd start off by saying, we still really believe in the long term I think we're good long term thinkers, we invested a lot in <unk> nine and it pays huge dividends for us. So as we think about this time we.
We're continuing to think about the long term and how we continue to invest that being said we are also trying to manage during some pretty short term challenges. So I think first and foremost we're really trying to reduce hours across both our stores and distribution center, where possible like I think you've heard a lot of <unk>.
I was trying to do that I think we've.
Been working very hard in that market in that area.
Been trying to manage things like marketing and travel to really try to only hone in on those those key areas that are driving the highest return.
No.
In these times it can be hard to get the full return that youre looking for and then I think anywhere where there's variable costs. We're looking to remove from the business at the same time managing corporate costs really closely. So we have had some success here. Unfortunately, just not enough to offset the sales decline.
And that we've that we've reported and seen in the business. So that's kind of how we think about SG&A and where the big points of focus are.
In regards to normalized gross margin percentage and operating margin percentage.
I will tell you we still continue to believe.
The business can operate in the double digit operating income I mean, there is no nothing that we've seen even here in this pullback that would tell us we don't believe that.
I think the challenge is that we're seeing in the business is that we're not unique to US is just how this sales drop off is impacting us when we're also seeing.
Increases in other areas. So like for example domestically here.
We're seeing the drop off in sales to about 2021 and 2019, we've been able to take hours down to 2021 were down about 2% in hours to 2021 were down about 6% in hours to 2019 in our stores at the same point, we've seen wage rate increased 7% to 2021 and 16 five.
Percent to 2019 now I know other people have reported some of these facts and I just kind of caveat that with.
We're not always comparable with other retailers because of where your all your stores are and how minimum wages impacted us, but I think it's still highlights the challenges that retailers are facing with the rising cost of minimum wage and labor overall.
In relation to sales trends, so I think over time that should.
Moderate and we would expect in our sales will adjust from there as well.
So I think long term, we continue to think that double digit operating profit is.
Is where we can we can live I think we've talked before Jeff just about some of the other areas of the business that are that are not contributing to that right now and in our international business, specifically Europe and I think over time, we'll continue to figure that out as well and that will also help drive the overall operating income level.
Back to where we want it to be.
Okay. That's helpful. And then just sort of as a follow up to that.
And I know you mentioned labor being different in different regions. That's certainly a factor but are you seeing a difference that's notable in general or call. It store type or store class performance in other words, I don't know may be a different kind.
Shopping Center mall.
Different regions performing differently based on demographic factors that you might be able to read into.
Sure Yeah, Let me, let me kind of take it.
I think from an overall perspective, if we look at we typically break our business into that.
The east the south the Midwest and the west.
Sure.
When we look at those four areas, yes, there is a deviation.
Across them, but I will tell you they've all been pretty bad.
And negative.
The west has probably been our best.
The Midwest and east had been the more challenged areas.
But again not by a huge volume across those areas I think more as we start to think about the geographic changes have been more.
The U S to Canada to Europe to Australia, we've seen differences in and.
So we've seen a stronger internationally as we've laid out I think as you talk about mix of store and what's working.
Centers B centers.
<unk> centers.
<unk> really seen actually down.
Fairly similar across the board and maybe a little bit tougher on on some of the.
The lower volume centers, but overall.
Pretty pretty similar across types of volume stores, even similar across our regular online stores versus outlet centers. So I think.
And then.
<unk> challenged even probably a little bit more on the web.
So our stores have performed stronger than the web said, we kind of break this out.
Okay. Thanks for taking my questions I'll take the rest offline.
Thank you.
Please standby for our next question.
Our next question comes from the line of Mitch <unk> with Seaport. Your line is open.
Yes, thanks for taking my questions.
You guys in your press release and also in some of your comments on the call. So far you talked about adjusting the merchandise assortments focusing more on what supported the consumer then Chris you talked about the strength of private label on a relative basis. So I guess Im just hoping you can elaborate on what exactly you are looking to do with the Assortments.
And based on maybe what you're seeing through the first half what sort of confidence do you have.
Those adjustments will help drive some better results in the back half.
Yes.
