Q1 2025 Zumiez Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the Zumiez, Inc. First quarter fiscal 2025 earnings conference call.
At this time all participants are in a listen only mode.
We will conduct a question and answer session towards the end up this call.
Speaker Change: Before we begin I'd like to remind everyone of the company's safe Harbor language.
Speaker Change: Today's conference call includes comments concerning Zumiez, Inc. Business outlook and contains forward looking statements.
Speaker Change: These forward looking statements and all other statements that may be made on this call that are not based on historical facts are subject to risks and uncertainties actual results may differ materially.
Speaker Change: 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: At this time I will turn the call over to Rick Brooks, Chief Executive Officer, Mr. Brooks.
Speaker Change: Hello, and thank you everyone for joining us on today's call.
Speaker Change: With me today is Chris work, our Chief Financial Officer.
Speaker Change: I'll begin with a few remarks about our first quarter performance and the evolving trade environment before touching on our strategic priorities for the remainder of 2025.
Speaker Change: Chris will then take you through the financials and our outlook for the balance of the year. After that we'll open the call to your questions.
Speaker Change: I am pleased to report that our first quarter results demonstrate the continued momentum we built throughout 2024 with our North American business premium resilience, despite an increasingly complex macroeconomic backdrop.
Speaker Change: Comparable sales for the company grew five 5%, marking our fourth consecutive quarter of positive comparable sales growth.
Speaker Change: This performance reflects the successful execution of our strategic initiatives and our team's ability to adapt quickly to changing market conditions.
Speaker Change: What's particularly encouraging is that our results exceed the high end of our guidance ranges for both sales and profitability. Excluding a one time legal settlement that Chris will touch on later.
Speaker Change: Our strong full price selling performance demonstrates that consumers continue to respond positively to our merchandise assortments and shopping experience validating the investments we've made in product newness private label expansion and customer engagement.
Speaker Change: The resilience of our North American business gives me confidence in our ability to manage through the global trade environment.
Speaker Change: Foster change the landscape, we've taken decisive action to further directors diversify our sourcing base and expect a meaningfully reduced our exposure to China by the end of 2025.
Speaker Change: This diversification coupled with continued partnership with our manufacturers and vendors as well as selective price adjustments will help us offset the impact of tariffs on our business.
Speaker Change: While the ultimate impact on consumer sentiment from ongoing trade negotiations it remains uncertain, our proactive approach positions us to outperform the market regardless of how these dynamics evolve.
Speaker Change: As you progress through 2025, we remain focused on three strategic priorities.
Speaker Change: First accelerating top line expansion through strategic investments and winning with consumers.
Speaker Change: Our approach to injecting assortments with newness continues to resonate strongly with our customers.
Speaker Change: Our successful launch of over 120, new brands in 2024, and 150 brands in 2023, we remain committed to bringing fresh unique products to market that our customers can find elsewhere.
Speaker Change: These newer brands now represent a meaningfully larger portion of our sales compared to historical levels.
Speaker Change: Affirming that our curation strategy is working.
Speaker Change: Our private label expansion has also exceeded expectations, reaching nearly 28% of total sales in 2024 and increasing to 30% in the first quarter of 2025. This is up from 23% in 2023, and just 11% five years ago.
Speaker Change: This growth demonstrates our team's ability to anticipate trends and deliver value conscious options that resonate with our customer base, providing us with another important avenue for profitable growth.
Speaker Change: We continue to invest in customer engagement through best in class service, both in stores and online.
Speaker Change: Our ongoing investments in training and technology are enabling us to connect with customers and increasingly personalized and relevant ways strengthen our relationship that has been the foundation of our success for nearly five decades.
Speaker Change: Second maintaining our disciplined focus on profitability across all markets in North America, our focus on full price selling that has helped us maintain healthy margins, while growing market share.
Speaker Change: Driving product margin, coupled with operational efficiencies, we implemented throughout 2024 continue to drive meaningful results. The closure of 31 underperforming locations combined with comprehensive staffing model optimizations and structural cost reductions as shipping and logistics has created a more streamlined and profitable operating model.
