Q2 2024 Zumiez Inc Earnings Call

Speaker 1: Good afternoon, ladies and gentlemen, and welcome to the Zumaz Inc. Second quarter fiscal 2023 earnings conference.

Good afternoon, ladies and gentlemen, and welcome to the Zumiez, Inc. Second quarter fiscal 2023 earnings conference call.

Speaker 1: At this time, all participants are in a listen-only mode. We will conduct a question and answer session toward 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 including Zumex Inc's business outlook and continues forward-looking statements.

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's Safe Harbor language Today's conference call includes comments as well.

<unk> Zumiez, Inc business outlook and contains forward looking statements.

Speaker 1: 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 uncertainty.

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 risks and uncertainties.

Actual results may differ materially.

Speaker 1: 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 ZOOMS filings with the SE.

Additional information concerning a number of factors that could cause actual results to differ materially from the information that will be discussed is available is in its filings with the S. E C.

Speaker 1: At this time, I would like to turn the call over to Rick Brooks, Chief Executive Officer. Mr. Brooks, the floor is yours.

This time I would like to turn the call over to Rick Brooks, Chief Executive Officer, Mr. Brooks the floor is yours.

Speaker 2: Hello, everyone, and thank you for joining us on the call. With me today is Chris Work, our Chief Financial Officer.

Hello, everyone and thank you for joining us on the call.

With me today is Chris work, our Chief Financial Officer.

Speaker 2: I'll begin today's call with a few remarks about the second quarter and the start of the back to school season before handing the call to Chris who will take you through the financials and some thoughts on the third quarter and the rest of the year. After that, we'll open up the call. These are some of the headlines since we're almost weapons show for asscyt Pen courses that will give you additional insight into where you cancourse for a scholarship.

I'll begin today's call with a few remarks about the second quarter and the start of the back to school season before handing the call over to Chris who will take you through the financials and some thoughts on the third quarter and the rest of the year.

After that we'll open up the call to your questions.

Speaker 2: As we forecasted back in May, our results have continued to track below prior year levels. That said, our second quarter sales improved from the previous quarter trend line and finished ahead of our guidance.

Cause you forecasted back in May our results have continued to track below prior year levels that said, our second quarter sales improved from the previous quarter trend line and finished ahead of our guidance.

Speaker 2: The operating environment in the US remains challenging with significant multi-year inflationary impacts weighing on consumer discretionary spending, continued competition with spending on travel and experiences, and higher levels of discounting to clear access inventory.

The operating profit in the U S remains challenging with significant multiyear inflationary impacts weighing on consumer discretionary spending continued competition with spending on travel and experiences and higher levels of discounting to clear excess inventories.

Speaker 2: While this backdrop does not set up well for our full price selling model, we know from experience that these down cycles are temporary. And our focus is on best positioning the business to capitalize on market conditions as market conditions improve. This means staying close to our customers, adjusting our assortment to ensure we have diverse and differentiated merchandise they seek, and providing the world-class customer service they've come to expect from us.

This backdrop does not set up well for our full price selling model. We know from experience that these down cycles are temporary and our focus is on best positioning the business to capitalize on market conditions as market conditions improve.

This means staying close to our customers adjusting our assortments to assure we have diverse and differentiated merchandise they seek and providing the world class customer service they've come to expect from us.

Speaker 2: While we're not where we want to be from a results perspective, we made progress in the second quarter and the work we've done this year against the plan we outlined in our earnings call in March has positioned the business for further improvement in the second half of 2023.

While we're not where we want to be from a results perspective, we made progress in the second quarter and the work we've done this year against the plan we outlined in our earnings call in March has positioned the business for further improvement in the second half of 2023.

Speaker 2: The sequential moderation our sales trend in Q2 has continued in the third quarter as we move into the back to school season and higher volume.

The sequential moderation in our sales trend in Q2 has continued in the third quarter as we move into the back to school season and higher volumes.

Speaker 2: Through Labor Day, third quarter to date sales are down 7.7%, compared with down 11.6% in Q2 and 17.1% in Q1.

New Labour day third quarter to date sales are down seven 7% compared with down 11, 6% in Q2 and 17, 1% in Q1.

Speaker 2: Given that back to school has historically been a good indicator for holiday demand, we're optimistic about continued improvement in the business through the peak selling periods this coming holiday season.

Given that back to school has historically been a good indicator for holiday demand. We're optimistic about continued improvement in the business through the peak selling periods is coming holiday season.

Speaker 2: It's a tough first half, but I'm confident that by staying the course, we will emerge from this turbulent period even stronger. This means being diligent with our spending, focusing on the strategic investments that we believe will create significant long-term benefit for our customers and our shareholders while managing carefully in the short term what we can control.

It was a tough first half, but I'm confident that by staying the course, we all emerge from this turbulent period even stronger.

This means being diligent with our spending focusing on the strategic investments that we believe will create significant long term benefit for our customers and our shareholders, while managing carefully in the short term what we can control.

Speaker 2: Some of the long-term strategic investments believe are important to push forward include continued investment in our people through best-in-class training and mentoring, optimizing trade area performance by ensuring that we have the right number of stores to serve our customers in each market, and getting the right product in the right places to serve them as quickly as possible.

From a long term strategic investments believe are important to push forward include continued investment in our people through best in class training and mentoring.

Optimizing trade area performance by ensuring that we have the right number of stores to serve our customers in each market and getting the right product in the right places to serve them as quickly as possible.

Speaker 2: Continue to work with brands to increase speed and flexibility while increasing margin.

Continuing to work with brands to increase speed and flexibility while increasing margins.

Speaker 2: Investing in innovative approaches to generate human to human connections with our customers and engage with them in new ways that enhance the shopping experience.

Investing in innovative approaches to generate human to human connections with our customers and engage with them in new ways that enhance the shopping experience.

Speaker 2: continuing 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 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.

Continuing 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 at many of the initiatives. We approved we are proven across North America.

Speaker 2: We feel good about the products we made internationally this year. We first have comparable sales and our other international businesses increasing 8% and total sales increasing over 14%.

We feel good about the progress we made internationally this year, where first half comparable sales in our other international businesses, increasing 8% and total sales increasing over 14%.

Speaker 2: Before I turn the call over to Chris, I would like to thank everyone in our organization for the continued hard work and dedication. You're the foundation of our unique culture and the reason I'm certain that Zoomie's history of delivering long-term value for its shareholders will continue for years to come. With that, Chris will now...

Before I turn the call over to Chris I would like to thank everyone in our organization for their continued hard work and dedication you.

You are the foundation of our unique culture and the reason I am certain that Zumiez history of delivering long term value for its shareholders will continue for years to come.

With that Chris will now discuss the financials.

Speaker 3: Thanks, Rick. Good afternoon, everyone. I'm going to start with a review of our second quarter results. I'll then provide an update on our third quarter to date sales trends before before providing some perspective on how we're thinking about the full year.

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 before providing some perspective on how we're thinking about the full year.

Speaker 3: Second quarter net sales were $194.4 million, down 11.6% from $220 million in the second quarter of 2022. Comparable sales were down 13% for the quarter. The decrease in sales was primarily driven by our North America business, offset by more favorable results for other internationals.

Second quarter net sales were $194 $4 million down 11, 6% from $220 million in the second quarter of 2022.

Comparable sales were down 13% for the quarter.

Decrease in sales was primarily driven by our North America business offset by more favorable results for our other international business.

Speaker 3: During the quarter, we continued to see softer sales, primarily driven by ongoing inflationary pressure, increased competition for discretionary spending, and higher levels of discounting in the market.

During the quarter, we continued to see softer sales, primarily driven by ongoing inflationary pressure increased competition for discretionary spending and higher levels of discounting in the market.

Speaker 3: From a regional perspective, North American net sales were $159.7 million, a decrease of 15.9% from 2022. Other international net sales, which consist of Europe and Australia, were $34.8 million, up 15.5% from last year.

From a regional perspective, North America net sales were $159 $7 million a decrease of 15, 9% from 2022 other international net sales, which consists of Europe , and Australia were $34 8 million up 15, 5% from last year.

Speaker 3: Excluding the impact of foreign currency translation, North American net sales increased 15.7% and other international net sales increased 11.8% compared with 2022. Comparable sales for North America were down 15.8% and comparable sales for other international were up 3.7% for the quarter.

The impact of foreign currency translation, North America net sales increased 15, 7% and other international net sales increased 11, 8% compared with 2022.

Comparable sales for North America were down 15, 8% and comparable sales for other international were up three 7% for the quarter from.

Speaker 3: From a category perspective, all categories were down in comparable sales from the prior year during the quarter with hard goods being our most negative followed by footwear, accessories, women's and men.

From a category perspective, all categories were down in comparable sales from the prior year during the quarter with hard goods being our most negative followed by footwear accessories women's and men's.

Speaker 3: Total dollars per transaction were up for the quarter driven by an increase in average in retail partially offset by a decrease in units per transaction.

Total dollars per transaction were up for the quarter driven by an increase in average unit retail partially offset by a decrease in units per transaction second.

Speaker 3: Second quarter gross profit was $61.7 million compared to $75.1 million in the second quarter of last year. Gross profit as a percentage of sales was 31.7% for the quarter compared with 34.1% in the second quarter of 2022. The 240 basis point decrease in gross margin was primarily driven by lower sales in the quarter driving deleverage in our fixed costs. The key areas driving this change were as follows. Store occupancy costs deleveraged by 210 basis points on lower sales volume.

Second quarter gross profit was $61 $7 million compared to $75 1 million in the second quarter of last year gross profit as a percentage of sales was 31, 7% for the quarter compared with 34, 1% in the second quarter of 2022.

