Q1 2023 Zumiez Inc.Earnings Call
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Good afternoon ladies and gentlemen and welcome to Zoomey Inc. First Quarter fiscal 2023 earnings conference call. At this time, all participants are in a listen only mode. We will conduct a question and answer session towards the end of this conference. Before we begin, I'd like to remind everyone of the company Safe Harbor language.
Today's conference includes comments concerning zoomies, ink, business, outlook, and contains forward looking statements. These forward looking statements and all other statements that may be made on this call that are not based on historical facts are subject to risk and uncertainties. Actual results may differ materially.
Additional information concerning the numbers of factors that could cause actual results to differ materially from the information that will be discussed is available in ZOOM use filings with the SEC. At this time, I will turn the call over to Rick Brooks, Chief Executive Officer, Mr. Brooks.
Hello, everyone, and thank you for joining us on the call. With me today's Chris work, our Chief Financial Officer.
I'll begin today's call with a few remarks about the first quarter, beforehand in the call of the Chris who will take you through the financials, and some thoughts on the second quarter and rest of the year. To that, we'll open the call to your questions.
As anticipated, the first quarter was challenging, as we saw similar domestic trends to those experienced in the fourth quarter of last year. Operating performance was in line with our outlook and reflects the significant change the broader US economy and retail in particular has undergone over the past 12 months.
Continued effects of inflation wane on consumer discretionary spending combine with heightened promotional activity across the industry to clear access inventory levels, our full price-selling model has been under pressure.
We're not pleased with our recent results.
That said, we aren't discouraged either. Our team has navigated economic down cycles before and by each cycle has some unique characteristics. The one constant is that they eventually turn positive and Zuyi says it's historically outperform the market on the way up.
We are confident that the connections we forge with our customers through our distinct brand, culture, and diverse and different merchandise offering, featuring highly sought after hard-to-find brands and world-class service are as strong as ever. The year in folding, as we anticipated thus far, we're staying the course with the plan we outlined on our Q4 call in March.
This includes being diligent with our spending, focusing on strategic investments that we believe will create significant long-term benefit for our customers, our business and our shareholders.
by managing carefully in the short term what we can control.
Some of the log terms to teaching investments we believe are important to push forward include.
Continue to invest in our people through best in class training and mentoring.
In 2022 we were able to execute all three of our in-person national events that are focused on intense training, connection and recognition. This is included the return of our January 100K event celebrating the best of our sales teams and connecting them with our key brands. We've continued with this trend in 2023.
executing our annual manager treat just a few weeks ago, focusing on development and leadership.
Optimizing trade air performance by ensuring that we have the right number stores to serve our customers in each market and get in the right product in the right places to best serve customers as quickly as possible.
Continuing to work with brands to increase speed and flexibility while increasing margins.
Invest in innovative approaches generate human-human connections with our customers and engage with them in new ways that enhance the shopping experience.
And continue our international expansion with a focus on Europe and Australia. We know that brands emerge locally and grow globally. And our international presence provides us the opportunity to better serve both our customers and our brand partners while we continue to optimize these operations with many of the initiatives we have proven across North America.
We feel good about the products we made in our nation in the first quarter with comparable sales in Europe and Australia increasing 12.8% and 8.7% respectively.
It was a tough quarter, but I continue to be confident that we have the right team and necessary experience to whether these turbulent times and emerge well positioned to accelerate market share gains when conditions improve.
That alternative called to Chris, who discuss financials. Chris. Thanks Rick. Good afternoon everyone. I'm going to start with a review of our first core results. I'll then provide an update on our May sales trends before providing some perspective on how we're thinking about the full year. First core net sales were $182.9 million down 17.1% from 220.6%
and inflationary pressures on the consumer.
were $144 million, a decrease to 22.7% from 2022. Other national net sales to consist of Europe and Australia were $38.9 million, up 13.3% from last year. The excluding the impact of foreign currency translation North American net sales decreased 22.4%
Another international net sales increased 17.1% compared with 2022.
