Q2 2025 Zumiez Inc Earnings Call

Speaker Change: Good afternoon ladies and gentlemen and welcome to the Zoomies in second quarter fiscal 2020 24 earnings conference call At this time all participants are not listen only mode. We will conduct a question and session towards the end of this conference

Operator: Conference call. At this time, all participants aren't in a listen-only mode. We will conduct a question and answer session towards the end of this conference.

Operator: Before we begin, I'd like to remind everyone of the company's safe harbor language. Today's conference call includes comments concerning Zumiez Inc. This is outlook and contains four-looking statements. These four-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. 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.

Speaker Change: Before we begin, I'd like to remind everyone of the company's safe harbor language. Today's conference calling includes comments concerning Zoomies Inc.

Speaker Change: This is Outlook and contains four looking statements, these four looking statements and all other statements that may be made on this call that are not based on historical facts or subject to risk and uncertainties.

Rick Brooks: Act results may differ materially, additional information concerning a number of factors that could cause act results to differ materially from the information that will be discussed is available in Zoomies, Filesings with the SEC at this time I will try to call over to Rick Brooks Chief Executive Officer, Mr. Brooks.

Rick Brooks: At this time, I'll turn the call over to Rick Brooks, Chief Executive Officer. Mr. Brooks.

Rick Brooks: Hello, everyone. And thank you for joining us on today's call. With me today's Chris Work, our Chief Financial Officer.

Rick Brooks: Hello everyone, and thank you for joining us on today's call. With me today's Chris Work, our Chief Financial Officer.

Rick Brooks: I'll begin with a few remarks about our second quarter and the start of after school season before touching our strategic priorities for 2024. Chris will then take you through the financials and our outlook for the balance of the year. And after that, we'll open the call to your questions. We're happy to report that our business delivers stronger than anticipated performance in the second quarter, exceeding our expectations and demonstrating the resilience of our brand and our customer base. Led by a North American region, total comparable sales inflicted positive in June, increasing low single digits, and strengthened as the back to season got underway in July, up high single digits for the month.

Rick Brooks: All begin with a few remarks about our second quarter and the start of the Baptist School season, before touching our strategic priorities for 2024. Crystal then take you through the financials and our outlook for the balance of the year, and after that we'll open the call to your questions.

Crystal: We're happy to report that our business deliberators stronger than anticipated performance in the second quarter, exceeding our expectations and demonstrating the resilience of our brand and our customer base.

Crystal: Led by North American region, total comparable sales-inslected positive in June, increasing low single digits, and strengthened as a back-to-seasoned underway in July, a high single digits for the month.

Rick Brooks: Total sales for the second quarter increased 8% year-over-year to $210 million, well above our guidance for sales between $199 and $204 million. We're pleased with the results we achieved in the quarter as they reflect the contributions of multiple areas of our business. Our men's category continued its possible momentum, growing year-over-year for the third consecutive quarter with an accelerating pace. Our women's category, which turned positive in Q1, accelerated meaningfully in the second quarter, posting strong double-digit growth versus a year ago, while we also saw footwear turn positive. Our solid top-line performance resulted in noticeable leverage in the second quarter across our cost structure.

Crystal: Total sales for this second quarter increased 8% year over a year to $210 million, well above our guidance for sales between $199 and $204 million.

Crystal: We're pleased with results we achieved in the quarter as I reflect the contributions of multiple areas of our business.

Crystal: Our men's category continued its possible momentum growing year over year for the third consecutive quarter with an accelerating pace.

Crystal: Our women's category, which turned positive in Q1, accelerated meaningfully in the second quarter, posting strong double digit growth versus a year ago, while we also saw footwear turn positive.

Crystal: Our solid top line performance resulted in noticeable leverage in the second quarter across our cross structure.

Rick Brooks: At the same time, our heightened focus on driving full-price selling in Europe helped push merchandising margins higher than a year ago. This all fueled a significant increase in our bottom line, with our loss per share improving to 4 cents compared to a loss of 44 cents per share last year, which is also significantly better than our guidance for a loss of 40 cents to 30 cents per share. As we transition to the third quarter, we seen another step up in our business with comparable sales results of 12.1% quarter-to-date through September 2nd. While our teams have made significant progress returning to positive comparable sales growth and improving profitability, we believe the business is capable of much more.

Crystal: The same time our heightened focus on driving full price selling in Europe helped push merchandise margins higher than a year ago. This all fueled a significant increase in our bottom line with our loss per share and proving to four cents compared to a loss of 44 cents per share last year.

Crystal: which has also meaningfully better than our guidance for laws of 40 cents to 30 cents per share.

Crystal: As we transition to the third quarter, we've seen another step up in our business with comparable sales results up 12.1% quarter to date through September 2nd.

Crystal: While it seems to make significant progress returning to positive comparable sales growth and improving profitability

Rick Brooks: As we continue to navigate a challenging retail environment, we will stay focused on the items that are within our control to grow sales and drive the business back towards its historical operating performance and beyond.

Crystal: We believe the business is capable much more. As we continue to navigate a challenging retail environment, we will stay focused on the items that are within our control to grow sales and drive the business back towards its historical operating performance and beyond.

Rick Brooks: As shared on our fourth quarter call in March, our focus continues to be the following: First, we're concentrating on re-indigorating our top-line sales through investments to ensure that we continue to win with customers. Some of these initiatives include infusing our product assortments with fresh offerings. We launched more than 100 brands in 2022, more than 150 brands in 2023. With current sales, then we've seen historically, indicating they're resonating well with customers. We're continuing to expand our private label brand portfolio this year and expect to continue to grow private label share. Private label represented approximately 23% of sales in 2023, up from 18% in 2022, and 13% in 2021.

Crystal: As shared on our fourth quarter call in March, our focus contingent to be the following strategies.

Crystal: First, we're concentrating on re-indigrating our top-line sales through investments to ensure that we continue to win with customers.

Crystal: Some of these initiatives include infusing our product assortments with fresh offerings. We launched more than 120 brands in 2022, more than 150 brands in 2023, and we may not track the launch of similar level in 2024.

Crystal: We're already seen our newly launched brands from the past couple years accounting for a larger portion of current sales than we've seen historically, indicating they're resonating well with customers.

Crystal: We're continued to expand our private label brand portfolio this year and expect to continue to grow private label share.

Crystal: Private Label represented approximately 23% of sales in 2023, up from 18% in 2022 and 13% in 2021.

Rick Brooks: This growth showcases our team's ability to capitalize on both trend and value-conscious consumers, providing another avenue for growth. We're maintaining our best-in-class service in stores and online, with continuing investment in training and technology. Combine these efforts aimed to enhance our customer relationships and allow us to engage with them in more personalized and relevant ways.

Crystal: This growth showcases our teams' ability to capitalize on both trend and value conscious consumers, providing another avenue for growth.

Crystal: and we're maintaining our best-in-class service in stores and online, with continued investment in training and technology. Combined these efforts aimed to enhance our customer relationships and allow us to engage with them in more personalized and relevant ways.

Rick Brooks: Along with these top-line initiatives, we're enhancing our focus on profitability, both in Europe and in North America. In Europe, our plan involves a pivot from our growth strategy. We've slowed store expansion this year and shifted focus to enhancing the productivity of our nearly 90 stores across nine countries, and our pan-European web business that currently serves the European market. With a focus on full price selling for our existing footprint, we believe we can unlock the potential for the business and create value as we work through what has been a difficult cycle in Europe. There's no doubt that trends emerge locally and grow globally, and our current penetration in the relevant markets is the significant advantage to Zoomies over the long term.

Crystal: Along with these top line initiatives, we are enhancing our focus on profitability, both in Europe and in North America.

Crystal: In Europe, our plan involves a pivot from our growth strategy.

Crystal: We've flowed storage bans in this year and shifted focus to enhancing the productivity of our nearly 90 stores across nine countries and our pan-European web business that currently serves the European market.

Crystal: With a focus on full-price selling for our existing footprint, we believe we can unlock the potential for the business and create value as we work through what has been a difficult cycle in Europe.

Speaker Change: There's no doubt that trans-emerge locally and grow globally. In our current penetration, the relevant markets is a significant advantage to zoomies over the long term.

Rick Brooks: Overall, we believe we can achieve profitability in Europe, but this new focus, as we've done in other international markets like Canada and Australia. Beyond Europe, we're focused on profitability in other markets as well.

Speaker Change: Over all, we believe we can achieve profitability in Europe, but this new focus has been done in other international markets like Canada and Australia.

Rick Brooks: In 2023, we closed 20 underperforming North American stores, and we may not track the close approximately 25 additional underperforming locations in 2024. As a result, we decreased field and corporate staffing levels to align with the reduced store count. We are also further optimizing store labor through several initiatives, including adjustments to staffing models at lower volume stores. We made structural changes to reduce shipping and logistics costs company-wide, reduced discount selling compared with last year's elevated levels, and continued to implement other cost-saving opportunities in many areas throughout the organization. Overall, these adjustments to our operating strategy, combined with our strong balance sheet, with more than $125 million in cash, positions us well to navigate the current environment and emerge a stronger and more profitable company.

Speaker Change: The on-Europe, we're focused on profitability and other markets as well. In 2023, we close 20 under-performing North American stores and we may not track to close approximately 25 additional under-performing locations in 2024.

Speaker Change: As a result, we decreased field and corporate staffing levels to align with the reduced store count. We are also further optimizing store labor through several initiatives, including adjustments to staffing models at lower volume stores.

Speaker Change: We made structural changes to reduce shipping and logistics costs company-wide. We do discount selling compared with last year's elevated levels and continue to implement other cost-saving opportunities in many areas throughout the organization.

Speaker Change: Overall, these adjustments to our operating strategy combine with our strong balance sheet with more than $125 million in cash, positions well to navigate the current environment and emerge a stronger and more profitable company.

Rick Brooks: We're encouraged with how 2024 is unfolded thus far, and feel that we are well positioned to capitalize in the upcoming holiday season.

Speaker Change: We encourage without 2024's unfolded thus far, and feel that we are well positioned to capitalize in upcoming holiday season.

Rick Brooks: Longer term, I believe that by staying true to our customer, our culture and our brand, with an intense focus on our long-term strategies, we can continue capturing market share by generating increased value for our shareholders.

Speaker Change: Longer term, I believe that by staying true to our customer, our culture, and our brand, with an intense focus on our long-term strategies, we can continue to capture the market share of generating increased value for our shareholders.

Rick Brooks: That will turn the call to Chris to discuss the financials.

Christopher Work: Thanks, Rick, and good afternoon, everyone. I'm going to start with the review of our second quarter results. I'll then provide an update on our third quarter-to-date sales trends and some perspective on how we're thinking about the full year. Positive impact on our results, increasing net sales growth by approximately 530 basis points during the second quarter. The calendar shift of a negative impact on the third quarter net sales growth, comparable sales results as reported are adjusted for the calendar shift and represent a more accurate measure of operating results. Our second quarter performance was driven by a North America business, which was positive for the second consecutive quarter.

Speaker Change: That I'll turn the call to Chris to discuss the financials.

Chris Work: Thanks Rick, and 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 date sales trends and some perspective on how we're thinking about the full year.

