Q4 2025 Zumiez Inc Earnings Call
Speaker Change: 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 these filings with the SEC. At this time I would like to turn the call over to Rick Brooks, Chief Executive Officer, Mr. Brooks.
Speaker Change: Hello and thank everyone for joining us on today's call. With me today is Chris Work, our Chief Financial Officer.
Speaker Change: I'll begin with a few remarks about fourth quarter performance before touching our strategic priorities for 2025. Chris will then take you through the financials and our outlook for the year ahead. After that, we'll open the call to your questions.
Speaker Change: Our fourth quarter results demonstrate meaningful progress on our efforts to improve profitability despite an unexpected lawland demand during the middle of the holiday season.
Speaker Change: Comparable sales increased 5.9%, marking our third consecutive quarter of pods of comparable sales growth.
Speaker Change: Total Cells were $279 million, which was $7 million, below the midpoint of our initial guidance range, and $2 million above the high end of our revised guidance provided at the beginning of January .
Speaker Change: The overall shortfall to our original guidance was primarily driven by the lower-than-plan sales in mid-delete December and on North America business.
Speaker Change: What is particularly encouraging about our fourth quarter performance was substantial improvement in operating profitability?
Speaker Change: Driven by significant gross margin expansion and meaningful reductions in operating expenses,
Speaker Change: Operating profit more than doubled to $20 million, an EPS increased 95% to 78 cents, after adjusting prior numbers for the $41.1 million, one time, Goodwill and Paramet Charge worth $2.13 cents.
Speaker Change: This improvement reflects the successful execution of our strategic initiatives throughout 2024, which has positioned us to better navigate the challenging retail environment while delivering enhanced value for our shareholders.
Speaker Change: Looking at our performance by category, we continue to see strength in our core businesses.
Speaker Change: Our men's category maintained its positive momentum through year end, dealing growth for the fifth consecutive quarter, our women's category, which has shown tremendous momentum since turning positive NQ1, continued to pose strong results becoming our largest growth category for the quarter.
Speaker Change: but we're also positive contributed for the third quarter in a row. While hard goods face some pressure due to continued downturn in skate hard goods, this is partially offset by gains in our snow category.
Speaker Change: As we reflect on fiscal 2024, I'm pleased with the progress we've made recaption of portion of the sales and earnings we've given back of the preceding couple of years and returning to positive operating profitability.
Speaker Change: That said, there's still much work to be done to realize the growth, profitability, and cash flows that our business can generate. As we look ahead to 2025, we'll continue to focus on the following strategies.
Speaker Change: Accelerating global top line expansion through strategic investments to ensure we are winning with consumers. These strategies continue to focus on three key areas.
Speaker Change: Injecting Assortments with Nunes. We should exceptionally launch over 120 new brands in 2024, fund the launch of 150 brands in 2023. These new brands cost to a larger portion of our sales this year compared to last year, demonstrating that they resonate with our customers.
Speaker Change: We recognize that our customers rely on Zumiez to discover new and unique products, and we remain committed to continue to fill that, to fulfill that expectation.
Speaker Change: Private Label Expansion. Our Private Label businesses continue to grow reaching nearly 28% of total sales for the year, up from 23% in 2023, and compared to 11% just 5 years
Speaker Change: This growth demonstrates our ability to meet both trend and value conscious consumers' needs
Speaker Change: and customer engagement. We've maintained our commitment to delivering best-in-class service both in-stores and online, enhancing our customer relationships through continued investments in training and technology.
Speaker Change: North America, these strategies have been the backbone of our improvement with the parable sales for the year, up 6.2%. Beyond sales, we've also made meaningful progress in proving our cost structure.
Speaker Change: In 2024, we closed 31 underperforming locations and implemented comprehensive operational efficiencies across our business.
Speaker Change: These include optimizing store labor through targeted staffing model adjustments, executing structural changes to reuse shipping and logistics costs, significantly reducing discount selling compared to previously elevated levels, and driving overall expense management practices aimed at maximizing efficiency.
Speaker Change: These cost management issues are part of our broader effort to streamline operations and improve margin performance.
Speaker Change: With a more difficult backdrop, Europe's cells are challenging in fiscal 2024, but comparable sells down 4.1% for the year.
Speaker Change: However, sales trends improved each quarter throughout the year with a fourth quarter of 2024 turning positive at 3.7 percent.
We knew the top line would be a challenge.