Comparable sales for North America were down 24.2% and comparable sales for other international were up 12.2% for the quarter. From a category perspective, all categories were down and comparable sales from the prior year. During the quarter, with men's being our most negative followed by footwear, accessories, hard goods, and women.
Total dollars per transaction were up for the quarter, driven by an increase in average in a retail, parts the offset by a decrease in units per transaction. First quarter gross profit was $49.4 million, compared to $72.4 million in the first quarter of last year. Gross profit as a percentage of sales is 27% for the quarter, compared with 32.8% in the first quarter of 2022. The 580 basis point decrease in gross margin was primarily driven by lower sales in the quarter.
by 40 basis points, an inventory shrinkage increased by 40 basis points.
in sales in the first quarter compared to $71.9 million or 32.6% in sales in the year ago period.
The 610 basis point increase in SG&A expense as a percent of net sales resulted from the following….
270 basis point increased due to both delaverage of store wages on lower sales, as well as increases in wage rates that could not be offset by ours reductions. 180 basis points due to a one time German government subsidy received in the first quarter of fiscal 2022. 160 basis point increased due to delaverage of non.
Wage store operating costs.
90 basis point increase in non-store wages, 20 basis point increase in stock compensation expense, 20 basis point increase in annual incentive compensation, and a 20 basis point increase in other corporate costs. These increases were partially offset by 150 basis point reduction due to the timing of our 100K event, which was held in the first quarter of last year, but not in the first quarter of fiscal 2023.
Operating loss in the first quarter of 2023 was $21.4 million or 11.7% of net sales, compared with operating profit of $0.5 million or 0.2% of net sales last year.
Net loss for the first quarter was 18.4 million dollars or 96 cents per share. This comparison net loss of 0.4 million dollars or 2 cents per share for the first quarter of 2022. Our effective tax rate for the first quarter of 2023 was 12.6 percent benefit compared with 134.2 percent provision for income taxes in the year.
million as of April 29, 2023, compared to $173.0 million as of April 30, 2022. This $17.7 million decrease in cash and current marketable securities over the trailing 12 months was driven primarily by capital expenditures of $27.5 million, offset by $11.2 million in cash provided by operating activities. As of April 29, 2023, we have no debt on the balance sheet.
and continue to main our full unused credit facility. We end the quarter with $147.9 million in inventory, up 4.2% compared with $141.9 million last year to end the first quarter. The inventory growth was driven by store-count increases in our international business, while the inventory in North America is down 3% from the prior year.
on a constant currency basis, our inventory levels were up 3.7% from last year. And while more aged compared to the same quarter in 2022, we are more current than we were to end the fourth quarter of 2022.
Now, to our fiscal May sales results. Net sales for the 4-week period into May 27, 2023 decreased 12.8% compared to the 4-week period into May 28, 2022. Comparable sales for the 4-week period into May 27, 2023 were down 14.3% from the comparable period in the prior year.
From a regional perspective, net sales for our North America business for the four weeks ended May 27, 2023, decreased 17 percent over the comparable period last year. Meanwhile, our other international business decreased 12.7 percent versus last year. Excluding the impact of foreign currency translation, North American net sales for our four weeks ended May 27, 2023, decreased 16.7 percent.
Fiscal May 2023, all categories were down and comparable sales from the prior year. Footwear was our most negative category, followed by hard goods, accessories, men's and women's. Total dollars for transaction were up for Fiscal May 2023, during by an increase in average unit retail, partially up to FID, decreasing units for transaction.
With respect to our outlook for the second quarter of fiscal 2023, I want to remind everyone that formerly in our guidance involved some inherent uncertainty in complexity and estimate sales, product margin and earnings growth, given the variety of internal and external factors that impact our performance.
Our May sales results were slightly better than our first quarter trends, but still well below year ago levels as consumer demand remains under pressure from the continued impact of high inflation on discretionary spending. With that in mind, we are planning total sales in the second quarter to be between $187 million and $192 million. We expect that our second quarter, 2023 product margins will be down between 50 basis points.
and 70 basis points from the second quarter of fiscal 2022 as we continue to work through a challenging sales environment.