Chris Work: 2nd quarter net sales for $210.2 million of 8.1% from $194.4 million in the 2nd quarter of 2023. Comparable sales increase 3.6% for the quarter.

Chris Work: The shift in the retail calendar had a positive impact on our results, increasing net sales growth by approximately 530 basis points during the second quarter.

Chris Work: The calendar shift of a negative impact on the third quarter net sales growth. Comparable sales results as reported are adjusted for the calendar shift and represent a more accurate measure of operating results.

Chris Work: Our second quarter performance was driven by a North America business, which was positive for the second consecutive quarter. The strength was partially offset by a decline international sales as we put greater emphasis on full price selling in Europe, which benefited margins, but pressured our top line.

Christopher Work: The strength was partially offset by a decline in international sales as we put greater emphasis on full price selling in Europe, which benefited margins but pressured our top line. From a regional perspective, North America net sales were $176.3 million, an increase of 10.4% from 2023. Other international net sales, which consists of Europe and Australia, were $33.9 million, down 2.6% from last year. Excluding the impact of foreign currency translation, North America net sales increased 10.6%. And other international net sales decreased 1.7% year over year. Comparable sales for North America were up 5.9%, and comparable sales for other international were down 7.6% for the quarter.

Chris Work: from a regional perspective North American Sails were $176.3 million, an increase of 10.4% from 2023. Other international Sails was consists of Europe and Australia, worth $33.9 million down 2.6% from last year.

Chris Work: The following impact of foreign currency translation North America net sales increased 10.6%. Another international net sales decreased 1.7% year over year.

Chris Work: Comparable sales for North America were up 5.9% and comparable sales for other international were down 7.6% for the quarter. From a category perspective, men's with our largest positive-company category, followed by women's and then foa'er. Hard goods with our largest negative-company category followed by accessories.

Christopher Work: From a category perspective, men's was our largest positive comping category, followed by women's and men's footwear. Hard goods were our largest negative comping category, followed by accessories. The consolidated increase in comparable sales was driven by an increase in dollars per transaction, partially offset by a decrease in transactions. Dollars per transaction were up for the quarter driven by an increase in average unit retail and increase in units per transaction. Second quarter gross profit was $71.8 million compared to $61.7 million in the second quarter of last year. Gross profit as a percentage of sales was 34.2% for the quarter compared to 31.7% for the second quarter of 2023.

Chris Work: The consolidated increase in comparable sales is driven by an increase in dollars for transaction, partially off the average decrease in transactions. Dollars for transaction were up for the quarter, driven by an increase in average unit retail and increase in units for transaction.

Chris Work: Second Quarter gross profit with $71.8 million, compared to $61.7 million in the second quarter of last year.

Chris Work: Gross Profit as a percentage of sales was 34.2% for the quarter compared to 31.7% for the second quarter of 2023.

Christopher Work: The 250 basis point increase in gross margin was primarily driven by 140 basis points of leverage and store occupancy costs, 90 basis points of leverage and shipping costs, and 20 basis points of leverage and distribution center costs. While product margin was flat to the prior year, SNA expense was $72.2 million or 34.4% of net sales in the second quarter compared to $72.2 million or 37.1% of net sales a year ago. The 280 basis point decrease in SNA expenses as a percent of net sales resulted from the following. 100 basis points to the leverage of store wages on higher sales, 80 basis points of non-wage corporate cost leverage, 50 basis of leverage and non-wage store operating costs, 50 basis points benefit to the timing of employee training, and 20 basis points of leverage of corporate wages, offset by a 30 basis point increase in incentive costs.

Chris Work: The 250 basis point increase in gross margin was primarily driven by 140 basis points of leverage in store-off of C-Cos, 90 basis points of leverage in shipping costs, and 20 basis points of leverage in distribution center costs. While product margin was flat to the prior year.

Chris Work: Best DNA expense with 72.2 million dollars or 34.4% of net sales in the second quarter compared to 72.2 million dollars or 37.1% of net sales a year ago.

Chris Work: The 280-base point decrease in SG&A expenses as a percent of sales resulted from the following. A hundred-base points to the leverage of store wages on higher sales, 80-base points of non-wage corporate cost leverage, 50-base of leverage in non-wage store operating costs.

Chris Work: 50-base points benefit to the timing of employee training and 20-base points a leverage of corporate wages. Offset by 30-base is point increase in incentive costs.

Christopher Work: Operating loss in the second quarter of 2024 was $0.4 million or 0.2% of net sales, compared with an operating loss of $10.5 million or 5.4% of net sales last year. last year. Net loss for the second quarter was $0.8 million, or $4 cents per share. This compares to a net loss of $8.5 million or $0.44 cents per share for the second quarter of 2023. Our effective tax rate for the second quarter of 2024 was 252.1 percent, compared with an 8.5 percent benefit in the year-ago period. The increase in our effective tax rate was primarily due to the allocation of losses across the jurisdictions in which we operate.

Chris Work: Operating loss in the second quarter of 2024 was $0.4 million or 0.2% of net sales compared with an operating loss of $10.5 million or $5.4% net sales last year.

Chris Work: Net loss for the second quarter was $0.8 million or four cents per share. This compares to a net loss of $8.5 million or 44 cents per share for the second quarter of 2023.

Chris Work: Our effective tax rate for the second quarter of 2024 was 252.1% compared to the 8.5% benefit in the year ago period. The increase in our effective tax rate was primarily due to the allocation of losses across the jurisdictions in which we operate.

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 $127 million as of August 3rd, 2024, compared to $140 million as of July 29, 2023. The $13 million decrease in cash and current marketable securities over the trailer in 12 months was driven primarily by share repurchases of $19.4 million and capital expenditures of $14.7 million, offset by $23.6 million and cash provided by operating activities. As of August 3rd, 2024, we have no debt on the balance sheet. During the second quarter, we purchased approximately $945,000 shares of our common stock for $19.4 million and an average price of $20.50 cents per share under the $25 million repurchase authorization approved on June 5th, 2024.

Speaker Change: Attorney to the Balanchee, the business ended the quarter in a strong financial position. We are cashing current marketable securities of $127 million as a bogus third, 2024. Compared to $140 million as a July 29th, 2023.

Speaker Change: The $13 million decrease in cash and current marketable securities over the trillion to 12 months was driven primarily by share repurchases of $19.4 million and capital expenditures of $14.7 million. Offset by $23.6 million in cash provided by operating activities.

Operator: conference call. At this time, all participants aren't a listen only mode. We will conduct a question and answer session towards the end of this conference.

Speaker Change: As of August 3, 2024, we have no debt on the balance sheet.

Operator: Before we begin, I'd like to remind everyone of the company's safe harbor language. Today's conference call includes comments concerning Zumiez Inc. This is outlook and contains four-looking statements. These four-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.

Speaker Change: During the second quarter, we purchased approximately $945,000 shares of our common stock for $19.4 million. And an average price of $20 and 50-5 cents per share under the $25 million re-purchased authorization approved on June 5, 2024.

Christopher Work: Third quarter of the day, we have purchased an additional 220,000 shares of our common stock for $5.6 million, or $25.39 per share, completing the June 5th authorization. Cumulatively, this resulted in approximately 1.2 million shares purchased under the authorization and an average price of $21.47. This represented 5.7% of our outstanding stock at the time of the authorization.

Speaker Change: 3rd quarter of the day, we have purchased an additional 220,000 shares of our common stock for $5.6 million or $25.39 per share, completing the June 5th authorization.

Speaker Change: Kim Elizabeth Lee, this resulted in approximately $1.2 million purchase under the authorization in average price of $21.47. This represents 5.7% of our outstanding stock at the time of the authorization. At this time, we have no open, repurchased authorization.

Rick Brooks: At this time, I'll turn the call over to Rick Brooks, Chief Executive Officer. Mr. Brooks. Hello, everyone. And thank you for joining us on today's call. With me today is Chris Work, our Chief Financial Officer. I'll begin with a few remarks about our second quarter and the start of after school season before touching our strategic priorities for 2024. Chris will then take you through the financials and our outlook for the balance of the year.

Christopher Work: At this time, we have no open repurchase authorization. We ended the quarter with $158.8 million in inventory, up 1.3% compared to the $156.7 million last year. On a constant currency basis, our inventory levels were up 2% from last year. Given the sales backdrop, we are happy with our ending inventory balance for the second quarter and expect to continue bringing newness as we move into the important holiday selling season.

Rick Brooks: And after that, we'll open the call to your questions. We're happy to report that our business delivers stronger than anticipated performance in the second quarter, exceeding our expectations and demonstrating the resilience of our brand and our customer base. Led by a North American region, total comparable sales inflicted positive in June, increasing low single digits, and strengthened as the back to season got underway in July, up high single digits for the month.

Speaker Change: We ended the quarter with a $158 million inventory, up 1.3% compared to the $156.7 million last year.

Speaker Change: On a constant currency basis, our inventory levels were up 2% per last year. Given the sales backdrop, we're happy with our Indian inventory balance for the second quarter and expect to continue bringing in newness as we move into the important holiday selling season.

Christopher Work: Now to our third quarter of the day results. Net sales for the 30-day period in September 2nd, 2024, increased 6.8% compared to the 30-day period in the prior year ended August 28, 2023. As previously stated, the calendar shift will have a negative impact on net sales growth for the third quarter. Comparable sales for the 30-day period in September 2nd, 2024, which are adjusted to remove the impact of the calendar shift, were up 12.1% from the comparable period in the prior year. From a regional perspective, net sales for our North America business for the 38-period in the September 2nd, 2024, increased 7.8% compared to the 30-day period in the August 28, 2023, while our other international business decreased 0.9%.

Speaker Change: Now to our third quarter of date results.

Speaker Change: Net sales for the 30-day period in September 2, 2024, increased 6.8% compared to the 30-day period in the prior year, ended August 28, 2023.

Speaker Change: has previously stated that the calendar shift will have a negative impact on net sales growth for the third quarter.

Rick Brooks: Total sales for the second quarter increased 8% year-over-year to $210 million. Well above our guidance for sales between $199 and $204 million. We're pleased with the results we achieved in the quarter as they reflect the contributions of multiple areas of our business. Our men's category continued its possible momentum growing year-over-year for the third consecutive quarter with an accelerating pace. Our women's category, which turned positive in Q1, accelerated meaningfully in the second quarter, posting strong double digit growth versus a year ago while we also saw a footwear turn positive.

Speaker Change: Comparable sales for the 30-day period in September 2, 2024, which are adjusted to remove the impact of the calendar shift. We're up 12.1% from the comparable period in the prior year.

Speaker Change: from a regional perspective net sales for our North America business for the 38 period in its September 2nd, 2024, increased 7.8% compared to the 38 period in its August 28, 2023. While our other international business decreased 0.9%.

Christopher Work: Excluding the impact of foreign currency translation, North American net sales for the 30-day period in the September 2nd, 2024, increased 8% for the prior year, while our other international net sales decreased 2.1% compared to 2023. Comparable sales for North America increased 14.4% for the 30-day period ended September 2nd, 2024, compared to the same weeks in the prior year, while our other international business declined 4.2%. From a category perspective, men with their largest positive comparable sales growth category fall by our women's and then footwear. The accessories category was our largest decline in comparable sales, followed by targets.