Speaker Change: Sure.
Speaker Change: In Europe, the market environment remains challenging.
Speaker Change: After making progress in 2024 and sales product margin and operating results 2025 is off to a tougher start.
Speaker Change: With the slower start we are actively working to drive the top line through new and unique product selection.
Speaker Change: Also remaining focused on full price selling and controlling costs.
Speaker Change: Third leveraging our strong financial position to navigate uncertainty while investing in growth.
Speaker Change: Our balance sheet remains robust with over $101 million in cash and current marketable securities at the end of the quarter.
Speaker Change: Providing us with the flexibility to respond to both challenges and opportunities as they arise.
Speaker Change: This financial strength has allowed us to continue investing in our strategic initiatives, while also returning value to shareholders through our share repurchase program.
Speaker Change: The first quarter. This year, we bought back one 8 million shares or nine 4% of the company based on our year end 2024 outstanding shares.
Speaker Change: In addition, today, we have announced a new buyback plan authorized by our board for an additional $15 million to continue driving long term value for our shareholders.
Speaker Change: While we're operating environment marked by macroeconomic uncertainty and evolving trade dynamics I am confident in our ability to continue delivering value for all of our stakeholders. The strategies of our success throughout the company's history remains as relevant today as ever and our team's proven ability to adapt and execute gives me optimism about our prosper.
Speaker Change: <unk> for the remainder of 2025.
Speaker Change: Our path forward is clear stay focused on bringing unique trend right product to our customers shooting engagement initiatives that have fueled our success, while maintaining the operational discipline that has enhanced our profitability.
Speaker Change: We've demonstrated our ability to navigate challenging cycles before <unk>.
Speaker Change: <unk>, we are well positioned to continue that tradition.
Chris Work: Before I turn the call over to Chris I want to thank our entire team for their continued dedication and adaptability in an environment that continues to change rapidly.
Speaker Change: Our commitment to our culture and our customers remains a cornerstone of everything we accomplished from a grateful for your efforts as we navigate this dynamic environment together.
Chris Work: That I will turn the call to Chris discuss the financials.
Chris Work: Thanks, Rick and good afternoon, everyone I'm going to start with a review of our first quarter results. I'll, then provide an update on our second quarter to date sales trends.
Chris Work: First quarter net sales are $184 $3 million up three 9% from $177 4 million in the first quarter of 2024 comparable sales were up five 5% for the quarter as Rick mentioned the primary driver was our North America business, which showed outsized strength, even as macroeconomic uncertainty spurred by global trade policy.
Chris Work: <unk> during the period.
Chris Work: For the first quarter North America, net sales were $149 $7 million, an increase of four 9% from 2020 for other international net sales, which consists of Europe, and Australia were $34 $6 million down 0.2% from last year, excluding the impact of foreign currency translation North America net sales increased five 2%.
Chris Work: And other international net sales decreased <unk>, 1% year over year comparable sales for North America were up seven 4%, marking the fifth consecutive quarter of comparable sales growth.
Chris Work: Positive comparable sales and the important fourth quarter of 2020 for our other international comparable sales turned negative in the first quarter and were down two 3%.
Chris Work: From a category perspective women's was our largest positive comping category, followed by men's footwear and accessories hard goods was our only negative comping category.
Chris Work: The consolidated increase in comparable sales was driven by an increase in dollars per transaction, partially offset by a decrease in transactions.
Chris Work: As per transaction were up for the quarter driven by an increase in average unit retail and an increase in units per transaction.
Chris Work: First quarter gross profit was $55 $3 million up six 6% compared to $51 $9 million in the first quarter of last year.
Chris Work: Profit as a percentage of sales was 30% for the quarter compared to 29, 3% in the first quarter of 2024.
Chris Work: The 70 basis point increase in gross margin was primarily driven by leverage of our store occupancy costs on higher sales.
Chris Work: SG&A expense was $75 2 million or 48% of net sales in the first quarter compared to $72 1 million or 46% of net sales a year ago. The.