240 basis point decrease in gross margin was primarily driven by lower sales in the quarter driving deleverage our fixed costs. The key areas driving this change were as follows store occupancy costs Deleveraged by 210 basis points on lower sales volumes product margin decreased by 70 basis points and buying in private label costs Deleveraged by 20 basis points.

Speaker 3: product margins decreased by 70 basis points, and buying and private label cost decreased by 20 basis points.

Speaker 3: These decreases to gross margin were partially offset by a decrease of 30 basis points in web shipping costs and 30 basis point decrease in inventory shrinkage.

These decreases to gross margin were partially offset by a decrease of 30 basis points and web shipping costs and 30 basis point decrease in inventory shrinkage.

Speaker 3: S.G.N.A expense was $72.2 million or 37.1% of net sales in the second quarter compared to $70.1 million or 31.8% of net sales a year ago.

SG&A expense was $72 2 million or 37, 1% of net sales in the second quarter compared to $70 1 million or 31, 8% of net sales a year ago.

Speaker 3: The 530 basis point increase in SG&A expenses of percent of sales are driven by the following. 210 basis point increase due to both deleverage of store wages on lower sales as well as increases in wage rates that could not be offset by hours reduction. 160 basis point increase due to deleverage of non-wage store operating costs. 80 basis point increase in non-store wages. And a 60 basis point increase in training and events due to event timing.

The 530 basis point increase in SG&A expenses as a percent of net sales was driven by the following 210 basis point increase due to both deleverage of store wages on lower sales as well as increases in wage rates that could not be offset by hours reduction 160 basis point increase due to deleverage of non wage store operating costs.

80 basis point increase in non store wages, and a 60 basis point increase in training and events due to timing.

Speaker 3: Operating loss in the second quarter of 2023 was $10.5 million or 5.4% of net sales, compared with operating profit of $5 million or 2.3% of net sales last year.

Operating loss in the second quarter of 2023 was $10 5 million or five 4% of net sales compared with operating profit of $5 million or two 3% of net sales last year.

Speaker 3: Net loss for the second quarter was $8.5 million or $0.44 per share. This compares to net income of $3.1 million or $0.16 per diluted share for the second quarter of 2022. Our effective tax rate for the second quarter of 2023 was an, it was 8.5% benefit compared to 44.7% provision for income taxes in the year ago period. The decrease in our effective tax rate was primarily due to increase in net losses and allocation of those losses across the jurisdictions in which we operate.

Net loss for the second quarter was $8 $5 million or <unk> 44 per share. This compares to net income of $3 1 million or <unk> 16 per diluted share for the second quarter of 2022.

Our effective tax rate for the second quarter of 2023 was and it was eight 5% benefit compared to 44, 7% provision for income taxes in the year ago period. The decrease in our effective tax rate was primarily due to increase in net losses and allocation of those losses across the jurisdictions in which we operate.

Speaker 3: Turning to the balance sheet, the business ended the quarter in a strong financial position. We had cash and current marketable securities of $140 million as of July 29, 2023, compared to $166.2 million as of July 30, 2022. The $26.2 million increase in cash and current marketable securities over the trailing 12 months was driven primarily by capital expenditures of $27.3 million.

Turning to the balance sheet business ended the quarter in a strong financial position, we had cash and current marketable securities of $140 million as of July 29, 2023, compared to $166 $2 million as of July 32022.

$26 $2 million increase in cash if current macro securities over the trailing 12 months was driven primarily by capital expenditures of $27 $3 million.

Speaker 3: As of July 29, 2023, we have no doubt on the balance sheet and continue to maintain our full, unused credit facility.

Through July 29, 2023, we have no debt on the balance sheet and continue to maintain our full unused credit facility.

Speaker 3: We ended the quarter with $156.7 million in inventory, up 3.7% compared to the $151.1 million last year.

We ended the quarter with $156 $7 million in inventory at three 7% compared to the $151 $1 million last year inventory growth was driven primarily by store count increases in our international business, while inventory in North America is down three 5% from the prior year on a current constant currency basis, our inventory levels.

Speaker 3: The inventory growth was driven primarily by store count increases in our international business. While the inventory in North America is down 3.5% from the prior year. On a constant currency basis, our inventory levels were up 2.3% from last year.

We're up two 3% from last year.

Speaker 3: Now to our third quarter to date results. Net sales for the 37 day period in September 4, 2023 decreased 7.7% compared to the same 37 day period in the prior year ended September 5, 2022. Comparable sales for the 37 day period in September 4, 2023 were down 8.6% from the comparable period in the prior year.

Now to our third quarter to date results.

Net sales for the 37 day period ended September four 2023 decreased seven 7% compared to the same 37 day period in the prior year ended September <unk> 2022 <unk>.

Comparable sales for the 37 day period in September for 2023 were down eight 6% from the comparable period in the prior year.

Speaker 3: From a regional perspective, net sales for our North America business for the 37-day period in September 4, 2023, decreased 10.1% over the comparable period last year. Another international business increased 14.7% versus last year.

From a regional perspective net sales for our North America business for the 37 day period in September for 2023 decreased 10% 10, 1% over the comparable period last year and other international business increased $14 seven versus last year, excluding the impact of foreign currency translation North America net sales decreased nine 9%.

Speaker 3: Excluding the impact of foreign currency translation, North American net sales decreased 9.9% and other international net sales increased 8.5% compared with

And other international net sales increased eight 5% compared with 2022.

Speaker 3: From a category perspective, the men's category had a positive comp for the 37-day period ended September 4, 2023, while all other categories were negative.

From a category perspective, the men's category had a positive comp for the 37 day period ended September four 2023, while all other categories were negative.

Speaker 3: Footwear was our most negative category followed by women's, accessories, and hard goods.

Footwear was our most negative category, followed by women's accessories and hard goods.

Speaker 3: Total dollars per transaction were up for the period driven by an increase in both average unit retail and units per transaction.

Total dollar per transaction were up for the period driven by an increase in both average unit retail and units per transaction.

Speaker 3: With respect to our outlook for the third quarter fiscal 2023, I want to remind everyone that formulating our guidance involves some inherent uncertainty and complexity and estimated sales, product margin and earnings growth given the variety of internal and external factors that impact our performance.

With respect to our outlook for the third quarter of fiscal 2023, I want to remind everyone that $4 million our guidance involves some inherent uncertainty and complexity in estimating sales product margin and earnings growth given the variety of internal and external factors that impact our performance.

Speaker 3: Our Q3 to date results have continued to show incremental progress to the trends experience in the first and second quarter, but are still turning 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 for the third quarter will be between $211 million and $216 million.

Our Q3 to date results continue to show incremental progress to the trends experienced in the first and second quarter, but are still trending 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 for the third quarter will be between $211 million and $216 million.

Speaker 3: We expect that our third quarter 2023 product margins will be down slightly from the third quarter of fiscal 2022 due primarily to the mix of sales year over year. Consolidate operating margins for the third quarter are expected to be between negative 1.5% and negative 2.5%. We anticipate a loss of $0.15 to $0.25 per share.

We expected our third quarter 2023 product margins will be down slightly from the third quarter of fiscal 2022, due primarily to the mix of sales year over year.

Consolidated operating margins for the third quarter are expected to be between negative one, 5% and negative two 5% and we anticipate a loss of 15.

225 per share.

Speaker 3: Similar to the first half, the decline of earnings is largely due to deleverage in the cost structure on lower sales base, coupled with margin pressure. Our biggest areas of deleverage continue to be tied to fixed costs such as occupancy expense, base hours in our store that are driven by mall operating hours, fixed payroll costs across the business, and other corporate costs.

Similar to the first half the decline in earnings is largely due to deleverage in the cost structure on lower sales base, coupled with margin pressure our biggest areas of deleverage continue to be tied to fixed costs, such as occupancy expense base hours in our store are there driven by mall operating hours.

<unk> payroll costs across the business and other corporate costs.

Speaker 3: As has been our practice this year, we are refraining from giving specific annual financial guidance due to the uncertainty and volatility in the macro environment. We do want to provide some context around how we currently believe that business will trend throughout the year.

As has been our practice this year, we are refraining from giving specific annual financial guidance due to the uncertainty and volatility in the macro environment, but do you want to provide some context around how we currently believe the business will trend throughout the year.

Speaker 3: We have seen the trend line of sales results to prior year get stronger as we have moved through 2023 and expect that to continue as we move through the back half of the year when compared to fiscal 22 results.

We have seen the trend line of sales results to prior year. It gets stronger as we've moved through 2023 and I expect that to continue as we move through the back half of the year when compared to fiscal 'twenty results.

Speaker 3: In fiscal 2022, product margins were down 50 basis points from the prior year after six consecutive years of growth. The majority of this year-over-year decrease was driven by our fourth quarter 2022 product margin, which was impacted by increased discounting as we worked to right-size inventory balance.

In fiscal 2022 product margins were down 50 basis points from the prior year after six consecutive years of growth.

The majority of this year over year decrease was driven by our fourth quarter of 2022 product margin, which was impacted by increased discounting as we work to right size the inventory balance we anticipated the front half of 2023 would also rundown in product margin as we continue to work through aged inventory and the market remains promotional for the first six months.

Speaker 3: We anticipated the front app of 2023 would also run down in Product Margin as we continue to work through aged inventory and the market remained promotional. For the first six months of fiscal 2023, margin decreased 70 basis points from the first half of 2022, which included the mixed impact of our international business, which has a lower product margin and is growing as a percentage of total sales.

In fiscal 2023 margin decreased 70 basis points from the first half of 2022, which included the mix impact of our international business, which has a lower product margin and is growing as a percentage of total sales as.

Speaker 3: As we transition to the back half of the year, we believe that product margins could stabilize as inventories come in line and comparisons get easier.

As we transition to the back half of the year, we believe the product margins could stabilize as inventories come in line and comparisons get easier.