Speaker Change: Excluding the impact of foreign currency translation, North American Sails for the 30-day period in September 2nd, 2024, increased 8% for the prior year, while other international Sails decrease 2.1% compared to 2023.

Rick Brooks: Our solid top line performance resulted in noticeable leverage in the second quarter across our cost structure. The same time our heightened focus on driving full price selling in Europe helped push merchandising margins higher than a year ago. This all fueled a significant increase in our bottom line with our loss per share improving to four cents compared to a loss of 44 cents per share last year, which is also significantly better than our guidance for a loss of 40 cents to 30 cents per share.

Speaker Change: Comparable sales for North America increased 14.4% for the 30-day period ended September 2, 2024 compared to the same weeks in the prior year. Balls Perl sales for other national business declined 4.2%.

Speaker Change: from a category perspective men's with our largest positive comparable sales growth category followed by our women's and then footwear. The accessories category with our largest decline in comparable sales followed by hargots.

Christopher Work: The comparable sales increase was driven by an increase in dollars for transaction and an increase in transactions. Dollars for transaction increase for the 30 day period due to an increase in average in a retail and an increase in units for transaction.

Rick Brooks: As we transition to the third quarter, we seen another step up in our business with comparable sales results of 12.1% quarter to date through September 2nd. While our teams have made significant progress returning to positive comparable sales growth and improving profitability, we believe the business is capable much more. As we continue to navigate a challenging retail environment, we will stay focused on the items that are within our control to grow sales and drive the business back towards its historical operating performance and beyond.

Speaker Change: The comparable sales increase was driven by an increase in dollars for transaction and an increase in transactions.

Speaker Change: Dollars for Transaction Increase with a 30-day period due to an increase in average in a retail and an increase in units for transaction.

Christopher Work: With respect to our outlook for the third quarter of fiscal 2024, I want to remind everyone that 4 million are guidance involved 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. We are anticipating total sales for the third quarter to be between $221 million and $225 million, or a 2% to 4% increase from the third quarter last year. As a reminder, the second quarter benefited from the calendar shift, which pulled one week of heavier factor school volume into the second quarter and out of the third quarter.

Speaker Change: with respect to our outlook for the third quarter of fiscal 2024. I want to remind everyone that formerly in our guidance involves some inherent uncertainty and complexity in estimating sales, product margin, and earnings growth given the variety of internal and external factors they impact our performance.

Speaker Change: We are anticipating total sales for the third quarter to be between $221 million and $225 million or a 2% to 4% increase from the third quarter last year.

Rick Brooks: As shared on our fourth quarter call in March, our focus continues to be the following strategy. First, we're concentrating on reintegrating our top-line sales through investments to ensure that we continue to win with customers. Some of these initiatives include infusing our product disarmance with fresh offerings. We launched more than 100 brands in 2022, more than 150 brands in 2023, and we may not track the launch a similar level in 2024. We're already seeing our newly launched brands from the past couple of years accounting for a larger portion of current sales, then we've seen historically, indicating they're resonating well with customers.

Speaker Change: As a reminder, the second quarter benefited from the calendar shift, which pulled one week of heavier, fact-to-school volume into the second quarter and out of the third quarter. Adjusting for the shift, we are estimating third quarter sales growth to be between 7% and 9%.

Christopher Work: Adjusting for the shift, we are estimating third quarter sales growth to be between 7% and 9%. We expect their third quarter 2024 product margins will be slightly positive. Consolidated operating income as a percent of sales for the third quarter is expected to be between 0.2% and 1.2%. And we anticipate earnings per share will be between a loss of 4 cents and income of 6 cents, compared to a loss of 12 cents in the prior year.

Speaker Change: We expect their third quarter 2024 product margins will be slightly positive.

Speaker Change: Consolidate operating income as a percent of sales for the third quarter is expected to be between 0.2% and 1.2%. And we anticipate earnings for share will be between a loss of four cents and income of six cents compared to a loss of 12 cents in the prior year.

Rick Brooks: We're continuing to expand our private label brand portfolio this year, and expect to continue to grow a private label share. Private label represented approximately 23% of sales in 2023, up from 18% in 2022, and 13% in 2021. This growth showcases our Keynes d'Bouille de Kapilism, both trend and value conscious consumers, providing another avenue for growth. We're maintaining our best in-class service in stores and online, with continuing investment in training and technology.

Christopher Work: As we consider the full year outlook, we still believe there to be uncertainty and volatility in the macro environment. Given this, we will refrain from giving specific annual financial guidance, but do want to share our expectations for the full year. With the business turning positive in the second quarter and the strong back-to-school season nearing a close, we are seeing new trends and brands within our merchandise assortment resonate with customers. With our year-to-date results and our third quarter guidance, we now believe sales growth for the year could be in the low single-digit range despite the anniversary of the 53rd week and store closures previously reported.

Speaker Change: As we consider the full year outlook, we still believe there should be uncertainty and volatility in the macro environment.

Speaker Change: Given this, we will refrain from giving specific annual financial guidance, but do want to share our expectations for the full year.

Speaker Change: with the business turning positive in the second quarter in the strong back to school season during a close. We are seeing new trends in brands within our merchandise assortment resonate with customers.

Speaker Change: With our year-to-date results in our third quarter guidance, we now believe sales growth for the year could be in the low single-digit range, despite the anniversary of the 53rd week, and store closures previously reported.

Rick Brooks: Combine these efforts aimed to enhance our customer relationships, and allow us to engage with them in more personalized and relevant ways. Along with these top-line initiatives, we're enhancing our focus on profitability, both in Europe and in North America. In Europe, our plan involves a pivot from our growth strategy. We've slowed store expansion this year and shifted focus to enhancing the productivity of our nearly 90 stores across nine countries, and our pan-European web business that currently serves the European market.

Christopher Work: After two years of difficult performance and product margin, we believe that with a more stable sales environment, we will grow product margin for the full year in fiscal 2024. With sales growth in 2024, we anticipate we'll leverage SG-8 cost year over year beyond the benefit we'll receive of moving past the $41.1 million goodwill impairment charge we recorded in the fourth quarter of 2023. With the previously mentioned assumptions, we believe we will turn to positive operating margins for the full year. While effective tax rates are likely to fluctuate significantly by quarter, and we anticipate that a full year effective tax rate will be roughly 60% in fiscal 2024.

Speaker Change: After two years of difficult performance in product margin, we believe that with the more stable sales environment, we will grow product margin for the full year in fiscal 2024.

Speaker Change: with sales growth in 2024. We anticipate we'll leverage SUN8 costs year over a year. Beyond the benefit, we'll receive a moving pass, the $41.1 million goodwill impairment charge. We recorded in the fourth quarter of 2023.

Rick Brooks: With a focus on full price selling for our existing footprint, we believe we can unlock the potential for the business and create value as we work through what has been a difficult cycle in Europe. There's no doubt that trends emerge locally and grow globally, and our current penetration in the relevant markets is the significant advantage to zoomies over the long term. Overall, we believe we can achieve profitability in Europe with this new focus as we've done in other international markets like Canada and Australia.

Speaker Change: What the previously mentioned assumptions we believe we will turn the positive operating margins for the full year.

Speaker Change: While effective tax rates are likely to fluctuate significantly by quarter and we anticipate there are full year effective tax rate will be roughly 60% in the fiscal 2024.

Christopher Work: We are planned to open nine new stores this year, including three in North America, three in Europe, and three stores in Australia. This is down from 19 stores in 2023 and 32 stores in 2022 as we focus on optimizing our current footprint. We are planning to close approximately 25 stores in fiscal 24, and most of our closures in North America. The number of closures could go up or down depending on our operating results in each location, as well as our ability to work with our landlord partners. We expect our capital expenditures for 2024 to be between $40 million and $60 million compared to $20.4 million in fiscal 2023 and $25.6 million in 2022.

Speaker Change: We are planned to open nine new stores this year, including three in North America, three in Europe, and three stores in Australia. This is down from 19 stores in 2023, and 32 stores in 2022 as we focus on optimizing our current footprint.

Rick Brooks: Beyond Europe, we're focused on profitability and other markets as well. In 2023, we closed 20 underperforming North American stores, and we may not track the close approximately 25 additional underperforming locations in 2024. As a result, we decreased field and corporate staffing levels to align with the reduced store count. We are also further optimizing store labor through several initiatives, including adjustments to staffing models at lower volume stores. We made structural changes to reduce shipping and logistics costs company-wide, reduce discount selling compared with last year's elevated levels, and continue to implement other cost-saving opportunities in many areas throughout the organization.

Speaker Change: We are planning to close approximately 25 stores in fiscal 24 and most of our closures in North America. The number of closures could go up or down depending on our operating results in each location as well as our ability to work with our landlord partners.

Speaker Change: We expect our capital expenditures for 2024 to be between $14 million and $16 million, compared to $20.4 million in fiscal 2023 and $25.6 million in 2022. The reduction is primarily due to fewer planned store openings.

Christopher Work: The reduction is primarily due to fewer planned store open. We expect that depreciation and amortization, excluding non-cash lease expense, will be approximately $23 million and consistent with the prior year. And we are currently projecting our diluted share account for the full year to be approximately 19.3 million shares. This includes the shares repurchased in the third quarter, which completed the open share repurchase authorized by the board on June 5, 2024. No further authorizations are currently in place.

Speaker Change: We expect that depreciation and amortization excluding non-catch lease expense will be approximately $23 million and consistent with the prior year.

Rick Brooks: Overall, these adjustments to our operating strategy combined with our strong balance sheet with more than $125 million in cash, positions well to navigate the current environment and emerge a stronger and more profitable company. We're encouraged without 2024 as unfolded thus far, and feel that we are well positioned to capitalize in the upcoming holiday season.

Speaker Change: and we are currently projecting our deluded share count for the full year to be approximately 19.3 million shares. This includes the shares we purchased in the third quarter, which completed the open share we purchased authorized by the board on June 5, 2024. No further authorizations are currently in place.

Operator: With that operator, we'd like to open the call up for questions. Thank you. At this time, we'll conduct a question and a session. As a reminder, to ask a question, you need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by with a pile of Kunae roster. One moment for our first question.

Speaker Change: with that operator. We'd like to open the call up for questions.

Speaker Change: Thank you. At this time of conduct a question and suggestion, as a reminder to ask the question you need to press start at 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please first start 1-1 again. Please stand by with a pilot who may roster. One moment for a first question.

Rick Brooks: Long term, I believe that by staying true to our customer, our culture, and our brand, with an intense focus on our long-term strategies, we can continue capturing market share or generating increased value for our shareholders.

Chris Work: That I'll turn the call to Chris to discuss the financials.

Chris Work: Thanks Rick and good afternoon everyone. I'm going to start with the review of our second quarter results. I'll then provide an update on our third quarter to date sales trends in some perspective on how we're thinking about the full year. Positive impact on our results, increasing net sales growth by approximately 530 basis points during the second quarter. The calendar shift of a negative impact on the third quarter net sales growth, comparable sales results as reported are adjusted for the calendar shift and represent a more accurate measure of operating results.