Chris Work: The 20 basis point increase in SG&A expense was driven by 160 basis point increase from a one time $2 $9 million legal costs associated with the settlement of a wage and hour lawsuit in California.
Chris Work: This increase was partially offset by 70 basis points of leverage in non wage store operating costs 30 basis points of leverage in corporate costs, and 40 basis points of leverage at costs across several other items, such as wages training and annual incentive compensation.
Chris Work: Operating loss in the first quarter of 2025 was $19 9 million or 10, 8% of net sales compared with an operating loss of $22 million or 11, 3% of net sales last year.
Chris Work: Net loss for the first quarter was $14 3 million or <unk> 79 per share inclusive of the previously mentioned one time legal settlement, we're at $2 9 million or 13 <unk> per share. This compares to a net loss of $16 $8 million or <unk> 86 cents per share for the first quarter of 2002.
Chris Work: For our effective tax rate for the current quarter was nine 1%.
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 $101 million as of May three 2025, compared to $146 $6 million as of May four 2020 for.
Chris Work: The decrease in cash and current marketable securities over the trailing 12 months was driven primarily by share repurchases and capital expenditures of $54 million and $14 $7 million, respectively. This was partially offset by $17 $2 million in cash provided by operating activities.
Chris Work: As of May three 2025, we have no debt on the balance sheet.
Chris Work: During the first quarter, we repurchased one 8 million shares at an average cost including commissions of $13 82 per share for a total cost of $25 $2 million.
Chris Work: This fully exhausted the buyback authorization approved by the board of directors in March on <unk>.
Chris Work: June four the board of directors approved a new repurchase authorization for up to $15 million of common stock. This repurchase program is expected to continue through June 32026, unless the time period is extended or shortened by our board of directors.
Chris Work: We ended the quarter with $149 $9 million inventory up two 1% compared to the $146 $8 million last year on a constant currency basis, our inventory levels were up one 1% from last year.
Chris Work: As we discussed in our fourth quarter earnings call, we pull the inventory receipts, Florida in the fourth quarter of 2024 in anticipation of potential tariffs as of the end of the first quarter inventory is now in line with the prior year and we anticipate ending fiscal 2025 down from the end of fiscal 2024, when we pulled forward the inventory.
Chris Work: We feel good about the quality of our inventory on hand.
Chris Work: Now to our May sales results net sales for the four week period ended May 31, 2025 increased <unk>, 7% compared to the four week period ended June one 2024.
Chris Work: Comparable sales for the period increased one 4% from the comparable period in the prior year.
Chris Work: From a regional perspective net sales for our North America business for the four weeks ended May 31, 2025 increased two 9% compared to the four week period, ending June <unk> 2024, while our other international business decreased nine 6%.
Chris Work: Excluding the impact of foreign currency translation North America net sales for the period increased 3% from the prior year, while other international net sales decreased 12, 7% compared to 2024.
Chris Work: Comparable sales for North America increased five 1% during the period, while comparable sales for other international decreased 14, 8%.
Chris Work: From a category perspective women's was our largest positive comping category, followed by hard goods.
Chris Work: Men, whether <unk> was our largest negative comping category, followed by footwear and accessories the.
Chris Work: The consolidated increase in comparable sales was driven by an increase in dollars per transaction, while comparable transactions were down during the period.
Chris Work: <unk> per transaction were up for the period driven by an increase in average unit retail partially offset by a slight decrease in units per transaction.
Chris Work: With respect to the outlook for the second 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 a variety of internal and external factors that impact our performance.
Chris Work: This is even more pronounced in today's environment with the current tariff situation to add additional uncertainty and complexity to pricing and the potential limit the ability of the consumer to continue to spend.
Chris Work: That said our recent trend line has been encouraging and we feel that we have a good line of sight into the next couple of months, assuming no additional unexpected changes in the regulatory environment.
Chris Work: Based on our quarter to date results current tariff rates and actions taken thus far to mitigate the increased costs from higher tariffs. We are anticipating total sales to be between $207 million and $240 million for the 13 weeks Andy August three 2025, representing a negative 2% to positive 2% <unk> sales change.