Speaker 3: Our model is sensitive to sales fluctuations, and we have seen D-leverages sales decline in fiscal 2022, and also year-to-date in fiscal 2023. While the opposite was true in 2021, when we experienced record sales and operating margin driven by meaningful leverage.

Our model is sensitive to sales fluctuations and we have seen deleverage as sales decline in fiscal 2022 and also year to date in fiscal 2023, while the opposite was true in 2021, when we experienced record sales in operating margin driven by meaningful leverage we continue to diligently manage expenses as we navigate this current environment.

Speaker 3: We continue to diligently manage expenses as we navigate this current environment and are positioned to take advantage when conditions improve.

And are positioned to take advantage when conditions improve.

Speaker 3: We have seen a reduction in our bottom line results during 2022 and 2023, creating significant variability in our consolidated tax rate. This is tied to the distribution of income across our current tax jurisdiction.

We have seen a reduction in our bottom line results during 2022 and 2023, creating significant variability in our consolidated tax rate. This is tied to the distribution of income across our current tax jurisdictions.

Speaker 3: Given this, we are expecting a tax expense could be an excess of pre-tax income for the full year.

Given this we are expecting a tax expense could be in excess of pre tax income for the full year.

Speaker 3: We are planning to open 19 new stores during the year, including approximately five stores in North America, 10 stores in Europe and four stores in Australia. We expect capital expenditures for the full 2023 fiscal year to be between $19 million and $21 million compared to $26 million in 2021.

We are planning to open 19, new stores during the year, including approximately five stores in North America 10 stores in Europe, and four stores in Australia, We expect capital expenditures for the full of 2023 fiscal year to be between $19 million and $21 million compared to $26 million in 2021 'twenty.

Speaker 3: We expect that depreciation and amortization, excluding non-cash lease expense, will be approximately $23 million.

2022.

We expect that depreciation and amortization, excluding noncash lease expense will be approximately $23 million.

Speaker 3: We are currently projecting our share count for the full year to be approximately 19.5 million diluted shares. With that operator, we'd like to open the call.

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.

Speaker 1: Thank you. As a reminder, if you'd like to ask a question, please press star 11 on your telephone.

Thank you.

A reminder.

Ask a question. Please press star one on your telephone.

Speaker 1: As well, please be reminded to wait until you hear your name called before you proceed with your question.

We are minded to wait until you hit your name call before you proceed with your question.

One moment, while we compile the Q&A roster.

Speaker 1: Our first question for today will be coming from Mitch Cummins of Seaport, Your Line is Open.

Our.

Last question for today will be coming from niche comments of Seaport. Your line is open.

Speaker 4: Yeah, thanks for taking my questions. I've got three of them. Chris, on the sales guide, I think the range you gave that has sales down, I think it's

Yes, thanks for taking my questions.

Three of them.

Chris.

On the sales guide I think the range you gave.

That has sales down I think that's.

Speaker 4: see here 9 to 11 percent and you're running better than that quarter to date. So that obviously implies that you expect tougher results in the rest of September and into October . Could you maybe just address that? And I'm also curious now that you're kind of post peak back to school, have you seen some softening maybe in the weekly numbers since you know possibly kind of mid-August?

Let's see here, 9% to 11% and you are running better than that quarter to date. So.

That obviously implies that you expect tougher results.

The rest of September into October could you, maybe just address that and I'm also curious now that youre kind of post peak back to school have you seen some softening maybe in the weekly numbers and possibly kind of mid August .

Speaker 3: Sure, Mitch, I'll try to take a crack at that. So, and you're right, the guy that we gave is a down nine to 11, which is slightly worse than what our run rate is saying. And I think as we've worked through August and kind of the back to school season, I will tell you, we are encouraged that our trend line has accelerated from where we were in Q2, but it was choppy. And I think it started a little softer, weeks two and three, where our best weeks, and then the last couple of weeks have been a little bit softer. And we've looked at that a few different ways. Obviously, the timing of when different markets go back to school, have some pole on kind of what the overall results were, but we're also looking at from a greater sense of knowing the need based of back to school shopping and where that's at. And our historical results would tell us that typically when you get out of peak, you'll see a little bit less demand. And so, so we're sort of buffering the current run rate for that under the assumption of just kind of where the market's at. And, you know, hopefully as we try to do is, it's a guidance that we can be.

Sure, Matt Yeah, I'll try and take a crack at that so and Youre right. The guide that we gave is that.

Down 9% to 11, which is slightly worse than what our run rate is fine and I think as we've as we've worked through August and kind of the back to school season I would tell you. We are encouraged that our trend line has accelerated from where we were in Q2.

But it was choppy and I think it started a little softer weeks, two and three where were our best weeks and then the last couple of weeks had been a little bit softer and we've looked at that a few different ways. Obviously, the timing of when different markets go back to school.

Paul on kind of what the overall results were but we're also looking at from a greater sense of knowing that need based at back to school shopping and where that's at and our historical results would tell us that typically when you get out of peak youll see a little bit less.

Less demand and so.

So we're excited buffering the current run rate for that under the assumption of just kind of where the market's at and hopefully as we try to do is that it is.

The guidance that we can beat.

Speaker 4: Okay, and then I know you're not providing specific guidance beyond 3Q, but you talked about the improvement in the run rate. When I look at the trajectory on your sales growth...

Okay, and then I know you are not providing specific guidance beyond Q, but you talked about kind of the improvement in the run rate when I look at the trajectory on your sales growth.

Speaker 4: you know, down 17, 1Q, down 12, 2Q, the midpoint of 3Q is down 10. You know, are you thinking that, you know, 4Q, you know, sales growth lands somewhere kind of in the, you know, I don't know, upper mid to lower high single digit negative range, that kind of, you know, the trajectory that you think the business is on.

Down 17, <unk> down <unk>, the midpoint of <unk> downturn are you thinking that <unk> sales growth plan somewhere kind of in the.

I don't know upper mid to lower high single digit negative range that kind of the trajectory that you think the business is on.

Speaker 3: Yeah, I'm going to stay away from giving specific fourth quarter guidance. I think what I would say

I'm going to stay away from giving specific fourth quarter guidance I think what I would say is this as we as we look at Q4, we've historically been able to take a lot away from back to school kind of in the trends of the business and what we've seen happening and I would tell you even though this is a softer back to school for us.

Speaker 3: is this, you know, as we look at Q4, we've historically been able to take a lot away from back to school, kind of in the trends of the business and what we've seen happening. And I'll tell you, even though this is a softer back to school for us.

Speaker 3: We look back at the, you know, the quarter to date and what we've learned. And I think it would continue to tell us that we have a good trend line going into Q4. So, you know, as we think about the sequential sales improvement from Q3 to Q4, we're currently planning Q4, which would be much stronger than what we've seen from Q1 to Q2. And now from Q2 to the Q3 guidance that we've given. So, we do expect this trend line to improve.

Look back at.

Quarter to date, and what we've learned and I.

It would continue to tell us that that we have.

A good trend line going into Q4 so.

We think about the sequential sales improvement.

From Q3 to Q4, we're currently planning in Q4, which would be much stronger than what we've seen from Q1 to Q2 and now from Q2 to Q3 guidance that we've given so we do expect.

This trend line to improve.

Speaker 3: You know, those beliefs are based on a few things. First, I think, you know, our continue ability to drive stronger results. I think as we kind of break down back to school further, we're really encouraged, you know, men's is our largest category, 50% of the business.

Those beliefs are based on a few things first I think.

Our continued ability to drive stronger results I think as we've kind of breakdown back to school further.

We are really encouraged men's is our largest category 50% of the business.

It was with our best performing category in Q2, and then turn positive during back to school and we view that as a as a really good a good indicator for where the business is that I mean, Mitch you followed the company for some time I mean, if we look back at <unk> and kind of how we climbed out of those times and even 2015 and 16, which.

Were softer for US men's was a huge catalyst for that so I think we're really encouraged by that we're encouraged by what we will be staff from the customer during the period.

Transactions was our problem during back to school.

We saw increased AUR and actually units when the consumer with shopping which I think was another good turn that we saw in the back to school season. So.

So that gives us some confidence heading in and then obviously as we.

Speaker 3: compares and how we move into the fourth quarter Q4 of 2022 with our softest compare to really historical kind of pre-pandemic results. And so we do believe that some of the bigger drags on the business that have been more challenged around footwear and hard goods, they just soften as we get into the fourth quarter. So I think that gives us some comfort that we could see a good incremental step up in the fourth quarter and obviously not giving guidance at this time, but we'll get more honed in on that here when we report at the end of November . All right. That's helpful, Color. I appreciate that. And then lastly, just on the SG&A, especially thinking about it from a dollar standpoint, so SG&A dollars were up 2 million in two Q versus last year. That follows, I think, four consecutive quarters where the dollar SG&A was actually down year over year. So how are you thinking about that in three Q like from a dollar standpoint? And is there sort of a run rate to kind of think about SG&A dollars going forward? Like you know...

We think about just the compares.

And how we move into the fourth quarter Q4 of 2022 was our softest compare to really historical kind of pre pandemic results and so we do believe that some of the bigger drags on the business.

And more challenged around footwear and.

Speaker 3: A hard-good

And.

Speaker 3: They just soften as we as we get into the fourth quarter. So I think that gives us some comfort that we could see a good incremental step up in the fourth quarter. And obviously, you know, not give them guidance at this time, but we'll get more honed in on that here when we report at the end of November .

Good day.

They just soften as we as we get into the fourth quarter. So I think that gives us some comfort that we could see a good incremental step up in the fourth quarter, and obviously not giving guidance at this time, but.

We'll give more honed in on that here when we reported at the end of November .