Speaker Change: As we discussed, our focus in Europe is returning to full price, full margin sales, and we're able to improve product margins by over 100 basis points from the prior year. Improve product margins and tight expense controls resulted in a smaller operating loss in 2024 despite the decline in sales.
Speaker Change: Well, there's still much hard work ahead, the improving sales trends, product margins and operating results indicate that we are making progress.
Speaker Change: While consumer purchasing patterns continued to be volatile and the macroeconomic environment uncertain, our path forward is clear.
Speaker Change: Our strong balance sheet and robust cash position provide us with the flexibility to navigate near-term challenges while continuing to invest in long-term growth opportunities.
Speaker Change: We've demonstrated our ability to navigate challenging cycles and emerge stronger throughout our 47-year history. I'm confident that we are the right course to repeat this accomplishment.
Chris Work: Before I turn the call to Chris, I want to thank our entire team for the dedication and hard work throughout 2024. Your commitment to our culture and our customers has been instrumental in the progress we've made this year and will continue to be the foundation of our success going forward.
Chris Work: That will turn the call to Chris, discuss the financials. Thanks Rick and good afternoon everyone. I'm going to start with a review of our fourth quarter and full year 2024 results. I'll then provide an update on our first quarter date sales trends before providing some perspective on the full year.
Chris Work: Net sales for the fourth quarter of 2024, which was a 13-week period decreased 0.9% to $279.2 million compared to $281.8 million in the fourth quarter of 2023, which was a 14-week period.
Chris Work: The decrease in total sales is driven by the incremental 53rd week in the prior year with approximately $12 million. Comparable sales for the 13-week period in February 1, 2025 compared to the same 13-week period in the prior year increased 5.9%.
Chris Work: Comparable sales excludes the impact of new stores, closed stores, and the 53rd week in the prior year and are generally a better measure of operating performance.
Chris Work: From a regional and perspective, comparing the 13-week period and the current year to the 14-week period in the prior year, North American net sales were $214.2 million, an increase of 0.8% from 2023. Other international net sales, which consists of Europe and Australia, were $65 million down 6.4% from last year.
Chris Work: Excluding the impact of foreign currency translation, North American Sails increased 1.2%.
Another international net sales decreased 2.7% compared to 2023.
Chris Work: Comparable sales for North America were up 7.2% marking the fourth consecutive quarter of comparable sales growth. Our other international comparable sales were up 1.9% for the quarter.
Chris Work: From a category perspective, women's with their largest positive calming category, followed by men's and men's footwear, accessories with their largest negative calming category followed by hard goods.
Chris Work: The consolidating increasing and parable sales is 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 in a retail, partially offset by a decrease in units per transaction.
Chris Work: Fourth Quarter Growth Profit was 101.0 million dollars compared to 96.7 million dollars in the fourth quarter of last year. Gross margin was 36.2% in sales for the quarter compared to 34.3% in the fourth quarter of 2023.
Chris Work: The 190 basis point increase in gross margin was primarily driven by 160 basis points of improvement in product margin and 30 basis points of benefit in web shipping costs.
Chris Work: SGNA expense in the 4th quarter of 2024 was $80.9 million, or 29% of net sales compared to $129.4 million, or 45.9% of net sales in 2023.
Chris Work: which includes a $41.1 million non-cash goodwill impairment charge that resulted from our decision to slow store growth in Europe and focus on profitability.
Chris Work: The 1,690 basis point decrease in S-UNA expenses of a percent of net sales was driven by the
Chris Work: 1,470 basis point benefit during primary by the impact of goodwill impairment charges both in 2023 related to Europe .
Chris Work: A 70 basis point of leverage in non-wage door operating costs.
Chris Work: 70 basis points of leverage in other corporate costs, 40 basis point benefit related to store wages, and a 40 basis point benefit related to incentive compensation.
Chris Work: Operating, come in the fourth quarter, is $20.1 million or $7.2% of net sales, compared to the prior year operating loss of $32.8 million or $11.6% of net sales, inclusive of the $41.1 million goodwill in parametriarch.
Chris Work: Net income for the fourth quarter was $14.8 million or 78 cents per share. In the year ago period we reported a net loss of $33.5 million or $1.73 per share including a good will impairment charge which on an after-tax basis was $41.1 million or $2.13 per share.
Chris Work: Our effective tax rate for the current quarter was 26.1%, a year ago we recorded a tax expense of $2.2 million or 7%, despite our pre-tax operating laws due to the distribution of pre-tax income across our different tax jurisdictions.