Chris Work: From the prior year comparable sales growth at the same time period is expected to be between negative 1% and positive 3%.
Chris Work: For the second quarter, we are expecting product margin increase from the second quarter of last year.
Chris Work: <unk> operating loss for the second quarter is expected to be between.
Chris Work: Zero point $7 million and $4 million compared to a loss of <unk> $4 million in the prior year we.
Chris Work: We anticipate loss per share will be between <unk> and 'twenty for <unk> compared to a loss of <unk> in the prior year.
Chris Work: Overall, the high end of our guidance is showing a slightly lower operating profit from the core business on a low single digit top line growth. However, we're seeing pressure on total earnings due to a decline in interest income on lower cash levels and a slightly higher loss in Europe, which is further impacted by unfavorable foreign currency movements from.
Chris Work: The prior year.
Chris Work: The mix of our loss shifting toward Europe creates an unfavorable effective tax rate and our stock buyback has also added to the loss per share given we have reduced overall share count while our share buyback will have a negative impact on earnings per share in the quarter, we expected to have a positive impact on the full year and in the future.
Chris Work: As we generate earnings.
Chris Work: Regarding the full year 2025 results sales do we have discussed there has been increased uncertainty and volatility since March when we provided our initial thoughts for the full year. The announcement of tariff subsequent temporary suspension of reciprocal tariffs and ongoing discussions on the topic heavily impacted supply chains and consumer confidence.
Chris Work: Vince.
Chris Work: A significant tariffs are reinstated higher costs may lead to increased retail prices potentially straining consumers' discretionary income and negatively affecting our results.
Chris Work: This all provides less visibility into the year than we had in March we continued to trend on plan in North America through the end of May and under the current circumstances and tariff levels. We believe that achieving our previously mentioned annual expectations for fiscal 2025 remain feasible to reiterate we believe that we will see year over year sales.
Chris Work: Growth in 2025, despite the closure of 33 stores in fiscal 2024, and two store closures planned in 2025, which combined are estimated to have a negative impact on sales of $14 $7 million for the year.
Chris Work: We anticipate modest year over year growth in product margin in 2025 on top of 70 basis points of improvement in fiscal 2024.
Chris Work: We anticipate driving additional gross margin leverage through other expenses, such as occupancy distribution logistics and finally, we believe that we can hold our 2025 SG&A costs, excluding the onetime legal charges relatively flat as a percentage of sales with our fiscal 2024 results through continued focus on expense management.
Chris Work: While also investing in important long term strategic initiatives.
Chris Work: Bind these expectations will drive a year over year increase in operating margins and net profit for fiscal 2025, bringing the company back to profitability.
Chris Work: Included in these fiscal 2025 expectations are the following.
Chris Work: Nine new store openings during the year, including six in North America, two in Europe, and one in Australia. We also plan to close approximately 20 stores in fiscal 2025, including up to 17 in the U S. Two in Canada and one in Europe.
Chris Work: We expect our capital expenditures for 2025 to be between $14 million $60 million.
Chris Work: Compared to $15 million in fiscal 2024 and $24 million in 2023.
Chris Work: We expect that depreciation and amortization, excluding noncash lease expense will be approximately $22 million in line with the prior year.
Chris Work: While effective tax rates are likely to fluctuate significantly by quarter, we anticipate that our full effective tax rate will be roughly 50% to 60% in fiscal 2025.
Chris Work: And we are currently projecting our diluted share count for the full year to be approximately $17 5 million shares. This share count does not include the impact of any future share repurchases, including the repurchase approved on June four 2025 by the board of directors.
Chris Work: And with that operator, we would like to open the call for questions.
Chris Work: Thank you.
Chris Work: Ladies and gentlemen, and ask a question. Please press star one on your telephone.
Chris Work: For your name to be announced soon.
Chris Work: Or withdraw your question. Please press star one again.
Bob: And Bob I'll be comparable the Q&A roster.
Bob: Okay.
Speaker Change: Our first question comes from the line of Mitch <unk> with Seaport Research partners. Your line is open.
Speaker Change: Yes, thanks for taking my questions.
