Zumiez Q4 2025 Earnings Call Transcript

Quartr
Provided by Quartr
March 13, 2025

There are 4 speakers on the call.

Operator

Good afternoon, ladies and gentlemen, and welcome to Zumie Inc. Fourth Quarter Fiscal twenty twenty four 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 of this conference. Before we begin, we would like to remind everyone of the company's safe harbor language.

Operator

Today's conference call includes comments concerning Zumias Inc. Business outlook and contains forward looking statements. These forward looking statements and all other statements made on this call that are not based on historical facts are subject to risks 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 Zumie's filings with the SEC.

Operator

At this time, I would like to turn the call over to Rick Brooks, Chief Executive Officer. Mr. Brooks?

Speaker 1

Hello, and thank you everyone for joining us on today's call. With me today is Chris Work, our Chief Financial Officer. 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 1

Our fourth quarter results demonstrate meaningful progress on our efforts to improve profitability despite an unexpected lull on demand during the middle of the holiday season. Comparable sales increased 5.9% marking our third consecutive quarter of positive comparable sales growth. Total sales were $279,000,000 which was $7,000,000 below the midpoint of our initial guidance range and $2,000,000 above the high end of our revised guidance provided at the January. The overall shortfall to our original guidance was primarily driven by the lower than planned sales in mid to late December in our North America business. What is particularly encouraging about our fourth quarter performance was substantial improvement in operating profitability, Driven by significant gross margin expansion and meaningful reductions in operating expenses, operating profit more than doubled to $20,000,000 and EPS increased 95 to $0.78 after adjusting prior year numbers for the $41,100,000 1 time goodwill impairment charge worth $2.13 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 1

Looking at our performance by category, we continue to see strength in our core businesses. Our men's category maintained its positive momentum through year end, building growth for the fifth consecutive quarter. Our women's category, which has shown tremendous momentum since turning positive in Q1, continued to post strong results becoming our largest growth category for the quarter. Footwear also positively contributed for the third quarter in a row. While hard goods faced some pressure due to continued downturn in skate hard goods, this is partially offset by gains in our snow category.

Speaker 1

As we reflect on fiscal twenty twenty four, I'm pleased with the progress we've made recapturing a portion of the sales and earnings we've given back over the preceding couple of years and returning to positive operating profitability. That said, there is 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 will continue to focus on the following strategies: Accelerating global top line expansion through strategic investments to ensure we are winning with consumers. These strategies continue to focus on three key areas: Injecting assortments with newness. We successfully launched over 120 new brands in 2024 following the launch of 150 brands in 2023.

Speaker 1

These new brands constitute a larger portion of our sales this year compared to last year, demonstrating that they resonate with our customers. We recognize that our customers rely on Zumiez to discover new and unique products and we remain committed to continuing to fulfill that expectation. 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 five years ago. This growth demonstrates our ability to meet both trend and value conscious consumers' needs.

Speaker 1

And customer engagement, we 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. North America, these strategies have been the backbone of our improvement with comparable sales for the year up 6.2%. Beyond sales, we've also made meaningful progress improving our cost structure. In 2024, we closed 31 underperforming locations and implemented comprehensive operational efficiencies across our business. These include optimizing store labor through targeted staffing model adjustments, executing structural changes to reduce shipping and logistics costs, significantly reducing discount selling compared to previously elevated levels and driving overall expense management practices aimed at maximizing efficiency.

Speaker 1

These cost management issues are part of our broader effort to streamline operations and improve margin performance. With a more difficult backdrop, Europe sales were challenging in fiscal twenty twenty four with comparable sales down 4.1% for the year. However, sales trends improved each quarter throughout the year with the fourth quarter of twenty twenty four turning positive at 3.7%. We knew the top line would be a challenge. 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.

Speaker 1

Improved product margins and tight expense controls resulted in a smaller operating loss in 2024 despite the decline in sales. While there is still much hard work ahead, the improving sales trends, product margins and operating results indicate that we are making progress. While consumer purchasing patterns continue to be volatile and the macroeconomic environment uncertain, our path forward is clear. Stay the course and focus on bringing unique and trend right product to the customer with engagement initiatives that fueled our positive comparable sales growth and enhanced profitability in 2024. 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 1

We've demonstrated our ability to navigate challenging cycles and emerge stronger throughout our forty seven year history. I'm confident that we are on the right course to repeat this accomplishment. Before I turn the call over 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. With that, I'll turn the call over to Chris to discuss the financials.