Mitchel Kummetz: Our first question will come from Linda Mitch Cummins from Seaport. Good night. It's open. Yes. Thanks for taking my questions. Rick, it sounds like the business really inflicted well for back to school. I think you said in your prepared remarks, July cup was up high singles. Obviously, August is up doubled digits. Can you just kind of walk us through? You know, why was that? How much of that was the consumer showing up for events? And you guys just taking advantage of that?

Speaker Change: Our first question of confeline of Mitch Cummett from C4, your line is open.

Mitch Cummett: Yes, thanks for taking my questions.

Mitch Cummett: Rick, it sounds like the business really invited well for back to school. I think you said in your prepare to marks July, cup was up high single, obviously August.

Speaker Change: is up double digits. Can you just kind of walk us through, you know, why was that? How much of that was?

Speaker Change: You know, the consumer showing up for events and you guys just taking advantage of that.

Rick Brooks: I think the first I always appreciate the questions, Mitch. I mean, I think it's about momentum in our business, and I think for me, that's where I would start this question, as we've just been seeing steady quarter-over-quarter improvement in our business for quite a while now. And so I think this is an important inflection point for us. And it is really being driven by some of the same things we've talked about throughout the first part of the year, too. So first, it's the going back to the comments. It's the strength of our private label business and both in the sense of really being on the key trends in both tops and bottoms, particularly bottoms. And the way that our sales teams offer value in their stores without cutting, without having to cut prices to do it, Mitch.

Chris Work: Our second quarter performance was driven by a North America business, which was positive for the second consecutive quarter. The strength was partially offset by a decline international sales as we put greater emphasis on full price selling in Europe, which benefited margins, but pressured our top line. From a regional perspective, North America net sales were $176.3 million, an increase of 10.4% from 2023. Other international net sales, which consists of Europe and Australia, were $33.9 million down 2.6% from last year, excluding the impact of foreign currency translation, North America net sales increased 10.6%.

Rick Brooks: I think the first always preached the questions, Mitch.

Rick Brooks: I mean I think it's about momentum in our business and I think for me that's where I start this question We've just been seeing steady quarter over quarter improvement in our business for quite a while now

Speaker Change: and so I think this is an important inflection point for us and

Speaker Change: It is really being driven by some of the same things we've talked about throughout the first part of the year too. So first...

Speaker Change: is going back to the comments. It's the strength of our private label business and both in the sense of really being on the key trends in both tops and bottoms, particularly bottoms.

Chris Work: Another international net sales decreased 1.7% year over year. Comparable sales for North America were up 5.9%, and comparable sales for other international were down 7.6% for the quarter. From a category perspective, men's was our largest positive comping category followed by women's and men's footwear, hard goods with our largest negative comping category followed by accessories. The consolidated increase in comparable sales was driven by an increase in dollars per transaction, partially offset by a decrease in transactions.

Speaker Change: and the way that our sales teams offer value in their stores without having to cut prices to do it. So I think the bundling concepts have been incredibly important for us in delivering value for our customers.

Rick Brooks: So I think the bundling concepts have been incredibly important for us in delivering value for our customers. And a second, as we also was in the script, is really looking at how the new brands we're launching are really resonating with customers. And that's all translating. I think there's a whole switch in the look of young people today. And it's a lot back to the late 90s or 2000s. And then we're seeing the bottoms reflected. We're seeing the tops reflected. We're seeing the footwear reflect that look. And I think our teams are just all over this and really anticipated it and really running it and driving it.

Speaker Change: and then second as we also was in the script is really looking at how the new brand for launching are really resonating with customers.

Speaker Change: and that's all translating, I think there's a whole switch in the look of young people today and it's a lot back to the late 90s or 2000s and we're seeing the bottoms, reflect it, we're seeing the top, we're seeing the footwear, we reflect that look.

Chris Work: Dollars per transaction were up for the quarter driven by an increase in average unit retail and increase in units per transaction. Second quarter gross profit was $71.8 million compared to $61.7 million in the second quarter of last year. Gross profit as a percentage of sales was 34.2% for the quarter, compared to 31.7% for the second quarter of 2023. The 250 basis point increase in gross margin was primarily driven by 140 basis points of leverage and store occupancy costs, 90 basis points of leverage and shipping costs, and 20 basis points of leverage and distribution center costs.

Speaker Change: and I think our teams are just all over this.

Rick Brooks: And then our salespeople are just doing a really great job of executing. To me, this is a continuation, Mitch, of the trend we've been talking about for a number of quarters now about that sequential improvement in our business, finding those next new brands that are really going to help us drive things forward. And again, I'm optimistic as we think about what this means for holiday. So again, a whole new look for customers, replenishment of wardrobes. And I think we're doing a really good job of capturing. that. And so, Rick, you reference the momentum in the business.

Speaker Change: and really anticipated it and really running it and driving it.

Speaker Change: and then our sail field just doing a really great job at executing. So...

Speaker Change: To me, this is a continuation, Mitch, of the trend we've been talking about for a number of quarters now about that sequential improvement in our business. Finding those next new brands, right, that are going to help us drive things forward. And again, I'm optimistic as we think about what this means for holiday. So...

Chris Work: While product margin was flat to the prior year. SNA expense was $72.2 million or $34.4% of net sales in the second quarter, compared to $72.2 million or $37.1% of net sales a year ago. The 280 basis point decrease in SNA expenses as a percent of net sales resulted from the following. 100 basis points to the leverage of store wages on higher sales, 80 basis points of non wage corporate cost leverage, 50 basis of leverage and non wage store operating costs, 50 basis points benefit to the timing of employee training, and 20 basis points of leverage of corporate wages, offset by 30 basis point increase in incentive costs.

Speaker Change: Again, a whole new look for customers, replenishment of wardrobes, and I think we're doing a really good job of capturing that.

Mitchel Kummetz: You know, we're now in September. October is a particularly kind of soft, you know, small month. Do you think you can hold that momentum through these kind of this gap between back to school and holiday? Is that kind of what's embedded in the in the in the guide for the for the third quarter? And Chris, unless I missed it, is there, is there, is there? Did you guys provide a cop guide for the third quarter? I know you provided a sales range, and you kind of spoke to the growth, adjusting for the calendar shift, but is there kind of an underlying comp assumption embedded in that range?

Speaker Change: Rick, you referenced the momentum in the business.

Speaker Change: You know, we're now in September, October is a particularly kind of soft, you know, a small month. Do you think you can hold that momentum through these kind of this gap between?

Chris Work: Back to school in a holiday is that kind of what's embedded in the in the in the guide for the for the third quarter and Chris.

Chris Work: [inaudible]

Chris Work: Operating loss in the second quarter of 2024 was $0.4 million or 0.2% of net sales compared with an operating loss of $10.5 million or $5.4% of net sales last year. Now the loss for the second quarter was 0.8 million dollars or 4 cents per share. This compares to a net loss of 8.5 million dollars or 44 cents per share for the second quarter of 2023. Our effective tax rate for the second quarter of 2024 was 252.1 percent compared with 8.5 percent benefit in the year ago period. The increase in our effective tax rate was primarily due to the allocation of losses across the jurisdictions in which we operate.

Mitchel Kummetz: And then, again, right, just in terms of kind of holding momentum through this sort of, you know, non-event period between back to school and holiday. How do you see that?

Chris Work: again, right just in terms of kind of holding momentum through this sort of, you know, not event period between that school and holiday. How do you see that?

Rick Brooks: Yeah, let me start first. And now, in holding momentum, Mitch, I think, again, we're going to see I obviously, with what's embedded already quarter to date, is we're going to see quarter to quarter improvement in Q3 over Q2 again. So, I think we're going to drive that momentum. And then, let me let Chris talk a bit more about what is embedded in the guide. Sure. And, you know, from an overall guide, just to reiterate, we said $221 million to $225 million in sales, which works out to be about a 2 to 4 percent growth. But, as we said, the third quarter is impacted by about $10 million that's shifting out of Q3 into Q2.

Chris Work: Well, let me start first and now in whole label, Minton, Mitch, I think again, we're going to see I obviously with what's embedded already quarter the day is we're going to see quarter the quarter improvement.

Chris Work: and Q3 over Q2 again. So I think we're going to dry that moment, and then we're going to let Chris talk a bit more about what is embedded in the guide.

Chris Work: and you know from an overall guide.

Chris Work: just to reiterate, we said $221 million to $225 million in sales, which we're happy to be about a two to four percent growth, but as we said, the third quarter is impacted by about $10 million that's shifting out of Q3 into Q2. So Q2 was a benefit and Q3 was a detriment. So if you remove that and you're just kind of trying to line up the comp to comp dates, which we believe is probably the better way to look at the business we're guiding to about seven to nine percent in total sales, which

Chris Work: Turning to the balance sheet, the business ended the quarter in a strong financial position. We had cash and current marketable securities of $127 million as of August 3rd, 2024 compared to $140 million as of July 29th, 2023. The $13 million decrease in cash and current marketable securities over the trailer in 12 months was driven primarily by share repurchases of $19.4 million dollars and capital expenditures of $14.7 million, offset by $23.6 million dollars and cash provided by operating activities.

Christopher Work: So, Q2 was a benefit, and Q3 was a detriment. So, if you remove that, and you're just kind of trying to line up the comp to comp dates, which we believe is probably the better way to look at the business, we're guiding to about 7 to 9 percent in total sales, which is slightly below what that run rate has been for us. I mean, we just reported August through Labor Day at a higher amount, but that being said, you know, I think we've seen this here for a number of years that the peaks have just gotten stronger.

Speaker Change: It's slightly below what that run rate has been for us I mean we just reported August through Labor Day at at a higher amount but that being said you know I think we we've seen this here for a number of years of the peaks have just gotten stronger so our expectations are that the business is still good still a positive comp here for the remainder of the quarter but not quite at the elevated levels we saw here during the busy back to school season

Chris Work: As of August 3rd, 2024, we have no debt on the balance sheet. During the second quarter, we purchased approximately 945,000 shares of our common stock for $19.4 million dollars and an average price of $20.50 per share under the 25 million repurchase authorization approved on June 5th, 2024. Third quarter of the day, we have purchased an additional 220,000 shares of our common stock for $5.6 million dollars or $25.39 per share completing the June 5th authorization.

Christopher Work: So, our expectations are that the business is still good, still a positive comp here for the remainder of the quarter, but not quite at the elevated levels we saw here during the busy back-to-school season.

Mitchel Kummetz: And then, if you last question for me, Rick, on the European business, I know that you're shifting your strategy there, and you're not being quite the same comp performance that you are in North America right now. Is that, I mean, is that merely a function of the shifting strategy, or is it a Tupper macro? Are you not seeing the trends that are resonating in the US, you know, translating overseas as much? Can you just maybe address that?

Rick Brooks: and any last question for me, Rick, on the European Business.

Rick Brooks: I know that you're shifting your strategy there and you're not being quite the same conformance that you are in North America right now is that.

Chris Work: Cumulatively, this resulted in approximately 1.2 million shares purchased under the authorization and an average price of $21.47. This represented 5.7 percent of our outstanding stock at the time of the authorization. At this time, we have no open repurchase authorization. We ended the quarter with $158.8 million dollars in inventory, up 1.3 percent compared to the $156.7 million dollars last year. On a constant currency basis, our inventory levels were up 2 percent from last year. Given the sales backdrop, we are happy with our ending inventory balance for the second quarter and expect to continue bringing newness as we move into the important holiday selling season.