Consolidate operating losses of percentage sales for the second quarter is expected to be between negative 7.7%, and negative 9.2%. We anticipate loss per share will be between negative 63 cents and negative 73 cents. Similar to the first quarter, the decline earnings is largely due to de-leverage in the cost structure on lower sales base, coupled with margin pressure.
Our biggest areas of the leverage continue to be tied to fixed costs such as occupancy expense, base hours in our store they're driven by mall operating hours and other corporate costs. As Rick said, the year is unfolding as we expected and our view on the remainder of 2023 hasn't changed. As with our practice back in March, we are refraining from given specific annual guidance due to the uncertainty and volatility in
particularly as we wrap up the first half.
The quarterly comparisons become easier throughout the year, suggesting more opportunity in the back half of the year when compared to fiscal 2022 results.
Product margins were down 50 basis points in fiscal 2022 after six consecutive years of growth. The majority of this year-over-year decrease was driven by our fourth quarter of 2022 product margins, which was impacted by increased discounting as we worked to right-size the inventory balance. For fiscal 2023, we believe that product margin will be tougher in the first half of the year as we work through aged inventory.
leverage as sales declined in fiscal 2022 and also the first quarter of 2023. While the opposite was true in 2021 when we experienced record sales and operating margin driven by meaningful leverage. We continue to diligently manage expenses as we navigate the current environment and are positioned to take advantage when conditions improve. We are currently planning our business assuming an annual effective tax rate of approximately 50%. Please like and subscribe because I make new videos every week.
It is important to note that we expect our tax rate to fluctuate significantly from quarter to quarter based on the pre-tax results and distribution of income between different jurisdictions throughout the year. We are planning to open up to 23 new stores during the year, including approximately 8 stores in North America, 10 stores in Europe , and 5 stores in Australia.
These openings are contingent about finding the right locations with complementary economics. While that is our normal practice, challenging circumstances, such as those we are currently experiencing, may cause us to reduce our store openings if we are unable to negotiate deals to achieve our financial targets. We expect capital expenditures for the full 2023 fiscal year to be between $20 million and $22 million compared to $26 million and $20 22.
We expect that depreciation and amortization, excluding non-cash lease expense, will be approximately $23 million. We are currently projecting our share count for the full year to be approximately 19.5 million diluted shares. With that operator, we would like to open the call up for questions.
Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment while we compile the Q&A roster.
Our first question comes from the line of Jeff Van Zender with B Riley. Your line is open. Please go ahead.
Hello, this is Richard Magnuson, in Fort Jeff Dan Syndrome. Thank you for taking our call. Can you speak more about how you plan inventory for back to school this year? And if you could also speak to how you are evolving your approach to promotional or just kind of merchandise packages for back to school?
Sure, yeah, I'll try to give a little bit of color there. Obviously, Richard, as you can tell, we've really been trying to manage inventory. And I give our buying teams a lot of credit here because this has been a really challenging environment. Obviously with sales moving the way they are. So I think as we...
As we said on the call, we feel good about our inventory here, leaving Q1. We talked about it being a little more age than we were a year ago, but in a better spot than we were at the end of the year. So if we look at that even deeper, and then I'll get to the heart of your question, and we were to bifurcate all the categories, I think we'd feel even better about our inventory when we look at it.
make those bets and things that we think are trending. And so the teams are really focused on that. They're focused on it across our offering of men's and women's and accessories and footwear and really trying to find those things that are those hot next brands. As you know, Richard, we've talked about for a long time, we'll launch 100 to 150 brands every year. So the team is focused both on the newness.
as well as the brands we've been partners with for quite some time. So we're really driving that direction. We're really focused on having lots of flexibility within our inventory buying, keeping it open to buy so we have that ability to chase trending items. Then managing seasonal inventory really closely to make sure that we can move quickly. But I think we're in an advantageous position. Order blue today could also bewhere you want to be up next.