Speaker 2

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 to date sales trends before providing some perspective on the full year. Net sales for the fourth quarter of twenty twenty four, which was a thirteen week period, decreased 0.9 to $279,200,000 compared to $281,800,000 in the fourth quarter of twenty twenty three, which was a fourteen week period. The decrease in total sales was driven by the incremental fifty third week in the prior year with approximately $12,000,000 Comparable sales for the thirteen week period ended 02/01/2025 compared to the same thirteen week period in the prior year increased 5.9%.

Speaker 2

Comparable sales exclude the impact of new stores, closed stores and the 50 week in the prior year and are generally a better measure of operating performance. From a regional perspective, comparing the thirteen week period in the current year to the fourteen week period in the prior year, North America net sales were $214,200,000 an increase of 0.8% from 2023. Other international net sales, which consists of Europe and Australia were $65,000,000 down 6.4% from last year. Excluding the impact of foreign currency translation, North America net sales increased 1.2% and other international net sales decreased 2.7% compared with 2023. Comparable sales for North America were up 7.2% marking the fourth consecutive quarter of comparable sales growth.

Speaker 2

Our other international comparable sales were up 1.9% for the quarter. From a category perspective, women's was our largest positive comping category, followed by men's and then footwear. Accessories was our largest negative comping category followed by hard goods. The consolidated increase in comparable sales was 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 unit retail, partially offset by a decrease in units per transaction.

Speaker 2

Fourth quarter gross profit was $101,000,000 compared to $96,700,000 in the fourth quarter of last year. Gross margin was 36.2% of sales for the quarter compared to 34.3% in the fourth quarter of twenty twenty three. 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. SG and A expense in the fourth quarter of twenty twenty four was $80,900,000 or 29% of net sales compared with 129,400,000 or 45.9% of net sales in 2023, which includes a $41,100,000 non cash goodwill impairment charge that resulted from our decision to slow store growth in Europe and focus on profitability. The sixteen ninety basis point decrease in SG and A expenses as a percent of net sales was driven by the following: fourteen seventy basis point benefit, driven primarily by the impact of goodwill impairment charges booked in 2023 related to Europe a 70 basis point of leverage in non wage store operating costs, 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.

Speaker 2

Operating income in the fourth quarter was $20,100,000 or 7.2% of net sales compared to the prior year operating loss of $32,800,000 or 11.6% of net sales inclusive of the $41,100,000 goodwill impairment charge. Net income for the fourth quarter was $14,800,000 or $0.78 per share. In the year ago period, we reported a net loss of $33,500,000 or $1.73 per share including the goodwill impairment charge, which on an after tax basis was $41,100,000 or $2.13 per share. Our effective tax rate for the current quarter was 26.1%. A year ago, we recorded a tax expense of $2,200,000 or 7% despite our pre tax operating loss due to the distribution of pre tax income across our different tax jurisdictions.

Speaker 2

Looking at our full year results, net sales for the fifty two weeks for fiscal twenty twenty four were $889,200,000 an increase of 1.6% from $875,500,000 for the fifty three weeks of fiscal twenty twenty three, despite one less week in 2024 and closures of 33 stores this past year. The fifty third week in 2023 was worth roughly $12,000,000 while the impact of closed stores was worth approximately $9,000,000 Comparable sales for the full year were up 4%. The consolidated increase in comparable sales was driven by an increase in dollars per transaction, partially offset by a decrease in transactions. Dollars per transaction were up for the year, driven by an increase in average unit retail and an increase in units per transaction. From a category perspective, for the full year, men's was our largest positive comping category, followed by women's and then footwear.

Speaker 2

Accessories was our largest negative comping category, followed by hard goods. From a regional perspective, North America net sales were $720,000,000 an increase of 3.2% from 2023. Other international net sales were $169,200,000 down 4.8% from last year. Excluding the impact of foreign currency translation, North America net sales increased 3.4% and other international net sales decreased 3.8% compared with 2023. Comparable sales for North America were up 6.2% and comparable sales for other international were down 4.8% for the full year.

Speaker 2

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 in web shipping costs, 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. SG and A expense was $301,100,000 or 33.9% of net sales for fiscal twenty twenty four compared to $345,700,000 or 39.5% of net sales in 2023. The five sixty basis point decrease as a percentage of net sales was driven by four eighty basis points due to the non cash goodwill impairment charge in 2023, '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.