Rick Brooks: I mean, is that merely a function of the shift in strategy or is it a tougher macro? Are you not seeing the trends that are resonating in the U.S., you know, translating overseas as much? Can you just maybe address that?

Rick Brooks: Sure, Mitch. All I'll start by saying is definitely a tougher macro environment and has been for the last few years relative to the North American marketplace. So, if you're following all the reasons about the European economy, I mean, there's definitely some challenges and important in important countries like Germany, which is also our biggest market in terms of business in the European marketplace. So, there is no doubt the macro environment is tougher. Now, relative to our business, we are seeing some of those, as we've talked about, the trends that might start locally become global. So, we're seeing some of those trends play out right in the European business and work.

Rick Brooks: Sure, Richard, all start by saying it's definitely a tougher macro environment and has been for

Speaker Change: the last few years relative to the North American marketplace. So if you're following all the reading about the European economy, I mean, there's definitely some challenges and important in important countries like Germany, which is also our biggest.

Chris Work: Now to our third quarter date results. Net sales for the 30-day period in September 2nd, 2024 increased 6.8 percent compared to the 30-day period in the prior year ended August 28, 2023. As previously stated, the calendar shift will have a negative impact on net sales growth for the third quarter. Comparable sales for the 30-day period ended September 2nd, 2024, which are adjusted to remove the impact of the calendar shift, we're up 12.1 percent from the comparable period in the prior year.

Speaker Change: Market in terms of business in the European Marketplace, so there is no doubt that the macro environment is tougher now.

Speaker Change: Related to our business, we are seeing some of those as we've talked about the trends that are might start locally become global, so we're seeing some of those trends play out, right, in the European business and and work. So in position of our private labor, private labor is performing well in Europe.

Rick Brooks: So, in position of our private lab, our private lab was performing well in Europe. So, that would be one aspect we're seeing that local to global trends play out in Europe, but some of that has been overshadowed by the fact that we're simply really focused on basically changing the nature of how we're buying product there, getting a much more curated, differentiated assortment in the marketplace. We might lose some less profitable sales in the interim. I think that's what Q2, as Chris said in his comments, was about, but we're going to see margin improvement as a result of that.

Speaker Change: So that would be one aspect we're seeing that local to global trends lay out in Europe, but some of that's been overshadowed by the fact that we're simply...

Chris Work: From a regional perspective, net sales for our North America business for the 38-period in the September 2nd, 2024 increased 7.8 percent compared to the 30-day period in the August 28, 2023, while our other international business decreased 0.9 percent, excluding the impact of foreign currency translation, North America net sales for the 30-day period in the September 2nd, 2024 increased 8 percent from the prior year, while other international net sales decreased 2.1 percent compared to 2023. Comparable sales for North America increased 14.4 percent for the 30-day period ended September 2nd, 2024, compared to the same weeks in the prior year.

Speaker Change: really focused on basically changing the nature of how we're buying product there.

Speaker Change: Gettin' in a much more curated, differentiated sortment in the marketplace. We might lose some less profitable sales in the interim, I think that's what Q2 has criticized in his comments, but we're going to see margin improvement as a result of that.

Rick Brooks: So, I think as those are a couple trade-offs, we're going to have to work our way through the top macro environment while we're also kind of shifting up how we want our business to operate in Europe. So, that's really I think what we're experiencing right now in Europe.

Speaker Change: So I think those are a couple trade-offs and we're going to have to work our way through the math tough macro environment where we're also kind of shifting up how we want our business to operate in Europe. So that's really I think what you're we're experiencing right now in Europe, Mitch.

Mitchel Kummetz: All right.

Operator: Thanks.

Corey Tarlowe: Good luck.

Rick Brooks: Thank you.

Operator: One moment for the next question.

Mitch Cummett: All right, thanks good luck.

Chris Work: While comparable sales for our other international business declined 4.2 percent. From a category perspective, men's with their largest positive comparable sales growth category followed by our women's and then footwear. The accessories category was our largest decline in comparable sales followed by hardgots. The comparable sales increase was doomed by an increase in dollars for transaction and an increase in transactions, dollars for transaction increase for the 30 day period due to an increase in average in a retail and an increase in units for transaction.

Speaker Change: Thank you, one moment for the next question.

Corey Tarlowe: Our next question with the line of Corey Tarlowe from Jeffries. Your line is open. Great. Thanks. Look, I just wanted to ask about the hard goods category. If you could maybe unpack that for us a little bit. And also within the context of the business inflecting how you think about hard goods as a category for driving the overall halo effect for the rest of the business. Okay, great. Thank you, Corey.

Speaker Change: Our next question is on the line of Cory Tarlo from Jeffree's, you line is open.

Cory Tarlo: Great, thanks.

Cory Tarlo: Rick, I just wanted to ask about the hard goods category if you could maybe unpack that for us a little bit and also within the context of the business inflecting how you think about

Rick Brooks: Hard Goods is a category for driving the overall halo effect for the rest of the business.

Chris Work: With respect to our outlook for the third quarter of fiscal 2024, I want to remind everyone that 4 million are guidance involved to inherent uncertainty and complexity in estimated sales, product margin, and earnings growth, given the variety of internal and external factors that impact our performance. We are anticipating total sales for the third quarter to be between $221 million and $225 million or a 2% to 4% increase from the third quarter last year.

Rick Brooks: So let me just start off give a little bit more color on hard goods. We all know that again, this kind of backup, we might as well route with their skate hard goods business. And is that we moved during the pandemic, like a lot of segments, bike speeding example. We moved a lot of volume into 2020. And what was the uptick in the skate hard goods cycle that actually had started in 2019 and started globally in 2019 with really a big uptick that February of 2019. But that made, of course, 2021, 2022, and 23 a lot tougher; even, even 2021, that was a bit tougher relative to even with all the stimulus spending that we benefited from in 2021.

Rick Brooks: Okay, great. Thank you, Cory.

Speaker Change: So let me just start off to you a little bit more color and a hard good. And we all know that again, just kind of back up, we might just wear out with their skate hard good business and is that we moved during the pandemic like a lot of segments, bike, speed and example, we moved a lot of volume into 2020.

Chris Work: As a reminder, the second quarter benefited from the calendar shift, which pulled one week of heavier factor school volume into the second quarter and out of the third quarter. Adjusting for the shift, we are estimating third quarter sales growth to be between 7% and 9%. We expect their third quarter 2024 product margins will be slightly positive. Consolidate operating income as a percentage sales for the third quarter is expected to be between 0.2% and 1.2%. And we anticipate earnings per share will be between a loss of 4 cents and income of 6 cents compared to a loss of 12 cents in the prior year.

Speaker Change: and what was the uptick in the Skate Hargitz cycle that actually started in 2019 and started globally in 2019. It's really a big uptick that February of 2019.

Speaker Change: But that made, of course, 2021, 2022 and 23, a lot tougher, even 2021, it was a bit tougher relative to even with all the stimulus spending that we benefited from in 2021.

Rick Brooks: So we've seen ourselves go from an all-time peak in terms of skate hard goods penetration in 2020 to, I believe, Chris, near an all-time low in terms of penetration currently. And so it's been really, really challenging, and a lot of volume has been walked basically because I think of the acceleration of this cycle that would have normally played out over a couple of years. So as we think about what we're, as we were from where we're at today and looking forward, I think we're very cautious on this department, but that said, we're seeing that some parts of our business are starting to generate positive skate hard goods sales.

Speaker Change: So we've seen ourselves go from an all-time peak in terms of skate harvest penetration in 2020 to Billy Chris near an all-time low in terms of penetration currently.

Chris Work: As we consider the full year outlook, we still believe there to be uncertainty and volatility in the macro environment. Given this, we will refrain from giving specific annual financial guidance, but do want to share our expectations for the full year. With the business turning positive in the second quarter and the strong back to school season nearing a close, we are seeing new trends and brands within our merchandise assortment resonate with customers.

Speaker Change: So it's been really, really challenging and a lot of volume has been walked basically because I think of the acceleration of this cycle that would have normally played out over a couple years.

Speaker Change: So, as we think about what we're as we wear from where we're at today and looking forward, I think we're very cautious on this department, but that said, we're seeing that some parts of our business are starting to generate positive-scape-hard good sales.

Rick Brooks: That would be true for Australia; we're seeing now, I think, three or four months of positive hard-good results. Canada has been positive over the last month or so. But the US and Europe are still tougher. But I would characterize you as a Europe-wide tougher improving. So I think we're hopeful, Cory, that over the last many months of this year, if we're going to see, again, transplant globally, that we will hopefully find the bottom in the skate hard goods business, but it will probably a new low relative sales penetration, sales mix. And then the question will be, do we see a dramatic uptick in the business, or do we see, at say, level for a few years?

Chris Work: With our year-to-date results and our third quarter guidance, we now believe sales growth for the year could be in the low single digit range despite the anniversary of the 53rd week and store closures previously reported. After two years of difficult performance and product margin, we believe that with a more stable sales environment, we will grow product margin for the full year in fiscal 2024. With sales growth in 2024, we anticipate we'll leverage SG-8 cost year over year, beyond the benefit we'll receive of moving past the $41.1 million goodwill impairment charge, we recorded in the fourth quarter of 2023.

Speaker Change: That would be true for Australia, we're seeing now I think three or four months, a positive, hard good results, Canada has been positive over the last month or so, but the US and Europe are still tougher, but I would characterize the US and Europe wide tougher improving.

Corey: So I think we're hopeful, Corey, that over there, many months of this year, if we're going to see, again, trends fly out globally that we will hopefully find the bottom in the skate hard goods business. And but it will probably a new low relative to sales penetration sales mix.

Chris Work: With the previously mentioned assumptions, we'll believe we will turn to positive operating margins for the full year. While effective tax rates are likely to fluctuate significantly by quarter, and we anticipate that a full year effective tax rate will be roughly 60% in fiscal 2024.

Corey: and then the question will be, do we see a dramatic uptick in the business or do we see it say, level for a few years, I think those are the things that, um,

Rick Brooks: I think those are the things that we'll have to just going to see how it's going to play out. Now, I think we're really well positioned. The teams have done a great job of managing our inventory positions throughout the cycle, taking advantage of working with our partners and helping each other out through the cycle. And our experience is that once skate hard goods really inflicts positively, that it is, we do get a bit of halo effect from the business. So which has been an obviously a detriment over the last three years. So I'm hopeful that as we find bottom, and we're obviously, I'm not sure where again, whether we'll bounce along the bottom for a bid or see a significant uptick. But it can't be, the good news is it can't get worse, I guess, and we're going to be an all-time low.

Speaker Change: I think we're really well positioned to teams that have done a great job of managing any toy positions throughout the cycle, taking advantage of working with our partners and helping each other out through the cycle.

Chris Work: We are planning to open nine new stores this year, including three in North America, three in Europe, and three stores in Australia. This is down from 19 stores in 2023 and 32 stores in 2022 as we focus on optimizing our current footprint. We are planning to close approximately 25 stores in fiscal 24 and most of our closures in North America. The number of closures could go up or down depending on our operating results in each location, as well as our ability to work with our landlord partners.