Speaker 4: All right, that's helpful color. I appreciate that. And then lastly, just on the SGNA, especially thinking about it from a dollar standpoint. So SGNA dollars were up 2 million in 2Q versus last year. That follows, I think, four consecutive quarters where the dollar SGNA was actually down year over year. So how are you thinking about that in 3Q, like from a dollar standpoint? And is there sort of a run rate to kind of think about SGNA dollars going forward? Like...

Alright Thats helpful color I appreciate that and then lastly, just on the SG&A, especially thinking about it from a dollar standpoint. So SG&A dollars were up 2 million into two versus last year that follows I think four consecutive quarters, where the dollar SG&A was actually down year over year. So how are you think.

<unk> about that three Q quite from a dollar standpoint, and is there sort of a run rate to kind of think about SG&A dollars going forward like.

Speaker 4: You know, I know you're not giving for you guys so you probably don't wanna talk about next year, but like, should we be thinking about SGNA dollars higher next year than this year, or is there a chance that you can actually take that down just from like a cost cutting standpoint? If I get to a couple of questions there.

I know youre, not giving <unk> guidance. So you probably don't want to talk about next year, but like should we be thinking about SG&A dollars higher next year than this year or is there a chance that you can actually take that down just from a cost cutting standpoint.

Speaker 3: Yeah, yeah, there's quite a bit there. So what I'll try to do is kind of talk

So I guess a couple of questions there.

Yes, yes, there is quite a bit there. So I'll try to do is kind of talk high level about how we think about SG&A and and then obviously, how it pertains to where we're at today, so as I think about SG&A.

Speaker 3: high level about how we think about S-GNA and then obviously how it pertains to where we're at today. So as I think about...

Speaker 3: S-GNA, we have a highly fixed business. Fixed costs both within the store system as well as are corporate overhead and web and things like that. So this is created some challenges, as you know, in 2022 and 2023, of just the sales coming down, the derelivered in the business.

We have a highly fixed business.

Fixed costs, both within the store system as well.

Our corporate overhead and web and things like that so.

This has created some challenges as you know in 2022, and 2023 or just with the sales coming down the deleverage in the business.

Speaker 3: Also, as part of the reason we were able to leverage so well in 2021 when we saw increased sales, I think

Also as part of the reason, we were able to leverage so well in 2021. When we saw increased sales I think as we look at 2022, SG&A and I do think sometimes it's important to step back and look at the full year SG&A. It was up one 8% compared to 2021, I'm, sorry down one 8% compared to 2021 and it was up four six.

Speaker 3: You know, as we look at 2022 SG&A, and I do think sometimes it's important to step back and look at full year SG&A, you know, it was up 1.8% compared to 2021. I'm sorry, down 1.8% compared to 2021. And it was up 4.6% compared to 2019, which is a little bit more than that.

6% compared to 2019, which.

Speaker 3: You know, as we look back and we looked at inflation and where the cost structures had gone over that time period, I think we saw that as, you know, being fairly positive. As we looked at the first six months of this year, SGA was up about 0.6%. So I think, again, we're feeling pretty good. The Q3 guide includes a little higher run rate, which...

As we look back and we looked at inflation and where the cost structures had gone over that time period I think we saw that is.

Being fairly positive as we looked at the first six months of this year SG&A was up about 6%. So I think again, we're feeling we're feeling pretty good. The Q3 guide includes a little higher run rate, which is really around some timing of spend things in it and we are continuing to invest in.

Speaker 3: is really around some timing of spend things and we are continuing to invest in the business. I think that's an important distinction for where we're at, obviously our results.

Business I think that's an important distinction for where we're at obviously our results are tougher, but we do continue to believe there is there's good value long term and investing through the cycles. We've built a really strong balance sheet.

We are in a good financial position.

That being said, we're being very prudent about how we think about it too.

To your point.

Managing fixed costs everywhere its possible I think we've really rethinking our store payroll model and where we have hours there.

To try to pull back as much as possible and in certain.

Operator: Good afternoon, ladies and gentlemen, and welcome to the Zumiez Inc. 2nd quarter, fiscal 2023 Army of Constant Call. At this time, all participants are in this lonely mode.

Speaker 3: leaving open positions open. I think those are all things that we've looked at while trying not to cut things that are long term for the business. I think as we look forward, what you should expect from us is, we've got gross sales at a much greater factor than SGNA. And because we have not done tons of substantial cut sales, I think we still feel like we've got the right balance to be able to drive sales going forward. So that's really our focus. That will be our drive as we move into 2024. And I think as we look at SGNA overall for 2023, we won't see huge growth. What we'll see is some of the inflationary pressures that are really hitting lots of people in the industry. Okay, thanks again. Thank you one moment while we prepare for the next question.

Departments and areas of the business, leaving open positions open.

Those are all things that we've looked at.

Operator: We will conduct a question and succession toward the end of this conference. Before we begin, I'd like to remind you everyone of the company's Safe Harbor language. Today's conference call includes comments including Zumiez Inc' business outlook and 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 a number of factors that could cause actual results to differ materially from the information that will be discussed is available in Zumiez filings with the SEC.

Try not to cut things that are long term for the business I think as we as we look forward of what you should expect from us is.

We got gross sales at a much greater risk factor than SG&A and.

Because we have not done tons of.

Speaker 3: tons of substantial cuts to SG&A, I think we still feel like we've got the right balance to be able to drive sales going forward. So that's really our focus. That will be our drive as we move into 2024. And I think as we look at SG&A overall for 2023, we won't see huge growth. What we'll see is some of the inflationary pressures that are really hitting lots of people in the industry. Okay, thanks again.

Substantial cuts to SG&A I think we still feel like we've got the right balance to be able to drive sales going forward. So that's really our focus that will be our drive as we as we move into 2024 and I think as we look at SG&A overall for 2023, we won't see huge growth. What we'll see is some of the inflationary pressures that are really.

<unk> hitting lots of people in the industry.

Okay. Thanks again.

Richard Brooks: At this time, I would like to hand a call over to Rick Brooks, chief executive officer, Mr. Brooks, the floor is yours. Hello, everyone, and thank you for joining us on the call.

Thank you one moment, while we prepare for the next question.

Richard Brooks: With me today's Chris Work, our chief financial officer. I'll begin today's call with a few remarks about the second quarter in the start of the back to school season. Before handing the call to Chris, we'll take you through the financials and some thoughts on the third quarter and the rest of the year.

Speaker 1: And we have our next question will be coming from Jess, Sandsender of BeWire on your line of open.

And we have our next question will be coming from Jeff Van <unk> of B Riley. Your line is open.

Yes, hi, everyone.

Speaker 3: What do you think guys could talk a little bit about what you're seeing in the sales and margin performance of your private label?

I'm wondering if you guys could talk a little bit about what youre seeing in the sales and margin performance of your private label.

Richard Brooks: After that, we'll open up the call to your questions. As you forecasted back in May, our results have continued to track below prior year levels. That said, our second quarter sales improved from the previous quarter trend line and finished ahead of our guidance. The operating environment in the US remains challenging with significant multi-year inflationary impacts, weighing on consumer discretionary spending, continued competition with spending on travel and experiences and higher levels of discounting to clear access inventories.

Product.

Speaker 3: Yeah, I'll go ahead and talk about it just kind of from a numbers perspective and obviously welcome Rick to chime in. I think, you know.

Yes.

I'll go ahead and talk about it just kind of from a numbers perspective, and obviously welcome.

Rick to chime in I think.

Speaker 3: One of the things we've talked about throughout this year is our consumer really seeking value. And we are, I think we've seen that out in the external market, it's clearly.

One of the things we've talked about throughout this year is our consumer are really seeking value and and we are I think we've seen out in the external markets clearly.

Speaker 3: surely been clear in our business too. Private label as a percent of the business has continued to climb. We've seen it from 2022, throughout 2022 and now into the first quarter and second quarter of this year. And then pretty substantially here in the third quarter to date, which you'd expect in back to school and where we're at. And I think we're really proud of our teams and how they've executed here because while there's certainly a value play here, I think our teams have also done a really good job of bringing great product to market. So we've seen that really resonate both in our tops and bottoms business, but in other areas as well, but that's the primary drivers on the apparel side. So overall, I think seeing really good private label trends, I think we've been able to do some things with bundling and packages in our stores related to private label as well, which has been beneficial. And we're also seeing the growth internationally too. And so we're encouraged by that with some of the brands really working in Europe and in our fast times in Australia team also has some private label that they're pushing as well. So.

Richard Brooks: While this backdrop does not set up well for our full-price selling model, we know from experience that these down cycles are temporary. And our focus is on best position in the business to capitalize on market conditions as market conditions improve. This means staying close to our customers, adjusting our assortments to ensure we have diverse and differentiated merchandise they seek, and providing the world-class customer service they've come to expect from us. While we're not where we want to be from a results perspective, we made progress in the second quarter and the work we've done this year against the plan we outlined in our earnings call in March, has positioned the business for further improvement in the second half of 2023.

<unk> been clear in our business to private label as a percent of the business has continued decline we've seen it.

From 2022 throughout 2032, and now into the first quarter and second quarter of this year and then pretty substantially here in the third quarter to date, which you would expect in back to school.

And where we're at and I think we're really we are really proud of our teams and how they've executed here because.

While there is certainly a value play here I think our teams have also done a really good job, bringing great product to market. So we've seen that really resonate both in our tops and bottoms business.

And the other areas as well, but thats the primary drivers.

On the apparel side.

Richard Brooks: The sequential moderation our sales trend in Q2 has continued in the third quarter as we move into the back to school season and higher volumes. Through Labor Day, third quarter to date sales are down 7.7%, compared with down 11.6% in Q2 and 17.1% in Q1. Given that back to school has historically been a good indicator for holiday demand, we're optimistic about continued improvement in the business through the peak selling periods this coming holiday season.

So overall I think seen really good private label trends I think we've been able to do some things with bundling packages in our stores related to private label as well, which has been beneficial and we're also seeing the growth internationally too and so we're encouraged by that with some of the brands really worked.