You know, a lot of what we do is screenables, which is pretty quick turn. So we're in a good spot there, especially with back to school coming up. And, you know, we're doing our best to really drive the top performance we can during a real peak season. And Richard, on terms of promotional environment, I mean, of course, we're gonna anticipate that we'll see some promotional environment during the back to school cycle. I think that's just a good common sense of this phase.
I think we feel pretty good about our position outside of it. As Chris said, there's a few areas where I think there's a glut of product in a particular category like footwear that has to be worked through. But we're going to do promotions the way we do, which is greatly honoring our brands and those brands that have equity. So you will not see us do the 40% off the store thing. Not our model.
approach back to school with different ways to encourage and incent customers and employees around promoting and driving sales in the stores. So think about it. Think about that from that perspective for us is we're going to, we're going to honor the integrity of the quality of the brands we have. And we don't want to discount those brands that have that equity. But we'll try to work through those areas where there is an overstock.
and then provide value, is will be the perspective of us for how we provide value for our customers.
All right, thank you. I'll get back in the queue. Thank you.
Our next question comes from the line of Mitch comments with Seaport. Your line is open, please go ahead.
Yes, thanks for taking my questions. Let's start with the consumer and the stress that they're seeing on their discretionary.
Are you seeing that having any disproportionate impact on categories? I think of footwear as being a higher price point category, also hard goods, and those were two of the more challenged categories for May. I don't know if that's the issue, like in footwear, or is it really just go back to the glut of inventory that's in the channel? I'll take a shot at that one, Mitch.
And so I think it's a trend-driven issue as opposed to the consumer and price and inflation pressure there. So I think the broader discretionary pressure is about the more macroeconomic issues for our consumer. And our job, as you know, is to provide the coolest stuff, the best stuff, the best from the best brands.
And that's trend right and in cycle right now. So I don't think that the price point is a reflection of the challenge of the, for example, of what we're category relative to the consumer.
And with regards to some of their... Go ahead, Chris. Oh, I was just going to... The only thing I would add to that is just... You ask kind of how their shopping patterns are. And I just continue... We have seen a continued trend to what we saw across 2022, where we saw private label increases in percent of the business. Almost 600 basis points in total sales, which is...
really really massive growth for us. You know, we have seen a private label in our past go over 20% and then drop down to 12 as the consumers kind of opted for brand of product and we are certainly in a cycle where that is reversing or seeing kind of private label be much more sought after and I think that price conscious consumer is looking for that discount.
Right. And then Rick, just speaking to some of the trends, you mentioned buying into some things that are working. I mean, just looking at your website, you're featuring the Adidas Samba, which is a hot shoe right now. It looks like a lot of it's sold out. You know, you've got Chunky Skate, which is kind of – I don't want to say unique to your guys, but that would be a –
working in our business, Mitch, that the question is getting them and building the momentum around those things. And long bottoms like Chris was talking about on our private label have been a tremendous success for us. And not actually at a price point, we're driving full price, full margin business there. It's the bundles that are providing the value for the consumers in that set. So.
There are things that are working Mitch and of course as Chris said those are the areas that we look at inventory We're going after it. We're buying more deeply based upon what we're seeing in the patterns in the business and and I you know we're
we just need more of those things, I think is the answer. Relative to the drag on the business, like skate is still a drag on the business, relative to the comp structure there and skate and that by the way is a global issue not just a North American issue.
So we still have things that are dragging us backwards, and we need more of those things like you described that are gonna push us forward. And trust me, those things that you described, we're buying much more deeply. And as Chris said, anything that's trending, we're gonna be prepared, we'll be ready for back to school.
Okay. And then my last question, you guys continue to see strong performance in other international – and I'm just trying to better understand that. Is that that you're taking a lot of market share in those markets? Or are you seeing a better macro in those markets than you are in the U.S.? And then I guess lastly – Okay.
Chris, just in terms of profitability on Blue Tomato, I know that that's a business that's been unprofitable for a while now. I'm just curious how that's trending these days.