Speaker Change: and our experience is that when skate hard goes really inflexed possibly that it is we do get a bit of halo effect from the business.

Speaker Change: So, which has been an obviously a detriment of the last three years.

Speaker Change: So I'm hopeful that as we find bottom and we obviously I'm not sure again whether we'll bounce along the bottom for a bit or see a significant uptick.

Chris Work: We expect our capital expenditures for 2024 to be between $40 million and $60 million compared to $20.4 million in fiscal 2023 and $25.6 million in 2022. The reduction is primarily due to fewer planned store open. We expect that depreciation and ammarization, excluding non-cash lease expense, will be approximately $23 million and consistent with the prior year. And we are currently projecting our diluted share account for the full year to be approximately 19.3 million shares. This includes the shares repurchased in the third quarter, which completed the open share repurchased authorized by the board on June 5, 2024. No further authorizations are currently in place.

Speaker Change: But it can't be, the good news is they can't get worse I guess they're going to be an all-time low and and when it does uptick I do believe there's a benefit to us from a consumer point of view and the halo effect of us just being such a significant probably being to most significant.

Corey Tarlowe: And when it does uptick, I do believe there's a benefit to us from a consumer point of view, and the halo effect of us just being such a significant, probably the most significant... Skateboard retailer around the world. So I'm hoping it's going to be a benefit, but I'm not sure exactly the timing of how it's going to play out yet, Corey. Very helpful. Just to follow up.

Speaker Change: Skateboard retailer around the world.

Speaker Change: So I'm hoping it's going to be a benefit, but I'm not sure exactly the time unit house is going to play out yet, Corey.

Rick Brooks: Any color about how you're thinking about promotionality in the back half, specifically given there's five less selling days between Thanksgiving and Christmas. Yeah, I'd be glad to have addressed that for you and how we think about it. It's clear that it's, I would say this back to school season was pretty promotional, but I think it always is promotional on a, particularly on a relative basis. I think, particularly, people, not only have been promotional stored, but I'd say even more promotional in the online world. So I think where you see different retailers price differently across the markets relative to their stores.

Corey: Very helpful. Just to the follow-up.

Corey: Any color about how you're thinking about promotionality in the back half, specifically given those five less.

Corey: Selling Days Between Thanksgiving and Christmas.

Operator: With that operator, we'd like to open the call up for questions. Thank you. At this time, we'll conduct a question and three session as a reminder to ask a question you need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by with the private Kuneiroster, one moment for our first question. All right.

Speaker Change: Yeah, we glad to have addressed that for you and how we think about it. It's clear that it's I would say this back to school season was pretty promotional but I think it always is promotional

Speaker Change: on a relative basis.

Rick Brooks: Because we have a different approach. So despite the fact that I think the environment is very promotional, I would tell you that we're going to deliver value to consumers in a different way than cutting price. And we're always trying to think about how we do that and reward our salespeople for the process of doing that. But I think if you look at the back to school results and you compare our pricing on bottoms business, I think we're probably one of the highest price in the market, but it had very strong results. And it speaks again to our ability and our great sales team's ability to bundle packages, which is consistent of a lot of private label product that still is accreted to margins.

Mitchel Kummetz: Our first question will come from Linda Mitch Cummits from Seaport. Good line is open. Yes, thanks for taking my questions. Rick, it sounds like the business really inflicted well for back to school. I think you said in your prepared remarks, July cup was up high singles. Obviously August is up double digits. Can you just kind of walk us through, you know, why was that? How much of that was, you know, the consumer showing up for events. And you guys just, you know, taking advantage of that.

Speaker Change: We have a different approach, so despite the fact that I think the environment is very promotional, I would tell you that we're going to deliver value to consumers in a different way than cutting price.

Speaker Change: and we're always trying to think about how we do that and reward ourselves people for the process of doing that.

Speaker Change: But I think if you look at the back-to-school results and you compare our pricing on...

Speaker Change: Bottom's business, I think we're probably one of the highest price in the market, but it had very strong results. And it speaks again to our ability and our great sales teams ability to bundle packages, which is consists of a lot of private labor product that still is a creative to market.

Rick Brooks: I think the first I always appreciate the questions, Mitch. I mean, I think it's about momentum in our business. And I think for me, that's where I would start this question as we've just been seeing steady quarter over quarter improvement in our business for quite a while now. And so I think this is an important inflection point for us. And it is really being driven by some of the same things we've talked about throughout the first part of the year two.

Rick Brooks: So everyone wins in that sense where we get the value for the consumer and the bundling, and we get the value for our business and the shareholders in helping us support our product margin through that structure. So we're always going to be focused on being a full-price, full-margin retailer. And that requires, of course, to do that that we are leading on trend and that we're leading on newness and freshness in the business in terms of new brands, and why that's again why the new brand launches are so important. So we expect the holiday season to be promotional.

Speaker Change: So everyone wins in that sense where we get the value for the consumer in the Bundling, and we get the value for our business and the shareholders in helping us support our product margin through that structure.

Speaker Change: So we're always going to be focused on being a full-priced, full-marchen retailer and that requires, of course, to do that, that we're leading on trend and that we're leading on newness and freshness in the business in terms of new brands and that's again why the new brand launches are so important.

Rick Brooks: So first it's the going back to the comments. It's the strength of our private label business. And both in the sense of really being on the key trends in both tops and bottoms, particularly bottoms. And the way that our sales teams offer value in their stores without cutting without having to cut prices to do it, Mitch. So I think the bundling concepts have been incredibly important for us and delivering value for our customers.

Corey Tarlowe: And but I always expect to be promotional, and the question is, how do we distinguish ourselves in that environment, really drive a more profitable and better business relative to our brand position with customers. Very clear. Thanks for all the color, and best of luck. Thank you.

Speaker Change: So, we expect the holidays these are emotional.

Speaker Change: and but I always expect to be promotional and the question is how do we distinguish ourselves in that environment really drive a more profitable and better business relative to our brand positioning with customers.

Rick Brooks: And a second, as we also was in the script, is really looking at how the new brands we're launching are really resonating with customers. And that's all translating. I think there's, there's a whole switch in the look of young people today. And it's a lot back to the late 90s or 2000s. And then we're seeing the bottoms reflect it. We're seeing the tops reflect it. We're seeing the footwear reflect that look.

Operator: One moment for our next question.

Speaker Change: You're very clear, thanks for all the color and best of luck.

Speaker Change: Thank you.

Richard Magnusen: Our next question of offline of Richard Magnussen from beer is open. Hello, thank you for taking our call. My question is that as the retail is continued to feel pressure from high-reparating costs, including labor costs. What do you see there regarding competitors in the core space exiting the business? So again, make sure I understand the question, Richard. It's relative to higher operating costs around labor and the competitive pressure that's putting on for ourselves and other retailers. Correct. You know, cost of going up in general and labor is, you know, established a new higher level, and I don't think you're going to expect it to go down in time soon.

Speaker Change: One moment for our next question.

Speaker Change: Next question, I'll call for line of Richard Magnussen from B. Riley, Lines Open.

Richard Magnussen: Hello, thank you for taking our call. My question is that as a regional continue to feel precious and higher operating costs including later costs, what do you see there regarding competitors in the core space, the XD business?

Rick Brooks: And I think our teams are just all over this. And really anticipated it and really running it and driving it. And then our salespeople are just doing a really great job of executing. So to me, this is a continuation, Mitch, of the trend we've been talking about for a number of quarters now about that sequential improvement in our business. Finding those next new brands, right, that are really going to help us drive things forward.

Speaker Change: So again, make sure to understand the question, Richard, it's relative to the higher operating costs around labor and the competitive pressure that's putting on for ourselves and other retailers.

Rick Brooks: And again, I'm optimistic as we think about what this means for holiday. So again, a whole new look for customers, replenishment of wardrobes. And I think we're doing a really good job of capturing, that. And so Rick, you reference the momentum in the business. You know, we're now in September, October is a particularly kind of soft, you know, a small month. Do you think you can hold that momentum through these kind of this gap between back to school and holiday?

Richard Magnussen: Correct, you know, the cost of product in general and labor is, you know, it's now there should be a higher level and I don't think you're going to expect it to go down anytime soon but on the middle of these pressures, what do you see in your core space regarding the competitors that can be leading the business to actually be the business.

Rick Brooks: But I'm going to admit all these pressures. What do you see in your core space regarding competitors that could be leading the business? Well, at first you're absolutely right. We are wrestling with the much higher labor costs across our business, just like every other retailer is, and there's no doubt it is a big challenge. And it's one of the reasons I'm really proud of what we're doing here in terms of, as we commented in our during the early part of the call, is we really, really worked hard at how do we implement new strategies around labor, really focus on productivity, and that's a global effort, to be clear.

Speaker Change: Well, first of all, you're absolutely right. We are wrestling with the much higher labor costs across our business just like every other retailer is and there's no doubt is a big challenge. It's one of the reasons I'm really proud of what we're doing here in terms of as we comment in our time.

Rick Brooks: Is that kind of what's embedded in the in the in the guide for the for the third quarter? And Chris, unless I missed it, is there, is there, did you guys provide a cop guide for the third quarter? I know you provided a sales range and you kind of spoke to the growth, adjusting for the calendar shift, but is there kind of an underlying comp assumption embedded in that range? And then again, right, just in terms of kind of holding momentum through the sort of, you know, non-event period between back to school and holiday. How do you see that?

Speaker Change: During the early part of the call is we've really, really worked hard at how do we implement new strategies around labor really focused on productivity and that's a global effort to be clear. It's not just here in the US or North America and Europe and on Australia too.

Rick Brooks: There's not just here in the US or North America; it's in Europe and Australia too. So we have definitely been really aggressive about managing labor and really thinking about the mix of transactions, and you are in our business how that plays out with labor management, volume of stores where do we, if we're going to invest labor, where do we invest and why to get the return on sales. So there's no doubt it's been a struggle, Richard, for us and for everyone else, and it's going to be. We're definitely not, we're still in the early stages of the struggle.

Speaker Change: So we have definitely been really aggressive about managing labor and really thinking about the mix of transactions and you are in our business. How that plays out with labor management, volume of stores, where do we end if we're going to invest labor, where do we invest and why to get to return on sales?

Chris Work: Yeah, let me start first. And now, in holy momentum, Mitch, I think again, we're going to see, I obviously, with what's embedded already quarter to date, is we're going to see quarter to quarter improvement in Q3 over Q2 again. So I think we're going to drive that momentum, and then looking at Chris talk a bit more about what is embedded in the guide. Sure. And, you know, from an overall guide, just to reiterate, we said $221 million to $225 million in sales, which works out to be about a two to four percent growth.

Speaker Change: So it's no doubt it's been a struggle, Richard for us and for everyone else.

Rick Brooks: We have to figure out how, as our business really starts to drive forward and recover back to where the levels we want it to be at. We're going to find new ways to do it yet to really drive the operating market results. We believe we can deliver in this business, and we think there we think we can do that from a competitive perspective. I mean everyone's different; everyone has different footprints in their size of storage, which raises different challenges for them. So there's no doubt that there's challenges based on each unique retailer that's unique to them.