Speaker Change: Let me begin on tariffs I was hoping you could just walk us through that a little bit more I think when we last.
Chris Work: Matt.
Chris Work: China was at a 20% therapy, there was no universal tariff.
Speaker Change: Obviously, we know where thats gone. So can you can you remind us.
Speaker Change: Whats your China exposure is for the year, how are you seeing tariffs.
Speaker Change: Impact your Cogs, both in terms of what Youre doing with private label and what Youre seeing in terms of.
Speaker Change: Pricing on the third party you use what are you guys doing to mitigate the cost increases just any more color on tariffs I think would be helpful.
Speaker Change: Yes, sure Matt I'll take a crack at this year and let <unk> chime in if I've missed anything but as you would expect I mean, we this is something we've spent a lot of time on.
Speaker Change: Our teams have been Super diligent I give them just a ton of credit with how hard they've worked to kind of navigate through this.
Speaker Change: We started to work on this really last November.
Speaker Change: As the landscape started to change we got pretty proactive as we talked about in our March call, we brought in $7 million at cost.
Speaker Change: From inventory that was coming from China to to really try to get ahead.
Speaker Change: What might've been coming at us.
Speaker Change: This was really a benefit in the first quarter and probably will be throughout 2025, I think as we as you think about tariffs in our business. It is important to note that.
Speaker Change: 30% of the product is our own private label. So we control the sourcing all the way through bring.
Speaker Change: Bringing it into the country. The other 70% is branded so it requires us to work with our brands so to kind of break down. Your question, let me kind of tackle this from a sourcing perspective, and a cost perspective, I think from a sourcing perspective, we've made a lot of progress in 2025.
Speaker Change: We ended 2024 and on our March call, we talked about.
Speaker Change: Having a fairly high concentration from China were roughly 50% of our product was coming out of China.
Speaker Change: That percentage has been pretty consistent in the first quarter.
Speaker Change: That said, we expect to see a meaningful decrease as we move through the year in fact, our our back to school just kind of like for like time period will be down about 50% year over year and holiday. We expect the same so at this point as we get towards the end of the year.
Speaker Change: We think we'll probably 30% or even potentially lower and product coming out of China.
Speaker Change: Long term our goal in 2026 and beyond is to have no individual country represent more than 20% of our of our goods that we're sourcing.
Speaker Change: From a cost perspective.
Speaker Change: We've tried to be as proactive as possible.
Speaker Change: We have experienced an uptick because of tariffs and we've worked with our brand partners and our manufacturers to really rethink the production process, and obviously, where things are coming from to keep costs as low as possible.
Speaker Change: Where needed we we have looked at prices.
Speaker Change: While also kind of evaluating how we do bundling.
Speaker Change: Markdowns package deals to really try to adequately offset the cost that we are incurring for tariffs. So.
Speaker Change: Obviously, it's an evolving backdrop, but and we're pretty encouraged by the work our teams have done to get us to this point.
Speaker Change: We'll just keep monitoring where it goes from here.
Speaker Change: And just as a follow up to that you are still anticipating product margin to be up year over year, Although I think you said modestly so.
Speaker Change: Again, how does how does the tariffs on private label factor into that especially given that you still have.
Speaker Change: Pretty material exposure to China, even though you've been able to reduce that.
Speaker Change: Yes, yes, I mean, I think it comes back to kind of the different strategies, we're putting into play right.
Speaker Change: It's working with our brands working with our manufacturers trying to manage to first of all mitigate any inbound cost we can get whether it's.
Speaker Change: That way, we work together, where we're sourcing it from things like that secondly, it comes to looking at how we move private label through our stores.
Speaker Change: And.
Speaker Change: We have used it in a in a bundling and promotional aspect.
Speaker Change: Change the way, we thought through some of that and then in certain areas circumstances, we have had to take some prices up. So it's a combination of all of the above and I think Jeff Mitch when we when we put all that together, we think will have the opportunity to still grow product margin is our strategy at this point.