Chris Work: Looking at our full-year results, net sales for the 52 weeks for fiscal 2024 were $889.2 million, an increase of 1.6% for $875.5 million for the 53 weeks of fiscal 2023. Despite one last week in 2024, and closures of 33 stores this past year.
Chris Work: The 53rd week in 2023 was worth roughly $12 million, while the impact of closed doors was worth approximately $9 million.
Chris Work: Comparable sales for the full year were up 4 percent. The consolidated increase in comparable sales is driven by an increase in dollars per transaction, partially upset by a decrease in transactions. Dollars per transaction were up for the year, driven by an increase in average in a retail and an increase in units per transaction.
Chris Work: From a category perspective, for the full year, men with their largest positive-compined category, followed by women's and them for where. Accessories with their largest negative-compined category followed by hard goods.
Chris Work: From a regional perspective, North American net sales were $720 million, an increase at 3.2% from 2023.
Chris Work: Comparable sales for North America were up 6.2% and comparable sales for other international were down 4.8% for the full year.
Chris Work: 2024 Gross Margin was 34.1% compared with 32.1% in 2023. The 200 basis point increase was driven by 80 basis points of improvement and web shipping costs.
Chris Work: 70 basis points of improvement in product margin, 50 basis points of leverage in store occupancy costs, and 30 basis of improvement in distribution and logistics costs. These benefits were partially offset by 20 basis points of negative impact related to increased inventory shrinkage.
Chris Work: SG&A expense was $301.1 million, or 33.9% of net sales for fiscal 2024, compared to $345.7 million, or 39.5% of net sales in 2023.
Chris Work: The 560 basis point decrease as a percentage in that sales is driven by 480 basis points due to the non-cash goodwill impairment charge in 2023.
Chris Work: 30 basis points improvement in store wages, 30 basis points of leverage on non-store wage store operating costs, and 30 basis points of leverage on other corporate costs. These benefits were partially offset by a 20 basis point of increase in incentive compensation.
Chris Work: Operating income in 2024 was $2 million or 2.2% of net sales compared to an operating loss of $64.8 million or $7.4% of net sales in the prior year inclusive of the $41.1 million dollar goodwill in paramet charge.
Chris Work: Compared to a net loss of $62.6 million or $3.25 per share in the prior year, including the non-cash Goodwill and Pyramid Charge, booked in the fourth quarter of 2023 worth $41.1 or $2.13 per share.
Chris Work: Turning to the balance sheet, the business ended the year in a strong financial position. We had cash and current marketable securities of $147.6 million as of February 1, 2025, compared to $171.6 million as of February 3, 2024.
Chris Work: The decreasing cash incurred in multiple securities over the last year was driven primarily by common stock repurchases of $25.2 million.
Chris Work: and capital expenditures of $15 million, partially offset by cash flow from operations of $20.7 million. As of February 1st, 2025, we have no debt on the balance sheet and continue to maintain our full, unused credit facility.
Chris Work: On March 12, the Board of Directors approved the repurchase of up to $25 million of common stock. The repurchase program is expected to continue through March 31, 2026.
and less the time period is extended or shortened by our Board of Directors.
Chris Work: We ended the year with $146.6 million inventory, up $17.8 million or 13.8% compared with $128.8 million last year, driven primarily by our North America business.
Chris Work: On a constant currency basis, our inventory levels were at 15.6% from last year.
Chris Work: As we discuss in our third quarter earnings call, we pulled inventory receipts forward in the fourth quarter and anticipation of the tariffs planned to go into effect late in the quarter. This pulled forward accounts for approximately $7.4 million of the inventory increase at your end.
Chris Work: Beyond that amount, our inventory is still higher than we would have anticipated, primarily due to the sales shortfall leading into the Christmas holiday
Chris Work: Though we are carrying more than we would prefer, we believe in the quality of our inventory on hand and are planning product margin increases in fiscal 2025.
Now to our first coordinate results.
Chris Work: Total sales for the four-week period ended March 1st, 2025, increased 1.7% compared to the four-week period ended in March 2nd, 2024. Our comparable sales increased 4.3% over that same period.
Chris Work: From a regional perspective, North American Sells for the 4-week period into March 1, 2025 increased 3.9% over the 4-week period into March 2, 2024, while our other international business decreased 6.5%.
Chris Work: Excluding the impact of foreign currency translation, North American SAILs increased 4.2% and other international net sales decreased 3.1% compared with 2024.
Chris Work: Comparable sales for North America increased 6.4% for the four-week period in March 1, 2025, compared to the same weeks in the prior year, while comparable sales for other international business decreased 3.7%.