Let me start, Mitch, and then I'll let Chris jump in. All the markets we're working in have some level of macro distress, and it's different in every market, and in some cases, it's different across countries in Europe , relative to what I would characterize as macro distress.
So there is in every market, but I think the difference that we have in our international markets, and again talking about Europe and Australia, is that we do, I believe, believe that we are gaining market share in these markets, and we are building units. We're opening new countries.
We're seeing success as we open these new countries. So we're feeling good about that. Or in Australia, we're seeing success as we open new states. So I feel pretty solid about where we're at there. I think our teams are executing well. So some of the sales that we've talked about in the games are being driven by those new units that were coming into play. But we're getting gains both on the
in the markets or war in Ukraine, we could be doing a lot better in those marketplaces.
Yeah, yeah. And I just, you know, continue to add just a little bit of color to Q1 and then talk a little bit more broadly about profitability. And just to remind everybody, you know, we talked last year in 2022 about the business being up 8.8% from 2021, which was great to see gains in our business. But it was below our budget amount, which did cause some stress to the bottom line. And as you pointed out in your question, Mitch, we were not profitable.
are kind of our established markets within the region, but also really excited about some of our newer areas. We've seen Netherlands and Norway really perform quite well and positive comparable sales in all categories in the quarter. So I think those are good things. We're operating in eight countries now in Europe , and I think we're in a good position to grow the market.
as it relates to operating loss, obviously, like I said, being short of budget in 2022 created a little bit of challenging. And we don't plan on commenting on what that's going to be this year, but we do expect, if we can stay on this current trajectory, we will definitely be ahead of where we were in 2022. And I think that sets up the other piece of your question of just kind of long-term, how we're looking at this. And I think...
This is where I think we can gain some momentum here as we see these markets turn. And obviously, we have said at the end of last year, this is where there's a millions of dollars, not tens of millions of dollars. So we believe we can be in a position here if we can keep this trajectory. To get it to break even and then obviously to turn it in the profitability side. So that's what we're very focused on. I think we're happy with the.
brands, even establishing a private label program there. And so we're really encouraged by what we've seen in Australia. That has not been a marketplace where everybody has reported positive gains. And so we're excited about what the teams have created there and think we've got a real good runway to go there with growth.
Okay, thanks. Good luck. Thanks, Mitch. Thank you. And one moment for our next question. Our next question comes from the line of Manterra Monroe Cheek with Jeffries. Your line is open. Please go ahead.
Hello, this is Mantero on for Corey Tarlo and thank you for getting my questions. Can you discuss where you currently are with hard good penetration and how should we think about the store opening cadence for the rest of the year? Thank you.
Sure, yeah, I'll go ahead and talk about hard goods and just kind of where we're at. And as we have said, you know, now for a couple of years, this has been a challenge category. You know, we saw amazing results in 2019 and 2020. And then as we started to turn into 2021, it started to get a little bit tough.
We went from 19% of sales, which was really our peak, to the last couple years we have dropped down to 13% of sales. So we've seen pretty massive decline as a percent of the total. The first quarter here has continued to be tougher, and we've seen continued decline. And I think that's where we're at right now.
If that plays out, it's hard to tell where the rest of the year is going to go, but I think we would be near historical lows as a percent of sales in 2023 would be what we would predict at this point based on what we know. Obviously, this is challenging to predict where the trough is because we've never had a peak that high in regards to where the business grew to.
But that's kind of how we're trending at this point.
And then cadence of store openings. Yeah. Thank you, Rick. Right now, we would expect to see a few more of those stores open in the back half. Typically, we would say that we would open like a 60 percent, 40 percent cadence before, back to school, and after.
and I would expect that to be a little more heavy on the back end.
Thank you. Thank you. And I'm showing no further questions, and I'd like to turn the conference back over to Rich Brooks for any further remarks. All right, thank you. And again, as always, we always appreciate your interest in Zoomies, so thank you, everyone, on the call with us today. And we'll look forward to talking with you.