Speaker Change: As you know even pre tariffs we had we felt like we had some some opportunity ahead of that to grow product margins. So it is modestly I. Appreciate you, saying that we probably would have had a little bit more.
Speaker Change: In our thought process if it wasn't for this environment, but we continue to think we can still grow product margin.
Speaker Change: And then I guess my last question just on other international I know you kind of slowed the the unit growth in Europe to focus on profitability.
Speaker Change: Correct me, if I'm wrong, but I would think that the profit profitability better really hinges on top.
Speaker Change: I thought I heard you say that may comp for other international was down.
Speaker Change: You said 14, 8% Seth could you just help me.
Speaker Change: We understand what's going on.
Speaker Change: In other international.
Speaker Change: What can you guys do strategically.
Speaker Change: Show better results there.
Speaker Change: Sure I'll take another crack at it and let Rick chime in I mean.
Speaker Change: And let me just kind of back up a little bit to talk about the overall landscape I mean.
Speaker Change: We did talk in 2024 about changing our strategy with Europe.
Speaker Change: Really slowing growth and focusing on the core business with a key thought process of driving profitability and cash flow. We ended 2024, the business was about $135 million euros.
Speaker Change: We were losing money, but less in 2023 that being said we didn't make the progress we are hoping to make in 2024, but we were seeing a little bit of improvement there.
Speaker Change: The best we've ever done is really right pre pandemic in 2019, we got very close to breakeven, but it's been a tough.
Speaker Change: Tough place to operate over the last five years and so we're just under 90 stores now in nine countries, we definitely have a solid base.
Speaker Change: But we've got a.
Speaker Change: Really got pushed to profitability that's been our focus.
Speaker Change: The results of 2025, I started slow and you are right about may but Q1 was not where we wanted it to be either as I think as we look at May and we look at what we've got planned in the second quarter guidance, we are planning.
Speaker Change: Other international down at this point not nearly at the significance of what May was I think when it's all said and done we're going to see that there was some <unk>.
Speaker Change: Some holiday shifts and some plant.
Speaker Change: Tim just timing changes that will moderate what than what may was but to be clear may was below our plan and where we thought we'd be so.
Speaker Change: We started a little bit of a hole here.
Speaker Change: For the 2025 I think the good news for especially our Europe business is what really matters in Europe is the fourth quarter kind of a little different than our North America business over 40% of our sales here here in the fourth quarter. So we're very focused on transitioning to that.
Speaker Change: We've made some some.
Speaker Change: Changes in how we're trying to do things, we're really focused on on product and bringing newness into the business.
Speaker Change: Teams I think are totally aligned around that and how we drive the topline.
Speaker Change: Comp in our existing units.
Speaker Change: But at the same point really trying to rationalize the business around growing margin.
Speaker Change: Even last year as we kind of saw sales pick back we were able to get more profitable because we were able to expand margin we have seen actually pretty favorable margin even in may.
Speaker Change: The results were tougher.
Speaker Change: And we're managing expenses and then also managing inventory levels really all of the above inventory in Europe for the first quarter. It was down to where we were in the prior year I think the teams continue to make some good strides there. So again, we're really trying to set ourselves up for the big volume in the back half of the year and specifically the fourth quarter.
Speaker Change: We continue to believe in the international.
Speaker Change: Here of the trends are emerging globally or locally and moving globally and that includes emerging here in North America as well as in Europe, I think it's the best way, we can serve our customers long term, but.
Speaker Change: But all that said, we're very focused on turning out around what the business is today.
Speaker Change: Great. Thank you.
Speaker Change: Thank you.
Speaker Change: As a reminder, ladies and gentlemen that star one one to ask the question.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: I am showing no further questions in the queue.
Rick Brooks: I would now like to turn the call back over to Rick for closing remarks alright.
Speaker Change: Alright, Thank you and again just want to close up with a big. Thank you everyone for your interest in Zumiez and your continued interest in Zumiez and we're going to look forward to talking with you next September we get a chance to share our Q2 and early back to school results. So thank you everyone much appreciated.
Speaker Change: Ladies and gentlemen that concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Thanks.
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Speaker Change: [music].