And in Europe , and in our fast times in Australia team also has some private label.

Speaker 3: Overall, I think we're pretty encouraged by what we're seeing in that area of the business.

Theyre pushing as well so overall I think we're pretty encouraged by what we're seeing in that area of the business and I would only add Jeff that I think this.

Speaker 2: And I'd only add death that I think this, what Chris has just described is what's driving and the success of our bundling promotions is what's driving the UPT gains. And that's where I'm so proud of our sales teams is that using that with our customers coming in the door.

Richard Brooks: The tough first half, but I'm confident in by staying the course, we will emerge from this terming up period even stronger. This means being diligent with our spending, focusing on the strategic investments that we believe will create significant long-term benefit for our customers and our shareholders, while managing carefully in the short term what we can control. Some of the long-term strategic investments believe are important to push forward, include continued investment in our people through best-in-class training and mentoring, optimizing trade-ary performance by ensuring that we have the right number of stores to serve our customers in each market and getting the right product and the right places to serve them as quickly as possible.

Chris just described is what's driving the success of our bundling.

Promotions is what's driving the <unk> gains and that's why I'm. So proud of our sales teams is that they are using that with our customers coming in the door and we generated not only have we had the AUR gains or continue but we've seen again <unk> start to increase in back to school, which is I think a credit to our team our sales team to put those bundles or sell those bundles.

Speaker 2: And we generated not only how we had the AUR gains continue, but we've seen again, UPT start to increase in back to school, which is, I think, a credit to our team, our sales team to put those bundles to sell those bundles and to have some of our highest now dollars per chance, I think, ever at back to school, which I think speaks well to how we're positioned with our core consumer.

And to have some of our highest dollars per trials I think ever at back to school, which I think speaks well to how we're positioned with our core consumer.

Speaker 2: That's helpful. Just as a follow up to that, and I don't know if I'm not sure you've really break this out off in, but just wondering if there's any color you can give us and kind of wear that concentration of private label is running at this point.

Okay. That's helpful.

Just as a follow up to that and I don't know Im not sure you really break this out but just wondering if theres any color you can give us some kind of one of the concentration of private label is running at this point.

Richard Brooks: Continuing to work with brands to increase speed and flexibility by increasing margins. Investing in an innovative approach is to generate human-dehuman connections with our customers and engage with them in new ways that enhance the shopping experience. Continuing 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 opportunity to better serve both our customers and our brand partners.

Speaker 3: Yeah, I can speak to that. We are about 21 and a half percent through the through the second quarter compared to about 17% last year. So it's about 450 basis point increase year over year as a penetration of total sales.

Yeah, I can speak to that we are about 21, 5% through the through the second quarter compared to about 17% last year. So it's about 450 basis point increase year over year.

Penetration of total sales.

Speaker 2: Okay, interesting. And then I have sort of an off the cuff question to you guys, but I'm just wondering how you're handling getting people back to the office at this point. I know that out there, you know, we hear some resistance. What's your latest policy to get folks back to the office?

Richard Brooks: 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 internationally this year. We're first to have comparable sales and our other international businesses increasing 8% and total sales increasing over 14%.

Okay interesting and then I have sort of an off the cuff question for you guys, but im just wondering how youre handling and getting people back to the office at this point and I know that out there.

And resist than what's what's your latest policy to get folks back to the office.

Speaker 2: We have steadfastly throughout the entire pandemic period and into where we're at today, Jeff, we've always considered ourselves to be an office environment where people are gonna be here. Of course, our SOAR employees are in the office every day.

Richard Brooks: Before I turn the call to Chris, I would like to thank everyone in our organization for the continued hard work and dedication. You're the foundation of our unique culture and the reason I'm certain that Zumi's history of delivering long-term value for its shareholders will continue for years to come.

We have.

Steadfastly throughout the entire pandemic period in into where we're at today, Jeff we've always consider ourselves to be.

An office environment, where people are going to be here of course are so our employees are in the office every day.

Speaker 2: as our DC teams in the office every day down in our DC facility. So we believe that collaboration is key at central so that throughout the pandemic, whenever the rules were, we've definitely followed them. But if we could have 50% capacity, we're rotating everyone in 50, 50 over alternating weeks. And so pretty much for us, everyone's back. We have some exceptions for certain specific situations, but pretty much on the fall, we've been back.

As our DC teams in the office every day down down in RPC facility. So.

Christopher Work: With that, Chris will now discuss financials. Thanks, Rick.

We believe that collaboration is key at central so that throughout the pandemic whatever the rules, where we definitely followed up but if we could have 50% capacity. We are rotating everyone. In 50 50 over alternating weeks and so pretty much right everyone's back.

Christopher Work: Good afternoon, everyone. I'm going to start with a review of our second quarter results. I'll 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 194.4 million dollars down 11.6% from 220 million dollars in the second quarter of 2022. Comparable sales were down 13% for the quarter. The decrease in sales was primarily driven by our North America business offset by more favorable results for our other international business.

We have some exceptions for certain specific situations, but pretty much on the fall we've been back.

Speaker 4: Okay, good to hear. And then I have one more set of broader question for you.

Okay. Good to hear and then I have one more sort of broader question.

Speaker 4: I think you were kind of running on average about an 8% to 10% operating margin, call it pre-COVID.

I think you were kind of running on average about 8% to 10% operating margin call. It pre COVID-19.

Christopher Work: During the quarter, we continued to see softer sales, primarily driven by ongoing inflationary pressure, increased competition for discretionary spending, and higher levels of discounting in the market. From a regional perspective, North American net sales were 159.7 million dollars, a decrease of 15.9% from 2022. Other international net sales, which consists of Europe and Australia, were 34.8 million dollars, up 15.5% from last year. Excluding the impact of foreign currency translation, North American net sales increased 15.7%, and other international net sales increased 11.8% compared to 2022.

Speaker 4: But of course we have elevated labor expenses now and other inflationary input.

But of course, we have elevated labor expenses now and other inflationary inputs.

Speaker 4: What do you think is a normalized operating margin for the company? Are we looking now probably mid single digit, do you think? Or just assuming sort of modest sales recovery, call it maybe a mid single digit positive comp, all else being roughly equal. How do you think about that?

Do you think is a normalized operating margin for the company are we looking now probably mid single digit do you think or just assuming sort of modest sales recovery call. It maybe a mid single digit positive comp all else being roughly equal how do you think about that.

Speaker 3: Yeah, I mean, you know, Jeff, we've done a lot of work around this. And obviously the step back we've had the last couple of years has been super challenging. But.

Yes.

Jeff we've done a lot of work around this and obviously the step back we've had the last couple of years has been super challenging, but now as we break it down we've broken down a lots of different ways.

Speaker 3: You know, as we break it down, we've broken down lots of different ways. I really believe it's generally sales related. And this is the bigger challenge in our business.

Christopher Work: Comparable sales for North America were down 15.8%, and comparable sales for other international were up 3.7% for the quarter. From a category perspective, all categories were down in comparable sales from the prior year during the quarter, with hard goods being our most negative, followed by footwear, accessories, women, and men. Total dollars per transaction were up for the quarter, driven by an increase in average in a retail, partially offset by a decrease in units per transaction.

I really believe its generally sales related and and this is the bigger challenge in our business.

Speaker 3: You know, we actually, you know, if you can't, coming out of 14 and 15, we had talked about getting back to high single digits from an operating profit perspective, we were able to accomplish that. We actually got into double digits.

No we actually if you keep coming out of 14 and 15, we had talked about getting back to high single digits from an operating profit perspective, we were able to accomplish that we actually got into double digits and I think we still believe over the long term. If we can get sales right and there are other things in the <unk>.

Speaker 3: And I think we still believe over the long term if we can get sales right.

Christopher Work: Second quarter gross profit was $61.7 million, compared to $75.1 million in the second quarter of last year. Gross profit as a percentage of sales was 31.7% for the quarter, compared with 34.1% in the second quarter of 2022. The 240 basis point decrease in gross margin was primarily driven by lower sales in the quarter, driving D leverage our fixed costs. The key area is driving this change, whereas follows. Store occupancy costs D leverage by 210 basis points on lower sales volumes.

Speaker 3: And there are other things in the business that help offset some of the inflation. We've been able to drive product margin higher. We've been able to, we have an international business that still has a lot of growth around it. That I think that high single digit goal is still achievable. And that's really our push. And that's our drive as we think about the business recovering and seeing the sales come back is trying to build a model that will get to that high single digits. And obviously hopefully potentially beyond. But I think that that still seems realistic in our heads.

Business that help offset some of the inflation, we've been able to drive product margin higher we've been able to we have an international business is still has a lot of growth around it.

I think that high single digit goal is still achievable and.

And Thats really our push and that's our that's our drive as we think about the business recovering and seeing the sales come back is trying to build a model that will get get to that high single digits.

Christopher Work: Product margins decreased by 70 basis points, and buying a private label cost D leverage by 20 basis. . These decreases to gross margin were partially offset by a decrease of 30 basis points in web shipping costs and 30 basis point decrease in inventory shrinkage. SNA expense was $72.2 million or $37.1% of net sales in the second quarter compared to $70.1 million or $31.8% of net sales a year ago. The 530 basis point increase in SNA expense is a percent of net sales driven by the following.

Hopefully potentially beyond.

But I think thats still seems realistic in our heads.

Speaker 4: OK, thanks for taking my questions and best of luck in the remainder of Q3. Yep, thanks Jeff.

Okay. Thanks for taking my questions and best of luck in the remainder of Q3.

Yes, Thanks, Jeff.

Speaker 1: Thank you. If you would like to ask a question, please press star one on your telephone. One moment for the next question.

Okay.

Thank you.

