Release Date: June 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Zumiez Inc (ZUMZ, Financial) reported first-quarter sales and earnings per share above the high end of their guidance range.
- North America comparable sales turned positive, driven by strong performance in the men's and women's business segments.
- Merchandise margins improved year-over-year, supported by a focus on full-price selling in Europe.
- The company has successfully launched over 150 new brands in 2023, with plans to continue this trend in 2024.
- Zumiez Inc (ZUMZ) has a strong balance sheet with more than $145 million in cash and no debt.
Negative Points
- Total sales for the first quarter were down 3% year-over-year, and comparable sales were down 2.4%.
- International sales, particularly in Europe, declined due to a focus on full-price selling, which pressured top-line revenue.
- The company reported a net loss of $16.8 million or $0.86 per share for the first quarter.
- SG&A expenses increased as a percentage of net sales, driven by higher annual incentive compensation and wage rate increases.
- Zumiez Inc (ZUMZ) plans to close 20 to 25 underperforming North American stores in 2024, indicating ongoing challenges in certain markets.
Q & A Highlights
Q: On the strength of the men's business and the positive trends in women's, is it largely brand-related or tied to specific categories? Can you provide more color on what's driving the improvement in apparel?
A: Rick Brooks, CEO: The improvement in both men's and women's is driven by two main factors: the performance of our private label, which has been strong for a couple of years, particularly in the bottoms business, and the introduction of new and emerging brands that are resonating well with customers.
Q: How does the current emergence of new brands compare to previous years when a trio of brands became powerful on the apparel side?
A: Rick Brooks, CEO: Historically, we see volume concentrate in the top brands and then deconcentrate as new brands emerge. The pandemic disrupted this pattern, but recent new brand launches have been strong. We expect to return to the historical pattern where new brands grow and some become top-tier brands over the next few years.
Q: Can you provide more details on the calendar shift in Q2 and its impact on sales?
A: Chris Work, CFO: The calendar shift will pull about $10 million of back-to-school volume into Q2, which equates to around 5% growth. This volume will come back in Q3, and we will also see a detriment in Q4 due to the absence of the 53rd week from 2023.
Q: What are your plans for managing inventory during the back-to-school period, and are there any trends you plan to capitalize on?
A: Rick Brooks, CEO: We plan to be aggressive in inventory positions for back-to-school, particularly in apparel categories. We expect the period to be promotional, but we will focus on leading trends, new brands, and leveraging private labels to offer value. Chris Work, CFO: This will be our third quarter in a row with inventory declines, and we are well-positioned to chase trends as they emerge.
Q: How do you plan to manage promotional or discounted merchandise during the back-to-school period?
A: Rick Brooks, CEO: We will focus on leading trends and new brands, using private labels and bundling efforts to offer value. This strategy not only provides value to customers but also benefits our margins and shareholders.
Q: Can you elaborate on the impact of the calendar shift on Q3 and Q4?
A: Chris Work, CFO: The majority of the $10 million shift will come back in Q3, and Q4 will see a detriment due to the absence of the 53rd week from 2023. It's important to focus on comparable sales as the key barometer for measuring business performance.
Q: How are you managing inventory levels given the current sales trends?
A: Chris Work, CFO: We are focused on managing inventory tightly, which is reflected in our product margin trajectory. We have the ability to chase trends, and our inventory positions are improving, particularly in men's, women's, and footwear categories, which together represent 75% of our business.
Q: What are your expectations for the full year, given the current trends and macro environment?
A: Chris Work, CFO: We expect total sales growth for the full year, driven by positive trends in men's and women's categories. We anticipate product margin growth and leveraging SG&A costs year-over-year, aiming to return to positive operating margins for the full year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