Speaker 2

These benefits were partially offset by a 20 basis point increase in incentive compensation. Operating income in 2024 was $2,000,000 or 0.2% of net sales compared to an operating loss of $64,800,000 or 7.4% of net sales in the prior year inclusive of the $41,100,000 goodwill impairment charge. The fiscal twenty twenty four net loss was $1,700,000 or $0.09 per share compared to a net loss of $62,600,000 or $3.25 per share in the prior year including the non cash goodwill impairment charge booked in the fourth quarter of twenty twenty three worth $41,100,000 or $2.13 per share. Turning to the balance sheet, the business ended the year in a strong financial position. We had cash and current marketable securities of $147,600,000 as of 02/01/2025, compared to $171,600,000 as of 02/03/2024.

Speaker 2

The decrease in cash and current marketable securities over the last year was driven primarily by common stock repurchases of $25,200,000 and capital expenditures of $15,000,000 partially offset by cash flow from operations of $20,700,000 As of 02/01/2025, we have no debt on the balance sheet and continue to maintain our full unused credit facility. On March 12, the Board of Directors approved the repurchase of up to $25,000,000 of common stock. The repurchase program is expected to continue through 03/31/2026, unless the time period is extended or shortened by our Board of Directors. We ended the year with $146,600,000 in inventory, up $17,800,000 or 13.8% compared with $128,800,000 last year, driven primarily by our North America business. On a constant currency basis, our inventory levels were up 15.6% from last year.

Speaker 2

As we discussed in our third quarter earnings call, we pulled inventory receipts forward in the fourth quarter in anticipation of the tariffs planned to go into effect late in the quarter. This pull forward accounts for approximately $7,400,000 of the inventory increase at year end. Beyond that amount, our inventory is still higher than we would have anticipated, primarily due to the sales shortfall leading into the Christmas holiday. 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 twenty twenty five. Now to our first quarter to date results.

Speaker 2

Total sales for the four week period ended 03/01/2025 increased 1.7% compared to the four week period ended 03/02/2024. Our comparable sales increased 4.3% over that same period. From a regional perspective, North America net sales for the four week period ended 03/01/2025 increased 3.9% over the four week period ended 03/02/2024, while our other international business decreased 6.5%. Excluding the impact of foreign currency translation, North America net sales increased 4.2% and other international net sales decreased 3.1% compared with 2024. Comparable sales for North America increased 6.4% for the four week period ended 03/01/2025 compared to the same weeks in the prior year, while comparable sales for our other international business decreased 3.7%.

Speaker 2

From a category perspective, women's was our largest positive comping category followed by men's and then footwear. Hard goods was our largest negative comping category followed by accessories. 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. With respect to our outlook for the first quarter of fiscal twenty twenty five, I want to remind everyone that formulating our guidance involves some inherent uncertainty and complexity in estimating sales, product margin and earnings growth given the variety of internal and external factors that impact our performance.

Speaker 2

As our comparable sales results in early fiscal twenty twenty five 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. For the first quarter, we are anticipating total sales to be between $179,000,000 and $183,000,000 for the thirteen weeks ended 05/03/2025, representing growth of 1% to 3%. Comparable sales for the same period are expected to be between 35%. For the first quarter, we are expecting product margin to be down slightly to flat from the first quarter of last year. Consolidated operating loss for the first quarter is expected to be between negative $16,500,000 and negative $18,500,000 and we anticipate loss per share will be between a negative $0.72 and negative $0.82 compared with a loss of a negative $0.86 in the prior year.

Speaker 2

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. 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. After two difficult years of sales declines, fiscal twenty twenty four represented a stabilizing year with positive comparable sales growth each quarter in North America and our international business turning positive in the fourth quarter. While there is uncertainty in the macro environment that requires caution, we believe that we will grow total sales in fiscal twenty twenty five despite the closure of 33 stores in fiscal twenty twenty four and expected 20 stores in 2025.

Speaker 2

These closures will have a negative impact on growth in 2025 of approximately $14,700,000 We grew product margin by 70 basis points in 2024. We believe that 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 twenty twenty five. 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. We believe that we can hold our fiscal twenty twenty five SG and A costs relatively flat as a percentage of sales with our fiscal twenty twenty four results. We believe that we can accomplish this through continued focus on expense management and driving efficiencies while also continuing to invest in important long term strategic initiatives.