Speaker Change: is going to be, we're definitely not, we're still in the early stages of the struggle. We have to figure out how as our business really starts to drive forward and recover back to where the levels we want it to be at, we're going to find new ways to do it yet to really drive the operating Mars results. We believe we can deliver in this business and we think we can do that.

Chris Work: But as we said, the third quarter is impacted by about $10 million that's shifting out of Q3 into Q2. So Q2 was a benefit, and Q3 was a detriment. So if you remove that, and you're just kind of trying to line up the comp to comp dates, which we believe is probably the better way to look at the business, we're guiding to about seven to nine percent in total sales, which is slightly below what that run rate has been for us.

Speaker Change: from a competitive perspective. I mean, everyone's different. Everyone has different footprints in their size of storage with raises different challenges for them.

Speaker Change: So there's no doubt that there's...

Speaker Change: Challenges based on each unique retailer that's unique to them.

Rick Brooks: I would tell you that in Europe we definitely feel it's even I think a more opportunity for the reduction of competition in Europe relative to the pressures that we've been felt in Europe not only on labor, but on just the overall macro environment as I commented earlier. So we are seeing quite a few store closures in Europe from a competitor base that I think is reflective of that difficult the market is there, including how much labor cost have gone up.

Speaker Change: I would tell you that in Europe, we definitely feel it's even, I think, a more opportunity for the reduction of competition in Europe relative to the pressures that were being felt in Europe not only on labor, but on just the overall macro environment as I commented earlier.

Chris Work: I mean, we just reported August through Labor Day at a higher amount. But that being said, you know, I think we've seen this here for a number of years, or the peaks have just gotten stronger. So our expectations are that the business is still good, still a positive comp here for the remainder of the quarter, but not quite at the elevated levels we saw here during the busy back-to-school season.

Speaker Change: So we are seeing quite a few store closures in Europe from a competitor base that I think is reflective of that difficult the market is there including how much labor cost have gone up.

Richard Magnusen: Thank you.

Operator: One moment for our next question.

Mitchel Kummetz: And then if you lost question for me, Rick, on the European business, I know that you're shifting your strategy there, and you're not being quite the same comp performance that you are in North America right now. Is that, I mean, is that merely a function of the shifting strategy, or is it a tougher macro? Are you not seeing the trends that are resonating in the US, you know, translating overseas as much? Can you just maybe address that?

Speaker Change: Well, thank you.

Speaker Change: Thank you for a moment for our next question.

Dylan Carden: Our next question on Confluent is from Dylan Carden from William Blair. Dylan is open. Yeah, thank you very much. I'm just curious, kind of thinking of the guide. You saw a really nice flow through from an operating large standpoint that's on a positive column, the nice positive component quarter. And the underlying column seems to be improving even further still in the third quarter. Why wouldn't expect have a similar level of flow through third quarter and not into the balance of the year. Yeah, I think obviously the calendar shift is going to play a part in this.

Speaker Change: and our next question on Confident of Dylan Cardon from William Blair. The line is open.

Dylan Cardon: Yeah, thank you very much. I'm just curious about making it into the guide.

Speaker Change: We're going to use a really nice blow through from an operating largest standpoint that's on a positive column, a nice positive component quarter. And the underlying concept seems to be improving even further still in a third quarter while we would expect at a similar level of blow through third quarter, and that is about the end.

Rick Brooks: Sure, Mitch. I'll start by saying is definitely a tougher macro environment and has been for the last few years relative to the North American marketplace. So if you're following all the reasons about the European economy, I mean, there's definitely some some challenges and important in and important countries like Germany, which is also our biggest market in terms of business in in the European marketplace. So there's no doubt the macro environment is tougher.

Speaker Change: Yeah, I think, obviously, the calendar shift is going to play a part in this.

Christopher Work: As you know, you know, this $10 million that came out of Q3 into Q2 has a meaningful bottom line impact too. We estimate some portion of probably nine or 10 cents. So we know that was a benefit to the second quarter. Now, even excluding that in the second quarter, from going from a loss of 44 cents to a loss of 4 cents. We did see a nice flow through, as you indicated in your question. So we're happy with that piece of it. I think what we'll see even in the third quarter is continue to see some flow through, and we are really building the model to get there from a standpoint of trying to grow product margin.

Speaker Change: As you know, you know this $10 million that...

Speaker Change: came out of Q3, into Q2, has a meaningful bottom line impact, too. We estimate some portion of probably 9 or 10 cents. So we know that was a benefit to the second quarter. Now, even excluding that in the second quarter from going from a loss to 44 cents to a loss of four cents, we did see a nice flow through as you indicated in your question. So we're happy with that piece of it. I think what we'll see even in the third quarter is continue to see some flow through. And we are really building the model to get there from a standpoint of, you know, trying to grow a product margin. We're seeing good flow through getting down to gross margin and places like occupancy and shipping as we're able to accelerate sales.

Rick Brooks: Now, relative to our business, we are seeing some of as we've talked about, the trends that are might start locally become global. So we're seeing some of those trends play out right in the European business and work. So in in position of our private lab, our private lab was performing well in Europe. So that would be one aspect we're seeing that local to global trend play out in Europe, but some of that has been overshadowed by the fact that we're simply really focused on basically changing the nature of how we're buying product there, getting a much more curated differentiated assortment in the marketplace.

Christopher Work: We're seeing good flow through getting down a gross margin in places like occupancy and shipping, as we're able to accelerate sales. And on the corporate side, we're really seeing leverage up and down the P&L, with the exception of incentives, which we are working to refund after the last couple of years of not having much incentive at all. So the current results are indicating that we'll pay some level of incentive, and that's factored into our guidance. So I think what you're seeing, you know, as you look at kind of the year to date, you'll see a nice, really, really nice flow through, and there's just a little bit of noise there between the second quarter and third quarter.

Speaker Change: and on the corporate side we're really seeing leverage up and down the piano with the exception of incentives which we are working to refund after the last couple years of not having much incentive at all. So the current results are indicating that we'll pay some level of incentive and that's factored into our guidance. So I think what you're seeing as you look at kind of the year to date, you'll see a nice film.

Rick Brooks: We might lose some less profitable sales in the interim. I think that's what Q2 as Chris said in his comments was about, but we're going to see margin improvement as a result of that. So I think it's those are a couple trade-offs and we're going to have to work our way through the math tough macro environment, while we're also kind of shifting up how we want our business to operate in Europe. So that's really I think what you're experiencing right now in Europe.

Speaker Change: Really nice flow through and there's just a little bit of noise there between the second quarter and third quarter.

Dylan Carden: Under, so thank you.

Christopher Work: And then on store closures, kind of a two-parter, one is there any quantifiable margin impact from closing, kind of the number of stores that you closed over less two years, you know, close or just on the 50. And then as you think about, kind of go forward in the US fleet, you know, are there more, we expect to kind of maintain this level of time; like this might be a year where you can reassess this time's term positive. But I guess, you know, the spread between underperformers and outperformers, and kind of how you think about the opportunity with the full question.

Mitchel Kummetz: Good luck. Thank you.

Operator: One moment for next question.

Speaker Change: Anderson, thank you. And then on store closures, kind of a two-parter.

Anderson: One is running quantifiable margin impact.

Corey Tarlowe: Our next question is of line of Corey Tarlowe from Jeffries. Your line is open. Great. Thanks. Look, I just wanted to ask about the hard goods category. If you could maybe unpack that for us a little bit. And also within the context of the business inflecting how you think about hard goods as a category for driving the overall halo effect for the rest of the business. Okay, great. Thank you, Corey.

Anderson: from closing numbers towards the U.S. to the year, you know, close with just on the 50s. And then, as you think about kind of go forward in the U.S. fleet, you know, are there more?

Speaker Change: We expect to kind of maintain this level of time like this might be a year where you can reassess this constant positive But I guess, you know, the spread between underperformers and outperformers and kind of high thing about the automobile you would say It's a real question, thanks

Christopher Work: Sure. Yeah. And thanks for the question. You know, obviously this has been a year now in 2023, and then into 2024 where there are a little bit of acceleration for us from a closure perspective. I'd say historically up to this point, we've closed select locations a lot of times. It's either a reposition or just, you know, a low volume center that wasn't needed in the market. So, you know, the last couple of years, we've seen a little bit of an acceleration to the first part of your, your question of kind of what that means from an overall margin perspective.

Speaker Change: Sure, and thanks for the question. You know, obviously this has been a year now in 2023 and then into 2024 where they're a little bit of acceleration for us from a closure perspective.

Rick Brooks: So let me just start off give you a little bit more color and hard goods. We all know that, again, this kind of backup, we might as well route with their skate hard goods business and is that we moved during the pandemic like a lot of segments, bikes, for example, we moved a lot of volume into 2020. And what was the uptick in the skate hard goods cycle that actually had started in 2019 and started globally in 2019.

Speaker Change: I'd say historically up to this point, we've close to lack of locations a lot of times it's either a reposition or just a low volume center that wasn't needed in a market. So, you know, the last couple years, it's been a little bit of an acceleration to the first part of your question of kind of what that means from an overall margin perspective. We quantified last year's 21 stores, being about $10 million in sales, so you get kind of good.

Christopher Work: We quantified last year's 21 stores, being about $10 million in sales. So you get kind of a good feeling for what that means on an annual basis. And really very little impact to the bottom line. These are mostly stores that are making, you know, zero to marginal amounts of return that just don't support the corporate load that should be allocated to them. So we are trying to manage the fleet the best possible, but I think you'd see something similar out of the 2024 closures that we guided you in this, in this meeting. So I don't, I think as we look at stores, I do want to make sure it's really important that we talk about kind of, you know, the variety of factors we consider, right.

Rick Brooks: It was really a big uptick that February of 2019. But that made, of course, 2021, 2022 and 23, a lot tougher, even 2021, it was a bit tougher relative to even with all the stimulus spending that we benefited from in 2021. So we've seen ourselves go from an all-time peak in terms of skate hard goods penetration in 2020 to, I believe, Chris near an all-time low in terms of penetration currently. And so it's been really, really challenging and a lot of volume has been walked basically because I think of the acceleration of this cycle that would have normally played out over a couple years.

Speaker Change: Feeling for what that means on an annual basis and really very little impact to the bottom line. These are mostly stores that are making you know

Speaker Change: Zero to marginal amounts of return that just don't support the corporate load that should be allocated to them So we are trying to manage the fleet the best possible I think you see something similar out of the 2024 closures that we we guided to in this

Speaker Change: and this meeting. So I think as we look at stores, I do want to make sure it's really important that we talk about kind of, you know, the variety of factors we consider, right? We're looking at the profitability levels and the sales levels in each location. We're looking at that that stores impact on its overall trade area, which we defined as how the stores and the web work to to serve that customer in any marketplace.

Christopher Work: We're looking at the profitability levels and the sales levels in each location. We're looking at that, that stores' impact on its overall trade area, which we defined is how the stores and the web work to, to serve that customer in any marketplace. And then obviously the condition of the centers that they operate and the landlords were working with. I mean, there are some centers, as we're all aware, that are probably not long for this world, just based on their occupancy. And maybe some of the competition in the surrounding areas. And then we manage; we manage things like we look at peak performance. We look at, you know, are these stores something we can get back to where we were operating.

