Zumiez Inc. (ZUMZ) filed Quarterly Report for the period ended 2009-10-31.
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 $358.83 million; its shares were traded at around $11.9 with a P/E ratio of 47.6 and P/S ratio of 0.88.
Highlight of Business Operations:
As a result of the above factors, operating profit was $8.4 million for the three months ended October 31, 2009 compared with operating profit $10.4 million for the three months ended November 1, 2008, a decrease of $2.0 million. As a percentage of net sales, operating profit was 7.4% for the three months ended October 31, 2009 compared with 9.3% for the three months ended November 1, 2008.
Selling, general and administrative (SG&A) expenses for the nine months ended October 31, 2009 were $87.0 million compared with $78.0 million in the nine months ended November 1, 2008, an increase of $9.0 million, or 11.5%. This increase was primarily the result of costs associated with opening new stores, approximately $1.3 million legal settlement accrual related to the Johnson case outlined in footnote three Litigation, $0.7 million in store impairment charges related to seven stores and to a lesser extent increases in infrastructure and administrative staff to support our growth. As a percentage of net sales, SG&A expenses increased to 31.6% for the nine months ended October 31, 2009 from 27.5% in the nine months ended November 1, 2008.
As a result, of the above factors, operating loss was $0.3 million for the nine months ended October 31, 2009 compared to operating profit of $15.9 million for the nine months ended November 1, 2008 a decrease of $16.2 million. As a percentage of net sales, operating loss was 0.1% for the nine months ended October 31, 2009 compared to operating profit of 5.7% for the nine months ended November 1, 2008.
As of October 31, 2009, we held a $1.0 million par value auction rate security valued at $0.8 million, net of approximately $0.2 million impairment charge. The $1.0 million security failed to sell at its scheduled auction in March 2009. The interest rate for the security reset to a prescribed tax-free rate of 1.16%. We previously had another $1.0 million auction rate security, but in May 2009, this security was redeemed at par. We currently do not intend to hold the security beyond the next auction date and will try to sell this security when the auction date comes up in March 2010. However, the uncertainties in the credit markets have prevented us and other investors from liquidating holdings of auction rate securities in auctions for these securities because the amount of securities submitted for sale has exceeded the amount of purchase orders. If the March 2010 auction fails, we plan to hold the security until the next auction date and the security coupon rate will reset to a prescribed failure rate. An unsuccessful auction could result in our holding the security beyond the next scheduled auction reset date if a secondary market does not develop; therefore, limiting the short-term liquidity of the investment. The security has been classified as a long term asset on our condensed consolidated balance sheet as of October 31, 2009.
Net cash used in investing activities was $41.1 million for the nine months ended October 31, 2009, related primarily to $15.2 million of capital expenditures for new store openings, existing store renovations, home office and distribution center capital projects and by $25.9 million in net purchases of marketable securities. Net cash used in investing activities was $21.0 million for the nine months ended November 1, 2008, related to $26.3 million of capital expenditures primarily for new store openings and existing store renovations and home office and distribution center capital projects, partially offset by $5.3 million in net sales of marketable securities.
On June 10, 2009, we renewed and amended our secured credit agreement with Wells Fargo HSBC Trade Bank, N.A., and the prior facility agreement was terminated. The credit agreement provides us with a secured revolving credit facility until September 1, 2011 of up to $25.0 million. The secured revolving credit facility provides for the issuance of a standby letter of credit in an amount not to exceed $5.0 million outstanding at any time and with a term not to exceed 365 days. The commercial line of credit provides for the issuance of a commercial letter of credit in an amount not to exceed $10.0 million and with terms not to exceed 120 days. The amount of borrowings available at any time under our secured revolving credit facility is reduced by the amount of standby and commercial letters of credit outstanding at that time. There were no outstanding borrowings under the secured revolving credit facility at October 31, 2009 or January 31, 2009. The Company had open commercial letters of credit outstanding under our secured revolving credit facility of $1.3 million at October 31, 2009 and approximately $0.3 million at January 31, 2009. The secured revolving credit facility bears interest at the Daily One Month LIBOR rate plus 1.00%. 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 maximum net loss not to exceed $10.0 million after taxes on a trailing four-quarter basis provided, that, there shall be added to net income all charges for impairment of goodwill and store assets not to exceed $5.0 million in aggregate, and a minimum quick ratio of 1.25. The quick ratio is defined as our cash and near cash equivalents plus certain defined receivables divided by the outstanding borrowings. 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 October 31, 2009.Chuck Royce of ROYCE & ASSOCIATES, Bruce Kovner of Caxton Associates.