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Zumiez Inc. Reports Operating Results (10-Q)

May 29, 2009 | About:
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Zumiez Inc. (ZUMZ) filed Quarterly Report for the period ended 2009-05-02.

Zumiez pronounced `zoomies` is a leading specialty retailer of action sports related apparel footwear equipment and accessories. Their stores cater to young men and women between ages 12-24 focusing on skateboarding surfing snowboarding motocross and BMX. Zumiez Inc. has a market cap of $267.4 million; its shares were traded at around $8.92 with a P/E ratio of 19 and P/S ratio of 0.7.

Highlight of Business Operations:

Gross profit for the three months ended May 2, 2009 was $21.9 million compared with $24.6 million for the three months ended May 3, 2008, a decrease of approximately $2.7 million, or 10.8%. As a percentage of net sales, gross margin decreased to 28.5% for the three months ended May 2, 2009 from 31.2% for the three months ended May 3, 2008. The reduction in gross margin as a percent of net sales was primarily driven by increased store occupancy costs partially offset by lower shipping costs.

As a result of the above factors, operating loss was $3.4 million in the three months ended May 2, 2009 compared with operating profit of $1.6 million in the three months ended May 3, 2008, a decrease of $5.1 million. As a percentage of net sales, operating loss was 4.5% in the three months ended May 2, 2009 compared with operating profit of 2.1% in the three months ended May 3, 2008.

Net loss was $1.7 million in the three months ended May 2, 2009 compared to a net income of $1.4 million in the three months ended May 3, 2008, a decrease of $3.0 million. As a percentage of net sales, net loss was 2.2% in the three months ended May 2, 2009 compared with net income of 1.7% in the three months ended May 3, 2008.

As of May 2, 2009, we held two $1.0 million Auction Rate Securities valued at $1.7 million, net of approximately $0.3 million temporary impairment charge. One of these $1.0 million securities failed to sell at its scheduled auction in March 2009. The interest rate for this security reset to a prescribed rate of 1.16%. Subsequent to May 2, 2009, the remaining $1.0 million security redeemed at par. We currently do not intend to hold the remaining security beyond its next auction date and will try to sell the security when its auction date comes up in March 2010. However, the current uncertainties in the credit markets have prevented us and other investors from liquidating holdings of auction rate securities because the amount of

Net cash used in investing activities was $22.4 million for the three months ended May 2, 2009, related to $6.8 million of capital expenditures for new store openings and existing store renovations and $15.6 million in net purchases of marketable securities. Net cash used in investing activities was $5.7 million for the three months ended May 3, 2008, related to $9.4 million of capital expenditures for new store openings and existing store renovations partially offset by the $3.7 million in net sales of marketable securities.

We have a credit agreement with Wells Fargo HSBC Trade Bank, N.A. The credit agreement provides us with a secured revolving credit facility until August 30, 2009 of up to $25.0 million. The secured revolving credit facility provides for the issuance of standby commercial letters of credit in an amount not to exceed $5.0 million outstanding at any time and with a term not to exceed 365 days, although the amount of borrowings available at any time under our secured revolving credit facility is reduced by the amount of standby letters of credit outstanding at that time. There were no outstanding borrowings under the secured revolving credit facility at May 2, 2009 or January 31, 2009. The Company had open letters of credit outstanding under our secured revolving credit facility of $1.8 million at May 2, 2009 and approximately $0.3 million at January 31, 2009. The secured revolving credit facility bears interest at floating rates based on the lower of the prime rate (3.25% at May 2, 2009) minus 0.50% or the LIBOR rate (1.88% at May 2, 2009), plus 1.00% for advances over $500,000 for a minimum of 30 days and a maximum of 180 days. The credit agreement contains a number of restrictions and covenants that generally limit our ability to, among other things, (1) incur additional debt, (2) undergo a change in ownership and (3) enter into certain transactions. The credit agreement also contains financial covenants that require us to meet certain specified financial tests and ratios, including, a minimum net income after taxes of $1.00, for any trailing twelve month period, a maximum total liabilities divided by tangible net worth of 1.15 and a minimum quick asset ratio of 1.0. Our two most restrictive covenants are our quick asset ratio that essentially precludes us from borrowing to the extent we were to have no cash, marketable securities or accounts receivable and our net income covenant that requires us make at least $1.00 in net income after taxes for any trailing twelve month period. All of our personal property, including, among other things, our inventory, equipment and fixtures, has been pledged to secure our obligations under the credit agreement. We must also provide financial information and statements to our lender. We were in compliance with all such covenants at January 31, 2009.

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