Rick Brooks: So as we think about what we're, as we were from where we're at today and looking forward, I think we're very cautious on this department. But that said, we're seeing that some parts of our business are starting to generate positive skate hard goods sales. That would be true for Australia. We're seeing, now, I think, three or four months of positive hard goods results. Canada has been positive over the last month or so.

Speaker Change: and then obviously the condition of the centers that they operate and the landlords we're working with. I mean there are some centers as we're all aware that are probably not long for this world just based on their occupancy and maybe some of the competition in the surrounding areas.

Rick Brooks: But the US and Europe are still tougher. But I would characterize you as a Europe-wide tougher improving. So I think we're hopeful, Corey, that over the many months of this year, if we're going to see, again, transplant globally that we will hopefully find the bottom in the skate hard goods business. And it will probably be a new low relative to sales penetration, sales mix. And then the question will be, do we see a dramatic uptick in the business or do we see it say level for a few years?

Speaker Change: And then we manage things, like we look at peak performance, we look at, you know, are these stores something we can get back to where we were operating? And is there anything else we can do about store economics? So, you know, we talked about pry around 25 stores this year. That's really focused on, you know, continuing to manage those items. If we continue to grow sales, the way that we would like to, that number could come down or potentially go up. I guess how we work each location that we have open. Thank you very much.

Christopher Work: And is there anything else we can do about store economic. So, you know, we talked about probably around 25 stores this year. That's really focused on, you know, continue to manage those items. If we continue to grow sales the way that we would like to, that number could come down or potentially go up. I got how we work, how we work each location that we have open.

Rick Brooks: I think those are the things that we'll have to just going to see how it's going to play out. Now, I think we're really well positioned to teams have done a great job of managing our inventory positions throughout the cycle, taking advantage of working with our partners and helping each other out through the cycle. And our experience is that once skate hard goods really inflicts positively, that it is, we do get a bit of halo effect from the business.

Dylan Carden: Thank you.

Speaker Change: Thank you for that for me.

Operator: And with that, this concludes the question-and-answer session.

Speaker Change: Thank you.

Rick Brooks: I want to turn it back over to Rick for Nicole's remarks. All right. Just want to as always offer my thanks to one for your interest in Zoomies. And we'll look forward to getting back to you in early December with Q3 results. So thank you, everybody. Much appreciated. Thank you for your participation.

Speaker Change: and with that this concludes the question and answer session. I want to try to back over to Rick for Nicole's remarks.

Rick Brooks: All right, just want to as always, offer my thanks to when for your interest in Zoomies and we'll look forward to getting back to you in early December with Q3 results. So thank you everybody, much appreciate it.

Rick Brooks: So which has been an obstacle detriment over the last three years. So I'm hopeful that as we find bottom, we're not sure where we'll bounce along the bottom for a bit or see a significant uptick. But the good news is, it can't get worse. I guess that we're going to be an all-time low. And that when it does uptick, I do believe there's a benefit to us from a consumer point of view.

Operator: Today's conference does conclude the program. You may now just connect. Everyone have a great day. Thank you very much.

Rick Brooks: And the halo effect of us just being such a significant, probably the most significant... Skateboard Retailer around the world. So I'm hoping it's going to be a benefit, but I'm not sure exactly the timing of how it's going to play out yet, Corey.

Corey Tarlowe: Very helpful, just to the follow up. Any color about how you're thinking about promotionality in the back half, specifically given there's five less selling days between Thanksgiving and Christmas. Yeah, I'd be glad to have addressed that for you and how we think about it. It's clear that it's, I would say this back to school season was pretty promotional, but I think it always is promotional on a, particularly on a relative basis.

Corey Tarlowe: I think particularly people not only have been promotional stored, but I'd say even more promotional in the online world. So I think where you see different retailers price differently across the markets relative to their stores. We have a different approach. So despite the fact that I think the environment is very promotional, I would tell you that we're going to deliver value to consumers in a different way than cutting price. And we're always trying to think about how we do that and reward our salespeople for the process of doing that.

Corey Tarlowe: But I think if you look at the back to school results and you compare our pricing on on bottoms business, I think we're probably one of the highest price in the market, but it had very strong results. And it speaks again to our ability and our great sales teams ability to bundle packages, which is consists of a lot of private label product that still is accreted to margins. So everyone wins in that sense where we get the value for the consumer and the bundling and we get the value for for our business and the shareholders in helping us support our margin point of our product margin through that structure.

Corey Tarlowe: So we're always going to be focused on being a full price, full margin retailer and that requires of course to do that that we're leading on trend and that we're leading on newness and freshness in the business in terms of new brands and why that's again why the new brand launches are so important. So we expect the holiday season to be promotional and but I always expect to be promotional and the question is how do we distinguish ourselves in that environment really drive a more profitable and better business relative to our brand positioning with customers. Very clear. Thanks for all the color and best of luck. Thank you.

Operator: One moment for our next question.

Richard Magnusen: Our next question of offline of Richard Magnussen from beer is open. Hello, thank you for taking our call. My question is that as the retail is continued to feel pressure from high-reparating costs, including labor costs. What do you see there regarding competitors in the core space exiting the business? So again, make sure I understand the question Richard, it's relative to higher operating costs around labor and the competitive pressure that's putting on for ourselves and other retailers.

Richard Magnusen: Correct. You know, the cost of going up in general and labor is, you know, established a new higher level and I don't think you're going to expect it to go down in time soon. But I'm going to admit all these pressures. What do you see in your core space regarding competitors that could be leading the business? Well, first of all, you're absolutely right. We are wrestling with the much higher labor costs across our business just like every other retailer is and there's no doubt it is a big challenge.

Richard Magnusen: It's one of the reasons I'm really proud of what we're doing here in terms of as we commented in our early part of the call is we really, really worked hard at how do we implement new strategies around labor really focus on productivity. And that's a global effort to be clear. It's not just here in the US or North America, it's in Europe and Australia too. So we have definitely been really aggressive about managing labor and really thinking about the mix of transactions and you are in our business, how that plays out with labor management, volume of stores, where do we, if we're going to invest labor, where do we invest and why to get the return on sales.

Richard Magnusen: So there's no doubt it's been a it's been a struggle, Richard, for us and for everyone else and it's going to be we're definitely not we're still in the early stages of the struggle. We have to figure out how as our business really starts to drive forward and recover back to where the levels we want it to be at, we're going to find new ways to do it yet to really drive the operating market results.

Richard Magnusen: We believe we can deliver in this business and we think there we think we can do that. From a competitive perspective, I mean, everyone's different, everyone has different footprints in their size of storage which raises different challenges for them. So there's no doubt that there's challenges based on each each each unique retailer that's unique to them. I would tell you that in Europe, we definitely feel it's even I think a more opportunity for the reduction of competition in Europe relative to the pressures that were being felt in Europe, not only on labor, but on just the overall macro environment as I commented earlier. So we are seeing quite a few store closures in Europe from a competitor base that I think is reflective of that difficult the market is there, including how much labor costs have gone up. Thank you.

Operator: One moment for our next question.

Dylan Carden: Our next question on Confluent of Dylan Carden from William Blair. Yeah, thank you very much. I'm just curious kind of thinking to the guy. I mean, he saw a really nice flow through from an operating large standpoint that's on a positive column, the nice positive component quarter. And the underlying comp seems to be improving even further still in a third quarter, why wouldn't expect at a similar level of flow through third quarter and not into the balance of the year.

Dylan Carden: Yeah, I think obviously the the calendar shift is going to play a part in this. As you know, you know, this $10 million that came out of Q3 into Q2 has a meaningful bottom line impact to we estimate some portion of probably nine or 10 cents. So we know that was a benefit to the second quarter. Now even excluding that in the second quarter from going from a loss of 44 cents to a loss of four cents.

Dylan Carden: We did see a nice flow through as you indicated in your question. So we're we're happy with that piece of it. I think what we'll see even in the in the third quarter is continue to see some flow through and we are really building the model to get there from a standpoint of trying to grow product margin. We're seeing good flow through getting down a gross margin in places like occupancy and shipping as we're able to accelerate sales.

Dylan Carden: And on the corporate side, we're really seeing leverage up and down the PNL with the exception of incentives, which we are working to refund after the last couple of years of not having much incentive at all. So the current results are indicating that we'll pay some level of incentive and that's factored into our guidance. So I think what you're seeing, you know, as you look at kind of the year to date, you'll see a nice really really nice flow through and there's just a little bit of noise there between the second quarter and third quarter.

Chris Work: Under so thank you. And then on store closures, kind of a two-parter, one is there any quantifiable margin impact from closing, kind of the number of stores that you closed over less two years, you know, close with just on the 50. And then as you think about, kind of go forward in the US fleet, you know, are there more, we expect to kind of maintain this level of time, like this might be a year where you can reassess this time's term positive.

Chris Work: But I guess, you know, the spread between underperformers and outperformers and kind of how you think about the off the US fleet. Sure. Yeah. And thanks for the question. You know, obviously this has been a year now in 2023 and then into 2024 where there's a little bit of acceleration for us from a closure perspective. I'd say historically up to this point, we've we've closed select locations, a lot of times it's either a reposition or just, you know, a low volume center that wasn't needed in the market.

Chris Work: So, you know, the last couple of years, we've seen a little bit of an acceleration to the first part of your your question of kind of what that means from an overall margin perspective. We quantified last year's 21 stores, being about $10 million in sales. So you get kind of a good feeling for what that means on an annual basis and really very little impact to the bottom line. These are mostly stores that are making, you know, zero to marginal amounts of return that just don't support the corporate load that should be allocated to them.

Chris Work: So we are trying to manage the fleet the best possible. I think you see something similar out of the 2024 closures that we guided to in this in this meeting. So I don't I think as we look at stores, I do want to make sure it's really important that we talk about kind of, you know, the variety of factors we consider, right. We're looking at the profitability levels and the sales levels in each location.

Chris Work: We're looking at that that stores impact on its overall trade area, which we define is how the stores and the web work to to serve that customer in any marketplace. And then obviously the condition of the centers that they operate and the landlords were working with. I mean, there are some centers as we're all aware that are probably not long for this world, just based on their occupancy. And maybe some of the competition in the surrounding areas.

Chris Work: And then we manage things like we look at peak performance. We look at, you know, are these stores something we can get back to where we were operating. And is there anything else we can do about store economic. So, you know, we talked about probably around 25 stores this year. That's really focused on, you know, continue to manage those items. If we continue to grow sales, the way that we would like to that number could come down or potentially go up. I got how we work, how we work each location that we have open.

Dylan Carden: Thank you.

Rick Brooks: And with that, this concludes the question and answer session. I want to turn it back over to Rick for Nicole's remarks. All right. Just want to as always offer my thanks to one for your interest in zoomies. And we'll look forward to getting back to you in early December with Q3 results. So thank you, everybody. Much appreciated. Thank you for your participation.

Operator: Today's conference does conclude the program. You may now just connect. Everyone have a great day. Thank you very much for your time, and I'll see you in the next video.