Alright, I'll start and let Chris add to the conversation Mitch while the first and probably the most primary thing is again, we have to we have to our customers tell us they want more value for us. So we're defining of course, each customer might define value differently in terms of how they combined price points and uniqueness of product. So we have a number of.
<unk> strategy is really three different groups of buckets share that our product teams are working on that would be.
Be ways for us to deliver more value to that consumer base and during back to school a lot of that you saw as Chris said, our private label.
Penetration was much higher we did that through the back to school cycle with really the buckets.
Of.
The bundling of product to get.
Get there. So we have again the midst about three different value points of view, we have that I'm not going to share them, all but I believe our what we're going to be working towards enhancing those as we move forward through the remainder of this quarter and into the fourth quarter and of course promotional strategy will be probably a bit different.
Fourth quarter versus the bundling you.
You saw relative to outfit building in Q3 so.
They're really falls into two different buckets, Smiths, which I'm not going to share them. All private label is clearly one of them and we certainly can deliver more private label in this window.
Actually in some categories of product and low.
Because the sell throughs have been so strong so it will be replenishing those here in the next few weeks and then.
The faster turn categories of course, when you're much more quickly and replenish it.
I'd just add to that just so everyone gets a feel on just where we're at with private label. I mean this is as Rick said, it's really been a business for us that will let the customer sort of dictate where they want to go and we peaked in product private label at about 21% as a percent of overall sales in 2015, and then really a theme since then.
A decline in private label that we got down to about 11.
Percent and then ended actually last year in 2021 at 13% I think was what's interesting is over the last six years, we've talked about product margin expansion and so I think this is a really testament to our teams our buying teams and our sales teams. It's just about how they've been able to manage product and still grow margin despite private label deal.
<unk> as a percent of the business and I think this is a strength of ours, even in an environment like this where we have not seen product margin decline as we've heard with other retailers as much and so I think this mixed swing will be something that will help support us a little bit.
The customer is we assume that customer is going to go back to.
More value added product.
And I just wanted to add to that Mitch. It also doesn't mean that we aren't going to be introducing new emerging brands.
At a good pace here over.
Through the back half of the year. So we have in the first half of the year, but still a central part of our business and when we see young brands, we still seeing young brands have their moments where they resonate.
And generate some volume for so that's still in the longer term perspective for us.
We're going to see the cycle back again as Chris said, we go where the customers want to go right now theyre, telling us they want more value in our offering but that doesn't mean, we won't launch young brands in this world, We will and I think there are some exciting things out there.
<unk> on that front too so.
But theyre going to come back right as we come out of this cycle I fully believe that the.
The uniqueness of emerging brands.
Ken driver, we'll see we'll see private label move back down again as customers move towards the branded merchandize.
Got it and then on the on the skate Hardgoods piece I know there was some good trend there prior to Covid and then it kind of went on steroids for.
So.
More difficult in the last year or is there any way you can kind of frame.
That business stands today kind of volume wise.
From where it was like in 2018 before it really took off just so that we get a sense as to.
Maybe how much risk there is still is there.
And im not saying Thats going back to 2018 are below 2018, but I'm just curious to know kind of where it stands versus the big run that you guys experienced until recently.
Yes.
You framed that well Mitch again, just we did we had a tough run in skate hardgoods from 15 through 18.
And then in 2000 early 2019, we saw at takeoff everywhere across all of our global businesses.
<unk> simultaneously skate hardgoods really starting to be strong.
2019.
2000 and pandemic.
You said that business on steroids really was crazy even the early part of 'twenty. One was good and then we started to see it ticked down.
About probably mid mid 2021, so I just think that's a healthy framing for thinking about where we're at now in the cycle.
I do believe that a lot of that.
The pandemic and the stimulus really juiced been pulled forward a lot of demand and perhaps potentially a shortened that what would have been a longer skate hardgoods cycle. So I think that's good context for us to think about about Chris talk more about the numbers and where we're at yes, and I think we.
We peaked at 19% of sales in 2020 and dropped to 15% in 2021, So as you know.
Ben.