Chris Work: From a category perspective, women's with our largest positive-company category, followed by men's and then footwear.
Chris Work: Hargots, with our largest negative comping category followed by accessories.
Chris Work: The consolidated increase in comparable sales was driven by an increase in dollars per transaction, while comparable transactions were relatively flat. Dollars per transaction were up for the quarter, driven by an increase in average unit retail, with units per transaction flat to the prior year.
Chris Work: With respect to our outlook for the first quarter of fiscal 2025, I want to remind everyone that formulating our guidance involves some inherent uncertainty and complexity in estimated sales, product margin, and earnings growth, given the variety of internal and external factors that impact our performance.
Chris Work: As our comparable sales results in early fiscal 2025 are maintaining positive momentum, we are cautiously optimistic that we'll continue to deliver top and bottom line improvement year over year in the first quarter.
Chris Work: For the first quarter, we anticipating total sales to be between $179 million and $183 million for the 13-week-sending May 3rd, 2025, representing growth of 1% to 3%.
Chris Work: Comparable sales for the same period are expected to be between 3% and 5%.
Chris Work: For the first quarter, we are expecting product margin to be down slightly to flat from the first quarter of last year.
Chris Work: Consolidate operating loss for the first quarter is expected to be between negative 16.5 million dollars and negative 18.5 million dollars [inaudible]
and we anticipate loss for share will be between…
Chris Work: a negative 72 cents and negative 82 cents compared with the loss of a negative 86 cents in the prior year. This EPS guidance reflects a tax benefit for the quarter of approximately 10% of pre-tax earnings based upon the estimated distribution of earnings across our entities.
Chris Work: As we consider the outlook for the full fiscal year 2025, there remains uncertainty and volatility in the macro environment. Given this we will refrain from giving specific annual financial guidance, but do want to add some context around how we currently believe the business will trend throughout the year.
Chris Work: After two difficult years of sales declines, fiscal 2024 represented a stabilizing year with positive comparable sales growth each quarter in North America and our international business turning positive in the fourth quarter.
Chris Work: While there is uncertainty in the macro environment that requires caution.
Chris Work: We believe that we will grow total sales in fiscal 2025 despite the closure of 33 stores in fiscal 2024 and expected 20 stores in 2025. These closures will have a negative impact on growth in 2025 of approximately $14.7 million.
Chris Work: We grew product margin by 70 basis points in 2024. We believe the sustained strength of our higher margin private label business, combined with continued focus on full price selling, will allow us to grow product margins again in fiscal 2025.
Chris Work: In addition to product margin benefits based upon cost saving efforts and store closures, we anticipate further leverage in other expense items, including gross margin, such as occupancy, distribution, and logistics.
Chris Work: We believe that we can hold our fiscal 2025 S-GNA cost relatively flat as a percentage of sales with our fiscal 2024 results.
Chris Work: We believe that we can accomplish this through continued focus on expense management and driving efficiencies while also continue to invest in important long-term strategic initiatives.
Chris Work: With the previously mentioned assumptions, we believe we will increase operating margins in fiscal 2025.
Chris Work: We are planned to open nine new stores during the year including six in North America, two in Europe and one store in Australia. This compares to seven stores in 2024 and 19 stores in 2023.
Chris Work: We expect our capital expenditures for 2025 to be between $14 million and $16 million, compared to $15 million in fiscal 2024 and $20.4 million in 2023.
Chris Work: We expect that depreciation and amortization, excluding non-cash least expense, will be approximately $21 million, down from $22 million in the prior year.
Chris Work: and we are currently projecting our deluded share count for the full year to be approximately 19.1 million shares. This share count does not include the impact of any future share repurchases, including the repurchase agreement announced today. With that operator, we'd like to open the call up for questions.
Chris Work: Thank you. As a reminder, if you would like to ask a question at this time, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. One moment for our first question.
Thank you. Bye.
Speaker Change: Our first question comes from the line of Mitch Kummetz with Seaport, your line is open, please go ahead
Speaker Change: Yes, thanks for taking my questions. I guess just starting off, just
Speaker Change: Big picture, can you just kind of walk us through what you're seeing in terms of the impact of tariffs?
Speaker Change: You know, how is that impacting your private label business, where you have direct exposure and what do you see in kind of a cross?
Speaker Change: the brands and how they might be dealing with it from a pricey standpoint where you've got, I guess, you know, more indirect exposure, just kind of big picture thoughts there.