Speaker 2

With the previously mentioned assumptions, we believe we will increase operating margins in fiscal twenty twenty five. While effective tax rates are likely to fluctuate significantly by quarter, we anticipate that our full year effective tax rate will be roughly 60 to 70% in fiscal twenty twenty five. We are planning to open nine new stores during the year, including six in North America, 2 in Europe and one store in Australia. This compares to seven stores in 2024 and nineteen stores in 2023. We expect our capital expenditures for 2025 to be between $14,000,000 and $16,000,000 compared to $15,000,000 in fiscal twenty twenty four and $20,400,000 in 2023.

Speaker 2

We expect that depreciation and amortization excluding non cash lease expense will be approximately $21,000,000 down from $22,000,000 in the prior year. And we are currently projecting our diluted share count for the full year to be approximately 19,100,000.0 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.

Operator

Thank you. Our first question comes from the line of Mitsch Komitz with Seaport. Your line is open. Please go ahead.

Speaker 3

Yes. Thanks for taking my questions. I guess just starting off, just big picture, can you just kind of walk us through what you're seeing in terms of the impact of tariffs? How is that impacting your private label business, where you have direct exposure? And what are you seeing kind of across the brands and how they might be dealing with it from a pricing standpoint where you've got, I guess, more indirect exposure, just kind of big picture thoughts there?

Speaker 2

Yes. 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. Our current sourcing strategy is largely to work with our brands that represents just over 70% of our business and we're in the high 20s as a percent of the brands that we control within our own private label grouping of brands.

Speaker 2

So we're trying to be as diversified as possible. As we exited 2024, our North America receipts were more concentrated than we had hoped with China. They're right around 50%. I kind of hearken back to when we went through this before in the last administration, we were around 60% in 2018. We moved to about 45% in 2019 and then we got to 40% coming from China in 2020.

Speaker 2

Ultimately, this kind of landed in the high 30s. I think over the last four years since the first term of President Trump, we saw our private label grow a little bit in China just based on the speed and 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 with inventory, we also pulled some forward ahead of the tariffs. So we feel good about where we are in our immediate receipts through spring.

Speaker 2

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 I think the smartest thing we can do over the long term is just diversify as much as possible, so that we're able to move quickly should this continue into the future.

Speaker 3

That's helpful. Thanks. And then just as a follow-up question, because I know you're not giving specific guidance for '25, but you talked a little bit about leverage. I'm curious, what are your leverage points on like BDO versus SG and A? And then maybe could you also address what the flow through rate might look like assuming you could comp better than what those leverage points are?

Speaker 2

Sure. Yes. I mean, I think as we look at the entire year, what we did try to push is that we think we'll grow sales 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 we've closed a fair amount of stores. And the reason we feel comfortable with doing that is really looking at the trend lines of business.

Speaker 2

And certainly there's a lot of uncertainty out there. I want to make sure I preface any answer here with that because as we know uncertainty creates a little fear 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. From a leverage perspective, what we did say is we think that we've got good opportunity within gross margin to continue to grow product margin and leverage items like occupancy and some of our distribution costs. I think we've shown across 2024 some good movement there and we think we can continue to manage that into 2025.

Speaker 2

On the SG and A front, we talked about really probably SG and A growing more in line with sales and that we are saying growing sales, we're not talking about huge amounts at this point. But to your point, you're absolutely right. 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, I think we've done a good job over our last the two years of challenge 2022, '20 '20 '3 and now 2024 being a little more of a stabilization year of really trying to manage some of the SG and A expenses around store labor being our largest cost, some of the other store costs and then obviously corporate SG and A as well. I'm not going to say this has been easy.

Speaker 2

We all know there's been inflation in this area, wage inflation as well as other things that have had a higher cost. But we've tried to be smart and about how we manage hours in 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 in areas that do have a, I would say, sort of a fixed semi fixed amount with stores when you think about things like our field team that oversees stores, some of the areas of the corporate office that are more variable with the number of stores. We've had to make some difficult decisions and cutbacks there too, which has helped us manage SG and A. So 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.

Speaker 2

By high level of flow through, I would probably say 30% plus.

Speaker 3

Let me just real quick follow-up to that. Can you grow operating margin on like a low single digit comp, like a fairly low single digit comp? Yes. Okay. Thanks and good luck.

Operator

Thank you. And I would now like to hand the conference back over to Rick Brooks for any further remarks.

Speaker 1

All right. Thank you very much. As always, we look forward to hearing from you and your questions. So we look forward to reporting you on first quarter results later this year. Thanks, everybody.

Operator

This does conclude today's conference call. Thank you for participating and you may all disconnect. Everyone have a great day.

Powered by Quartr
Earnings Conference Call
Zumiez Q4 2025
00:00 / 00:00