I would like to ask a question. Please press star one on your telephone one moment for the next question.

Speaker 1: The next question will be coming from Tori Curlow of Jeffries. Your line is open.

The next question will be coming from Torrey Carlo.

Christopher Work: Tour and 10 basis point increase due to both the leverage of store wages on lower sales as well as increases in wage rates that could not be offset by hours reduction. 160 basis point increase due to the leverage of non-wage store operating costs. 80 basis point increase in non-store wages and a 60 base point increase in training and events due to event timing. Operating loss in the second quarter of 2023 was $10.5 million or $5.4% of net sales compared with operating profit of $5 million or 2.3% of net sales last year.

Jefferies. Your line is open.

Speaker 5: Great, thanks. I think you cited some

Great. Thanks, I think you cited some.

Speaker 5: encouraging trends in men's. I was wondering if there's anything into back to school or into the third quarter that has maybe surprised you from a category or fashion trend standpoint that you can talk about.

Encouraging trends in mens.

I was wondering if theres anything into back to school or into the third.

Third quarter.

It has maybe surprised you from a category or fashion trend standpoint that you can talk about.

Speaker 2: I'll start my Chris Adyen Korean and I guess one of these we've already talked about, which is the strength of our private label business. And I think that is clearly a strong trend of in business. I think as Chris said earlier, our teams have done a really good job here of being on trend and on cycle.

I'll start and let Chris add in Korea, and I guess are the one of these we've already talked about which is the strength of our private label business. So I think that is clearly a strong trend driven business I think as Chris said earlier, our teams have done a really good job here of being on trend and on cycle.

Christopher Work: Net loss for the second quarter was $8.5 million or $44 per share. This compares the net income of $3.1 million or $16 per deluded share for the second quarter of 2022. Our effective tax rate for the second quarter of 2023 was 8.5% benefit compared to 44.7% per vision for income taxes in the year ago periods. The decrease in our effective tax rate was primarily due to increase in net losses and allocation of those losses across jurisdictions in which we operate.

Speaker 2: And of course we had to plan for that. This isn't in our most these private label categories that cut in so categories. This is the only plan for for back to school, I think.

So we had to plan for that this isn't most of these private label categories, our cut and sew categories is something we plan for our for back to school, but I think.

Speaker 2: executed well by our private label product teams, and then executed really well with our overall team strategy and the bundling that worked both in stores and online for providing value for our customers and...

Executed well by our private label product teams, and then executed really well with our overall team strategy and the bundling that worked both in stores and online for providing value for our customers and driving DPT. He's in the process as well as driving market. The other the other I'd call out for you and so that's a big draw.

Speaker 2: driving DPTs in the process as well driving marches.

Christopher Work: Turning to the balance sheet, the business ended the quarter in a strong financial position. We had cash and current marketable securities of $140 million as of July 29, 2023 compared to $166.2 million as of July 30, 2022. The $26.2 million increase in cash and current marketable securities over the trillion 12 months was driven primarily by capital expenditures of $27.3 million. At the July 29, 2023, we have no doubt on the balance sheet and continue to maintain our full unused credit facility.

Speaker 2: The other I'd call out for you, and so that's a big driver, definitely for men's too. The other I'd call out for you, I think that's important is, and I think exciting for us, is the emerging brands. And we feel very encouraged about our pipeline in emerging brands here in 2023.

Ivor.

We're definitely for men's too the other I'd call out for you I think that's important is I think exciting for US is the emerging brands and we feel very encouraged about our pipeline and emerging brands here in 2023.

Speaker 2: And we have seen sequential improvement month over month in terms of brands launched in 2022 and 2023 gaining share within our total sales mix.

And we have seen sequential improvement month over month in terms of brands launched in 'twenty, two and 'twenty three gaining share within our total sales mix.

Christopher Work: We ended the quarter with $156.7 million in inventory, up 3.7% compared to $151.1 million last year. The inventory growth was driven primarily by store count increases in our international business while the inventory in North America is down 3.5% from the prior year. On a current constant currency basis, our inventory levels were up 2.3% from last year.

Speaker 2: And that continued on into the Baptist School. Seize.

And that continued on into the back to school season.

Speaker 2: So that's the other aspect that that turned our printables business positive in back to school.

So that's the other aspect that that turned our principles business positive in back to school.

Speaker 2: So that, if you want to look at the real driver behind men's, it's those getting positive for the back to school seat. It's those two things, the quality of our on-trend private label product, the quality of our sales teams in selling multiple units, and combine that with newness on the brand side and the dramatic improvement in our screen of Old Smith.

So that if you want to look at the real driver behind the men's it's getting positive for the back to school season. It's those two things the quality of our of our on trend private label product the quality of our sales teams in selling multiple units and combine that with newness on the brand side and the dramatic improvement in our screening rolls business.

Christopher Work: Now to our third quarter to date results. Net sales for the 37-day period in the September 4, 2023 decreased 7.7% compared to the same 37-day period in the prior year ended September 5, 2022. Comparable sales for the 37-day period in the September 4, 2023 were down 8.6% from the comparable period in the prior year. From our regional perspective, net sales for our North America business for the 30-70 period in September 4, 2023 decreased 10.1% over the comparable period last year.

Speaker 2: And so I'm really, I think that's another, it's exciting for us as we think about this internally is we're hoping of course we can continue to see that month over month sequential growth and that these brands launch in 22 and 23 can continue to be growth drivers within the screenables areas of our business.

And so I'm really I think thats another it's exciting for us as we think about this internally is we're hoping we of course, we can continue to see that month over month sequential growth in that these brands launched in 22 and 23, you can continue to be growth drivers within the printable screener both areas of our business.

Speaker 5: Great, thanks. That's very helpful. And just on product margins, you gave some helpful color as to how they've trended over the last couple quarters. Could you maybe unpack for us how you're thinking about promotions ahead and how you think about product margins into the back half and how that might unfold as we...

Great. Thanks, that's very helpful.

Christopher Work: Another international business increased 14.7% versus last year. Excluding the impact of foreign currency translation, North America net sales decreased 9.9%, and other international net sales increased 8.5% compared to 2022. From a category perspective, the men's category had a positive comp for the 37-day period ended September 4, 2023, while all other categories were negative. Buddha was our most negative category, followed by women's, accessories and hard goods. Total dollars for transaction were up for the period driven by an increase in both average unit retail and units per transaction.

Just on product margins you gave some helpful color as to how they've trended over the last couple of quarters.

Could you maybe unpack for us how youre thinking about promotions ahead, and how you think about product margins into the back half and how that might unfold as we had.

Speaker 3: Sure, yeah, you know, I just as we as we think about product margin, I we mentioned our prepared comments, we were down 70 basis points a year to date. And what I what I would just add to that is obviously the mix component that we talked about is pretty significant when you have an international business. And obviously our domestic business is more challenged.

Heading into holiday.

Sure Yes.

Just as we as we think about product margin as we mentioned in our prepared comments, we were down 70 basis points year to date.

And what I, what I would just add to that is obviously the mix component that we talked about is pretty significant when you have an international business.

Christopher Work: With respect to our outlook for the third quarter of fiscal 2023, I want to remind everyone that formulae in 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. Our Q3 to date results have continued to show incremental progress to the trends experienced in the first and second quarter, but are still trending below year-to-year-go levels as consumer demand remains under pressure from the continued impact of high inflation on discretionary spending.

Comping up and growing sales and obviously, our domestic business is more challenged.

Speaker 3: and given that the international margin is quite substantially lower than our domestic margin. So, so when I, even when we say down 70 basis points, the lion's share of that is really a mixed challenge versus actually product margin decline. So, as we look forward, you know, part of what we knew coming into this year is that we would have some product margin challenges. We had some inventory to clear out as of the end of last year and and we saw some of that and even it count added into that 70 basis points down as we move through inventory in the first half.

And given that the international margin is quite substantially lower than our than our domestic margin. So.

So even when we say down 70 basis points. The lion's share of that is really a mix challenge versus actually product margin decline. So.

We look forward.

Part of what we knew coming into this year is that we would have some product margin challenges, we had some inventory to clear out.

Christopher Work: With that in mind, we are planning total sales for the third quarter will be between 211 million and 216 million. We expect that our third quarter, 2023 product margins will be down slightly from the third quarter of fiscal 2022 due primarily to the mix of sales year over year. Consolidate operating margins for the third quarter are expected to be between negative 1.5% and negative 2.5% and we anticipate a loss of 15 cents to 25 cents per share.

At the end of last year, and we saw some of adding even it.

<unk> added into that 70 basis points down as we move through inventory in the first half now as we transition to the back half we do think we have some.

Speaker 3: Now as we transition to the back half, we do think we have some opportunity in product margin. Now I think it'll be down slightly in the third quarter, again tied to just mix and also tied to some clearing that we're doing specifically in the area of footwear. If I look at the inventory overall, we feel really good about where our aging sits with the exception of footwear. And I don't think that's a surprise to anyone. It's been pretty...

Some opportunity and product margin now I think it will be down slightly in the third quarter again tied to just mix and also tied to.

Some clearing that we're doing specifically in the area of <unk>, where if I look at the inventory overall, we feel really good about where our aging sits with the exception of footwear and I don't think thats a surprise anyone it's been pretty well talked about out there of some of the challenges in footwear across the market and so we're not we're not immune to that but.

Christopher Work: Similar to the first half, the decline of earnings is largely due to deleverage in the cost structure on lower sales base coupled with margin pressure. Our biggest areas of deleverage continue to be tied to fixed costs such as occupancy expense, base hours in our store are driven by mall operating hours, fixed payroll costs across the business and other corporate costs. As has been our practice this year, we are refraining from given specific annual financial guidance due to the uncertainty and volatility in the macro environment, but do want to provide some context around how we currently believe the business will trend throughout the year.