Speaker Change: Yeah, thanks, Mitch. I'll go ahead and try to answer this and let Rick jump in. I mean, obviously like many retailers we've been trying to stay up to date on all the tariff information that's come out since last November .
Speaker Change: You know, our current sourcing strategy is, you know, largely to work with our brands that represents just over 70% of our business, and we're, you know, in the high 20s as a percent of the brands that we control within our own private label grouping of brands.
Speaker Change: So, you know, we're trying to be as diversified as possible, as we exited 2024, our North America recedes. We're more concentrated than we had hoped with China. They're right around 50%.
Speaker Change: I kind of harken back to when we went through this before in the last administration of the administration.
Speaker Change: We were around 60% in 2018. We moved to about 45% in 2019 and then we got to 40% coming from China in 2020. Ultimately this kind of landed in the high 30s.
Speaker Change: I think over the last four years since the first term of President Trump.
Speaker Change: You know we we saw our private label grow a little bit in China just based on the speed and
Speaker Change: a ability to really move quickly and the functionality of what they were able to do in China. That being said, we've already started the process of moving production and diversifying more into 2025. We expect that rate of roughly 50% of our entire goods base coming from China in North America to come down pretty meaningfully, as we move through 2025, as we indicated on the call.
Speaker Change: with Inventory. We also pulled some forward ahead of the tariff so we feel good about where we are in our immediate receipts through spring.
Speaker Change: and we've got some more work to do here. But as you know, this is a complex topic because there are other locations that are getting tariffs as well. And so...
Speaker Change: I think the smartest thing we can do over a long term is just diversify as much as possible so that we are we're able to move quickly should this continue into the future.
That's helpful. Thanks. And then just as a follow-up question.
Speaker Change: I know you're not giving specific guidance for 25, but you talked a little bit about leverage I'm curious
Speaker Change: You know, what are your leverage points on like BDO versus S-GNA and then maybe because you also address, you know, what the flow through rate might look like, assuming you could, you know, cop better than what those.
what those leverage points are.
Sure. Yeah, I mean, I think is...
Speaker Change: You know, as we look at the entire year, what we did try to push is that we think we'll grow sales and
Speaker Change: and we'll grow operating profit. I know that's not a great detail in guidance, but that's what we're pushing, despite the fact that, you know, we've closed a fair amount of stores and
Speaker Change: The reason we feel comfortable with doing that is really looking at the trend lines of business and certainly there's a lot of uncertainty out there I want to make sure I I preface any answer here with with that because as we know uncertainty creates a little fear. [inaudible]
Speaker Change: and fear can have the consumer pull back. So we've considered some of that but obviously it's hard to imagine everything with a crystal ball.
5.
On the SGNA front, we talked about really probably SGNA growing more in line with sales, and that we are, you know,
Speaker Change: saying, growing sales, we're not talking about huge amounts at this point, but to your point, you're absolutely right.
Speaker Change: If we can exceed a low sales growth number, we would expect to see good flow through and the reason we think we'll see good flow through is [inaudible]
Speaker Change: I think we've done a good job over our last the two years of challenge, 2223.
Speaker Change: and now 24 being a little more of a stabilization year.
Speaker Change: of really trying to manage some of the SGNA expenses around store labor, being our largest cost.
some of the other store costs.
and then obviously corporate SGNA as well.
Speaker Change: other things that have had a higher cost, but we've tried to be smart and about how we manage hours and stores, how we manage what we're trying to do and the strategic initiatives of the business with the closure of stores.
We've had to make some difficult decisions [inaudible]
Speaker Change: in areas that do have a, I would say, sort of a, a fixed, semi-fixed amount of stores when you think about things like...
Speaker Change: Our field team that oversees stores, some of the areas of the corporate office that are more variable with the number of stores.
Speaker Change: We've had to make some difficult decisions cut back there too which has helped us manage
Speaker Change: A lot in the answer there, Mitch, but I think overall, if we can grow sales beyond what we're planning, we would expect to see a high level of flow through. By high level of flow through, I would probably say 30 percent plus.
Okay, thanks so much, good luck.
Speaker Change: Thank you, and I would now like to hand the conference back over to Rick Brooks for any further remarks.
Speaker Change: All right. Thank you very much. As always, we look forward to hearing from you and your questions. So we'll look forward to reporting you on first quarter results later this year. Thanks everybody.
Speaker Change: This does conclude today's conference call. Thank you for participating and you may all disconnect. Everyone have a great day.
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