Decline has been one of our larger areas of decline over the last few quarters as we wrapped up Q2 was definitely getting closer to its trough with us and it's hard for us to know where this will land.
Drop it.
10% or 12% or even go below 10% I'm not sure we know for sure what we do know is <unk>.
On these trend lines and what we factored into our guidance for the remainder of the year as we move into Q4, and we start we're anniversarying tougher and tougher numbers with each quarter that goes along.
We would expect it to kind of be near that trough and <unk> in the back half of this year and in the front half of 2023.
Okay. That's helpful. Thanks, guys. Good luck.
Thanks.
Thank you.
As a reminder, ladies and gentlemen that star one one to ask a question.
Please standby for our next question.
Yeah.
Our next question comes from the line of Cory <unk> with Jefferies. Your line is open.
Hi, good afternoon, and thanks for taking my question.
So with inventories elevated across the retail industry at present and promotions also height and how are you thinking about your current positioning from an inventory and promotional perspective, and then maybe how you're expecting that to unfold over the next few quarters.
Alright, Cory I'll start and let Chris add on.
Again, as you know well we've always.
We're very proud of the fact that we have been a full price full margin retailer I think it represents the strength of our brand and what we offer our customers. So.
And again, I think as our buyers and our buying teams around the world have done a great job of minimizing the impact, particularly relative to other retailers so far.
Relative to product margin declines I think we've probably done better than almost everyone out. There now you could argue that's maybe why sales are a bit tougher because we haven't been marking down we haven't needed to be as aggressive in marking down product as perhaps some other retailers.
Had to be.
But thats because we again, we want to stand on our own we want to stand consistently for what our brand means for our customers and what it represents for our customers. So we feel that our teams have done a good job managing inventory.
And our job as we mentioned a couple of questions goes to find new ways to deliver for our customers into the value. They want offered from our assortment. So at this point, we do think thats, probably going to be a more promotional environment. I don't think there is probably any way that anyway that don't think that it's probably.
You're going to get a route surprise, but it probably won't be come from us Cory as much it will be from our competitors, having to really markdown pricing. So our drop is to find ways that we can convey value through.
Our unique strategy is relative to our product mix and our product Assortments and how we work with our brand partners.
So I think we have done a great job of managing inventory through the cycle I think that we feel positive about.
Where our inventory is and.
In relation to if we get down to a category by category basis that we have the ability to manage relative to where where our sales will be that we can control. It based upon looking at those category details.
So I think we are going to be probably covering their own unique path in there where I am not sure will be as promotional as others.
But I think it's the right thing for US I think it's the right thing for our brand of Chris you have anything to offer no I just I would just say our inventory we feel really good about.
The cleanliness of it and where it stands and obviously as we reported.
Up 4% on an FX adjusted ratio to 2021 and pretty pretty even with where we were in 2019 I think the teams have done a really good job trying to manage the risk in inventory.
Got it and then just because you mentioned by category how is the customer responding to those categories, where you might be having a little bit.
Call it lower merch margins as a result of competitive pressures.
Again I don't.
I don't quite think that way, if we're driving lower merch margin softened probably because of our value strategy around bundling and things like that we're still only marking down product, where we don't have the rate of sell through and where we can work with our brands on that on that topic, whether it be brand supporting through our Tvs returned to vendors or through assistance in markdown dollars. So.
Sure.
I think about that differently Cory in terms of how our teams work through it.
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So for me, it's Mike and I think we've done a pretty amazing job through this environment of managing product margins and.
We're still taking early market, how things, where we can't find a way to work through or otherwise work through with our brand partners.
Great very helpful. Thank you very much and best of luck.
Thanks.
Thank you.
I'm showing no further questions in the queue I would now like to turn the call back over to Rick for closing remarks.
Alright again, thank you everyone for your time today and we always appreciate your interest in what we're doing at Zumiez and despite the challenges I know that we have here as a team remain incredibly confident in our long term positioning of the strategies, we have to execute for earning and winning share in the marketplace. So thank you everyone again for your time and we will.
Forward to talking to you in December when we release, our third quarter results.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Yeah.
The conference will begin shortly to raise Johan during Q&A, you can dial star one one.
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