Speaker 3: Well talked about out there of some of the challenges and footwear across the market. And so we're not immune to that. But I think our teams have done a good job kind of working through it and clearing it. And so that will be one thing that we continue to have planned into the model. It's planned into the Q3 guidance. And obviously any thoughts we've given for the year, that being said, you've also seen private label increases of percentage of sales. That's a benefit to us. We think we have the ability to continue to drive margin here domestically as well as internationally. And most of our initiatives on the product side are built around trying to do that in addition to sales.

Our teams have done a good job kind of working through it and clearing it in so.

That will be one thing that we continue to have planned into the model. It's planned into the Q3 guidance.

Obviously any thoughts we've given for the year.

That being said you've also seen private label increase as a percentage of sales as a benefit to us.

Christopher Work: We have seen the trend line of sales results to prior year get stronger as we have moved through 2023 and expect that to continue as we move through the back half of the year when compared to fiscal 2022 results. In fiscal 2022, product margins were down 50 basis points from the prior year after six consecutive years of growth. The majority of this year over year decrease was driven by our fourth quarter of 2022 product margin, which was impacted by increased discounting as we worked to right size inventory balance.

We have the ability to continue to drive margin here domestically as well as internationally and most of our initiatives on the product side are built around trying to do that in addition to sales. So I think as we move forward. We are hoping that will allow us to more opportunity against prior year product margin versus what we saw in the front half even.

Speaker 3: So I think as we move forward, we are hoping that we'll have some more opportunity against prior year product margin versus what we saw in the front half, even with the mix shift that we've seen from where our sales are coming from.

With the mix shift that we've seen from a where.

Where our sales are coming from.

Christopher Work: We anticipated the front half of 2023 would also run down in product margin as we continued to work through aged inventory and the market remained promotional. For the first six months of fiscal 2023, margin decreased 70 basis points from the first half of 2022, which included the mixed impact of our international business, which has a lower product margin and is growing as a percentage of total sales. As we transition to the back half of the year, we believe that product margins could stabilize as inventories come in line, comparisons get easier.

Great. Thanks, so much and best of luck.

Speaker 1: Thank you. That does conclude our Q&A session for today. I would like to turn the call back over to Rick Brooks, D.O. For those who remarks, please go ahead.

Thank you that does conclude our Q&A session for today I would like to turn the call back over to Rick Brooks CEO for closing remarks. Please go ahead.

Speaker 2: All right, thank you very much everyone for your time today. We greatly appreciate your interest in Zoomies. And we'll look forward to talking to you in late November about third quarter results and early reads on the holiday season. Thank you, everybody.

Alright. Thank you very much everyone for your time today, we greatly appreciate your interest in Zumiez and we'll look forward to talking to you in late November about third quarter results and early reads on the holiday season. Thank you everybody.

Speaker 1: Thank you all for joining me for this conference call. This desk continues today's call. You all may disconnect and have a great wonderful day.

Thank you all for joining today's conference call. This does conclude today's call you all may disconnect and have a great wonderful day.

Christopher Work: Our model is sensitive to sales fluctuations and we have seen de-leverages sales decline in fiscal 2022 and also year-to-day in fiscal 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 this current environment and are positioned to take advantage with conditions improved. We have seen a reduction in our bottom line results during 2022 and 2023 creating significant variability in our consolidated tax rate. This is tied to the distribution of income across our current tax jurisdiction. We are expecting a tax expense could be an excess of pre-tax income for the full year.

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Christopher Work: We are planning to open 19 new stores during the year including approximately 5 stores in North America, 10 stores in Europe, and 4 stores in Australia. We expect capital expenditures for the full 2023 fiscal year to be between 19 million and 21 million compared to $26 million in 2021 or 2022. We expect that depreciation and ammarization, excluding non-cash least expense, will be approximately $23 million. We are currently projecting our share count for the full year to be approximately 19.5 million deluded shares.

Operator: With that operator, we'd like to open the call up for questions. Thank you. As a reminder, if you'd like to ask a question, please press star 11 on your telephone.

Operator: Let's welcome, we remind it, to wait until you hear your name called before you proceed with your question. One moment while we compile the Q&A roster.

Mitchel Kummetz: Our first question for today will be coming from Mitch Kummetz of Seaport. Your line is open. Yes, thanks for taking my questions.

Christopher Work: I've got three of them. Chris, on the sales guide, I think the range you gave that has sales down. I think it's, let's see here, 9 to 11 percent and you're running better than that quarter to date. That obviously implies that you expect tougher results in the rest of September and into October. Could you maybe just address that, and I'm also curious now that you're kind of post peaked back to school.

Christopher Work: Have you seen some softening maybe in the weekly numbers since possibly kind of mid-August? Sure, Mitch, yeah, I'll try to take a crack at that. And you're right, the guide that we gave is down 9 to 11, which is slightly worse than what our run rate has been. And I think as we've worked through August and kind of the back to school season, I'll tell you, we are encouraged that our trend line has accelerated from where we were in Q2, but it was choppy.

Christopher Work: And I think it started a little softer weeks, two and three, where our best weeks and then the last couple of weeks had been a little bit softer. And we've looked at that a few different ways. Obviously, the timing of when different markets go back to school have some pull on kind of what the overall results were. But we're also looking at from a greater sense of knowing the need based of back to school shopping and where that's at.

Christopher Work: And our historical results would tell us that typically when you get out of peak, you'll see a little bit less demand. And so we're sort of buffering the current run rate for that under the assumption of just kind of where the market is at. And hopefully as we try to do is it's a guidance that we can beat.

Christopher Work: Okay, and then I know you're not providing specific guidance beyond three Q, but we talked about kind of the improvement in the run rate. And when I look at the trajectory on your sales growth, down 17, 1, Q, down 12, 2, Q, the midpoint of 3, Q's, down 10, you know, are you thinking that, you know, 4, Q, you know, sales growth plans somewhere kind of in the, you know, I don't know, upper mid to lower high single digit negative range, that kind of, you know, the trajectory that you think the business is on?

Christopher Work: Yeah, I'm going to stay away from giving specific fourth quarter guidance. I think what I would say is this, you know, as we look at Q4, we've historically been able to take a lot away from back to school, kind of in the trends of the business and what we've seen happening. And I'll tell you, even though this is a softer back to school for us, we look back at the, you know, the quarter to date and what we've learned.

Christopher Work: And I think it would continue to tell us that we have a good trend line going into Q4. So, you know, as we think about the sequential sales improvement from Q3 to Q4, we're currently planning Q4, which would be much stronger than what we've seen from Q1 to Q2. And now from Q2 to the Q3 guidance that we've given. So, we do expect this trend line to improve. You know, those beliefs are based on a few things.

Christopher Work: First, I think, you know, our continued ability to drive stronger results. I think as we've kind of break down back to school further, we're really encouraged, you know, men's as our largest category, 50% of the business was with our best performing category in Q2, and then turn positive during back to school. When we view that as a really good indicator for where the business is at, I mean, Mitch, you followed the company for some time.

Christopher Work: I mean, if we look back at 0809 kind of how we climbed out of those times, and even 2015 and 2016, which were softer for us, men's with a huge catalyst for that. So, I think we're really encouraged by that. We're encouraged by what we saw from the customer during the period. I mean, transactions was our problem during back to school. We saw increased AUR and actually units when the consumer was shopping, which I think was another good turn that we saw in the back to school season.

Christopher Work: So, so that gives us some confidence heading in. And then obviously, you know, as we think about just the compares and how we move into the fourth quarter Q4 of 2022 with our softest compared to really historical kind of pre-pandemic results. And so, we do believe that some of the bigger drags on the business that have been more challenged around footwear and hard goods, they just soften as we as we get into the fourth quarter. So, I think that gives us some comfort that we could see a good incremental step up in the fourth quarter.

Mitchel Kummetz: And obviously, you know, not give them guidance at this time, but we'll get more honed in on that here when we report it at the end of November. All right, that's helpful color. I appreciate that.

Christopher Work: And then lastly, to tell the SGNA, especially thinking about it from a dollar standpoint. So SGNA dollars were up two million in 2Q versus last year. That follows, I think, four consecutive quarters were the dollar SGNA was actually down year over year. So, how are you thinking about that in 3Q, like from a dollar standpoint? And is there sort of a run rate to kind of think about SGNA dollars going forward?

Christopher Work: Like, you know, I know you're not giving forth to you guys, so you probably don't want to talk about next year. But like, should we be thinking about SGNA dollars higher next year than this year? Or is there a chance that you can actually take that down just from like a cost cutting standpoint? I guess a couple of questions there. Yeah, yeah, there's quite a bit there. So, what I'll try to do is kind of talk high level about how we think about SGNA.

Christopher Work: And then obviously, how it pertains to where we're at today. So, you know, as I think about SGNA, you know, we have a highly fixed business, you know, fixed costs both within the store system as well as our corporate overhead and web and things like that. So, you know, this has created some challenges, as you know, in 2022 and 2023, just with the sales coming down, the deleverage and the business, you know, also is part of the reason we were able to leverage so well in 2021 when we saw increased sales.

Christopher Work: I think, you know, as we look at 2022 SGNA, and I do think sometimes it's important to step back and look at full year SGNA, you know, it was up 1.8% compared to 2021, or I'm sorry, down 1.8% compared to 2021, and it was up 4.6% compared to 2019, which, you know, as we look back and we looked at inflation and where the cost structures had gone over that time period, I think we saw that as, you know, being fairly positive. As we looked at the first six months of this year, SGNA was up about 0.6%.

Christopher Work: So, I think, again, we're feeling pretty good. The Q3 guide includes a little higher run rate, which is really around some timing of spend things, and, you know, we are continuing to invest in the business. I think that's an important distinction for where we're at, obviously our results are tougher, but we do continue to believe there's, you know, there's good value long-term in investing 30 cycles. We've built a really strong balance sheet.

Christopher Work: I think we're in a good financial position. That being said, we're being very prudent about how we think about it, too. You know, to your point, managing fixed costs everywhere is possible. I think we've really rethinking our store payroll model and where we have hours there to try to pull back as much as possible, and in certain, you know, departments and areas of the business leaving open positions open. I think those are all things that we've looked at while trying not to cut things that are long-term for the business.

Christopher Work: I think as we look forward, what you should expect from us is we're going to, we got gross sales at a much greater rate factor than SGNA, and because we have not done tons of substantial cut-stash, you know, I think we still feel like we've got the right balance to be able to drive sales going forward. So that's really our focus. That will be our drive as we move into 2024. And I think as we look at SGNA overall for 2023, we won't see huge growth. What we'll see is some of the inflationary pressures that are really hitting lots of people in the industry.

Mitchel Kummetz: Jeffrey. Okay, thanks again.

Operator: Thank you one moment while we prepare for the next question.

Jess Fancender: And we have our next question we'll be coming from Jess Fancender of Be Ryle. Your line is open. Yes, hi everyone.

Christopher Work: What do you guys can talk a little bit about what you're seeing in the sales and margin performance of your private label product? Yeah, I'll go ahead and talk about it just kind of from a numbers perspective and obviously welcome Rick to chime in. And I think one of the things we've talked about throughout this year is our consumer really seeking value. And I think we've seen out in the extra market it's clearly been clear in our business to private label as a percent of the business has continued to climb.

Christopher Work: We've seen it from 2022 throughout 2022 and now into the first quarter and second quarter of this year. And then pretty substantially here in the in the third quarter to date, which you'd expect in back to school and where we're at. And I think we're really we're really proud of our teams and how they've executed here because while there's certainly a value play here, I think our teams have also done a really good job bringing great product to market.

Christopher Work: So we've seen that really resonate both in our tops and bottoms business. But you know, in other areas as well, but that's the primary drivers on the payroll side. So overall, I think seeing really good private label trends, I think we've been able to do some things with bundling and packages in our stores related to private label as well, which has been beneficial. And we're also seeing the growth internationally too. And so we're encouraged by that with some of the brands really working in Europe and in our fast times in Australia team also has some private label that they're pushing as well.

Christopher Work: So overall, I think we're pretty encouraged by what we're seeing in that area of the business. And I'd only add death that I think this what Chris has described is what's driving and the success of our bundling promotions is what's driving the UPT gains. And that's where I'm so proud of our sales teams is that there's using that with our customers coming in the door. And we generated not not only have we had the AUR gains are continue, but we've seen again UPT start to increase in back to school, which is I think a credit to our team or sales team to put those bundles to sell those bundles. And to have some of our highest now dollars, which has I think ever at back to school, which I think speaks well to how we're positioned with our core consumer.

Christopher Work: That's helpful. Just as a follow up to that, and I don't know I'm not sure you've really break this out often, but just wondering if there's any color you can give us and kind of where that concentration of private label is running at this point. Yeah, I can speak to that. We are about 21 and a half percent through the through the second quarter compared to about 17% last year. So it's about 450 basis point increase year over year is a penetration of total sales. Okay, interesting.

Richard Brooks: And then I have sort of an off the cuff question to you guys, but I'm just wondering how you're handling getting people back to the office at this point. I know that out there, you know, when you're in some resistance. What's what's your latest policy to get folks back to the office? We have steadfastly throughout the entire pandemic period and into where we're at today. Jeff, we've always considered ourselves to be an office environment where people are going to be here.

Richard Brooks: Of course, our store employees are in the office every day. As our DC teams in the office every day down in our DC facility. So we believe that collaboration is key at central so that throughout the pandemic, whenever the rules were, we've definitely followed them, but if we could have 50% capacity, we're rotating everyone in 50, 50 over alternating weeks. And so pretty much for us, everyone's back. We have some exceptions for certain specific situations, but pretty much on the fall, we've been back.

Jess Fancender: Okay, good to hear.

Christopher Work: And then I have one more sort of broader question for you. I think you were kind of running on average about an eight to 10% operating margin, call it pre-COVID. But of course, we have elevated labor expenses now and other inflationary inputs. What do you think is a normalized operating margin for the company? Are we looking now probably mid single digit, you think? Or just assuming sort of modest sales recovery, call it maybe a mid single digit positive cop, all else being roughly equal.

Christopher Work: How do you think about that? Yeah, I mean, Jeff, we've done a lot of work around this. And obviously the step back we've had the last couple of years has been super challenging, but, you know, as we break it down, we've broken down lots of different ways. I really believe it's generally sales related and this is the bigger challenge in our business. And you know, we actually, you know, if you can't coming out of 14 and 15, we had talked about getting back to high single digits.

Christopher Work: From an operating profit perspective, we were able to accomplish that. We actually got into double digits. And I think we still believe over the long term, if we can get sales right, and there are other things in the business that help offset some of the inflation. We've been able to drive product margin higher. We've been able to, we have an international business that still has a lot of growth around it. But I think that high single digit goal is still achievable.

Christopher Work: And, and that's really our push. And that's our, that's our drive as we think about the business recovering and seeing the sales come back is, is trying to build a model that will get. Get to that high single digits and, you know, obviously, hopefully, potentially beyond. But I think that that still seems realistic in our heads.

Jess Fancender: Okay. Thanks for taking my questions and best of luck in the remainder of Q3. Yep. Thanks, Jeff. Thank you.

Operator: If you would like to ask a question, please press star one on your telephone. One moment for the next question.

Torrey Torlo: The next question will be coming from Torrey, Torlo of Jeffries, your line is open. Great. Thanks. I think he cited some.

Richard Brooks: I was wondering if there's anything into back to school or into the third quarter that has maybe surprised you from a category or fashion trend standpoint that you can talk about. I'll start my Chris Adyen, and I guess one of these we've already talked about, which is the strength of our private label business. I think that is clearly a strong trender in business. I think as Chris said earlier, our teams have done a really good job here of being on trend and on cycle.

Richard Brooks: And of course, we had to plan for that. This isn't in our most these private label categories that cut in so categories. This is something we plan for for back to school. I think executed well by our private label product teams and then executed really well with our overall team strategy and the bundling that worked both in stores and online for providing value for our customers and driving DPTs in the process as well as driving margin.

Richard Brooks: The other the other I'd call out for you. And so that's a big driver for definitely for men's to the other I call out for I think that's important is. And I think exciting for us is the emerging brands and we we feel very encouraged about our pipeline in emerging brands here in 2023. And we have seen sequential improvement month over month in terms of brands launched in 22 and 23 gaining share within our total sales mix.

Richard Brooks: And that continued on into the back to school season. So that's the other aspect that that turned our printables business positive in back to school. So that if you want to look at the real driver behind men's it's though getting positive for the back to school. See it's those two things the quality of our of our on trend private label product the quality of our sales teams and in selling multiple units.

Richard Brooks: And combine that with newness on the brand side and improve dramatic improvement in our screenables business. And so I'm really I think that's another is exciting for us as we think about this internally is we're hoping with course we can continue to see that month over months sequential growth and that these brands launch in 22 and 23 can continue to be growth drivers within the printable screenables areas of our business.

Torrey Torlo: Great. Thanks. That's very helpful.

Christopher Work: It's just on product margins. He gave some helpful colors to how they trend it over the last couple quarters. Could you maybe unpack for us how you're thinking about promotions ahead and how you think about product margins into the back half and how that might unfold as we headed to holiday. Sure. Yeah. You know, I just as we as we think about product margin, I we mentioned there are prepared comments. We are down 70 basis points a year to date and what I what I would just add to that is obviously the mix component that we talked about is pretty significant when you have an international business.

Christopher Work: Comping up and growing sales and obviously our domestic business is more challenged and given that the international margin is quite substantially lower than our domestic margins. So so when I even we say down 70 basis points, the lion share of that is really a mix challenge versus actually product margin decline. So as we look forward, you know, part of what we knew coming into this year is that we would have some product margin challenges.

Christopher Work: We had some inventory to clear out as of the end of last year and and we saw some of that even account added into that 70 basis points down as we move through inventory in the first half. Now as we transition to the back half, we do think we have some some opportunity in product margin. Now I think you'll be down slightly in the third quarter again tied to just mix and also tied to some clearing that we're doing specifically in the area of nowhere.

Christopher Work: If I look at the inventory overall, we feel really good about where our aging sits with the exception of footwear and I don't think that's a surprise anyone's been pretty well talked about out there of some of the challenges of footwear across the market. And so we're not we're not immune to that, but I think our teams have done a good job kind of working through it and clearing it and so that will be one thing that we continue to have planned into the model.

Christopher Work: So let's plan into the Q3 guidance and and obviously any thoughts we've given for the year. That being said, you've also seen private label increases the percentage of sales. That's a benefit to us. We think we have the ability to continue to drive margin here domestically as well as internationally and most of our initiatives on the product side are built around trying to do that in addition to sales. So I think as we move forward, we are hoping that we'll last a more opportunity against prior year product margin versus what we saw in the front half, even with the the mix shift that we've seen from where our sales are coming from, from.

Torrey Torlo: Great. Thanks so much and best of luck. Thank you.

Operator: That does conclude our Q&A session for today.

Richard Brooks: I would like to turn the call back over to Rick Brooks, Theo.

Richard Brooks: If those are remarks, please go ahead. All right.

Richard Brooks: Thank you very much, everyone, for your time today. We greatly appreciate your interest in Zoomies. And we'll look forward to talking you in late November about third quarter results and early needs on the holiday season.

Operator: Thank you, everybody.

Operator: Thank you all for joining me to the conference call.

Operator: That concludes today's call. You all may disconnect and have a great wonderful day.