Zumiez Inc. (NASDAQ:ZUMZ) Q1 2024 Earnings Convention Name June 6, 2024 5:00 PM ET
Firm Members
Rick Brooks – CEOChris Work – CFO
Convention Name Members
Mitch Kummetz – SeaportRichard Magnusen – B. Riley
Operator
Good afternoon girls and gents and welcome to the Zumiez Inc. First Quarter Fiscal 2024 Earnings Convention Name. Presently, all members are in a listen-only mode. We’ll conduct a question-and-answer session in direction of the top of this convention.
Earlier than we start, I might wish to remind everybody of the corporate’s Secure Harbor language. In the present day’s convention name consists of feedback regarding Zumiez Inc. enterprise outlook and incorporates forward-looking statements. These forward-looking statements and all different statements which may be made on this name that aren’t based mostly on historic info are topic to threat and uncertainties. Precise outcomes might differ materially.
Extra data regarding quite a lot of elements that might trigger precise outcomes to vary materially from the knowledge that will likely be mentioned is accessible in Zumiez’ filings with the SEC.
Presently, I’ll flip the decision over to Rick Brooks, Chief Govt Officer. Mr. Brooks?
Rick Brooks
Good day, and thanks everybody for becoming a member of us on at the moment’s name. With me at the moment is Chris Work, our Chief Monetary Officer. I am going to start with a couple of remarks about our first quarter efficiency earlier than bearing on our strategic priorities for 2024. Chris will then take you thru the financials and our outlook for the stability of the yr. After that, we’ll open the decision to your questions.
Our first quarter efficiency represented an encouraging begin to 2024. Whereas whole gross sales of $177 million have been down 3% from the identical quarter final yr, each gross sales and earnings per share have been above the high-end of our steering vary exhibiting continued enchancment in year-over-year tendencies and demonstrating our progress in positioning the enterprise for development.
First quarter top-line outcomes have been pushed by North America as comparable gross sales for the area inflected constructive. This efficiency was led by our males’s enterprise, which was up year-over-year for the second consecutive quarter after accelerating from its constructive end to fiscal 2023. Our girls’s enterprise additionally contributed to gross sales efficiency turning constructive for the quarter. As anticipated, hardgoods remained beneath strain. Giving again some on Quarter 4’s enchancment, as we exited the snow season.
Total, we skilled will increase in each common unit retail and items per transaction for the primary three months of fiscal 2024, which was offset by a decline in transactions. In the meantime, merchandise margins have been increased than a yr in the past and forward of quarterly steering as our heightened give attention to driving full worth promoting in Europe fueled our consolidated core product margin development. This helped drive the general enchancment on our bottom-line outcomes regardless of our gross sales decline to a lack of $0.86 per share in comparison with a lack of $0.96 per share final yr. That is meaningfully higher than our steering of a lack of $1.09 to $1.19 per share.
Our first quarter outcomes are an additional indication that we’re progressing in direction of constructive comparable gross sales and improved profitability. That stated, we acknowledge that we nonetheless have a substantial quantity of labor forward of us to attain each the degrees of top-line income and bottom-line profitability that we count on from the enterprise. As we proceed to navigate a difficult retail surroundings, we keep targeted on objects inside our management to develop gross sales and drive the enterprise again to its historic working efficiency and past.
As shared on our fourth quarter name in March, our focus continues to be the next methods; First, we’re targeting reinvigorating our top-line by way of investments to make sure we proceed to win with shoppers. A few of these initiatives embody infusing our product assortments with recent choices. We launched over 100 manufacturers in 2022 and over 150 manufacturers in 2023 with plans to launch comparable ranges in 2024. We’re already seeing our newly launched manufacturers up to now couple of years, accounting for a bigger portion of present gross sales than now we have seen traditionally, indicating they’re resonating properly with our prospects.
We’re additionally increasing our Non-public Label model portfolio this yr. Non-public Label represented roughly 20% — 23% of gross sales in 2023, up from 18% in 2022 and 13% in 2021. This development showcases our staff’s potential to capitalize on each pattern and worth acutely aware shoppers, offering one other avenue for development. And we’re sustaining our best-in-class service in shops and on-line with continued funding in coaching and know-how. Mixed, these efforts goal to boost our buyer relationships and interact with them in additional personalised and related methods.
Together with these new top-line initiatives, we’re enhancing our give attention to profitability, each in Europe and in North America. In Europe, our plan includes a pivot from our development technique. We now have slowed retailer enlargement this yr, and as an alternative we’ll give attention to enhancing the productiveness of practically 90 shops throughout 9 nations and our pan-European internet enterprise that at present serve the European market. With a give attention to full worth promoting for our present footprint, we consider we will unlock the potential for the enterprise and create worth as we work by way of what has been a tough cycle in Europe.
There is no such thing as a doubt that tendencies emerge domestically and develop globally and our present penetration of the related markets is a major benefit to Zumiez over the long-term. Total, we consider we will obtain profitability in Europe with this new focus as now we have achieved in different worldwide markets like Canada and Australia. Past Europe, we’re targeted on profitability in different markets as properly. In 2023, we closed 18 underperforming North American shops and count on to shut a further 20 to 25 areas in 2024.
Because of this, we decreased subject and company staffing ranges to align with the decreased retailer rely. We’re additionally additional optimizing retailer labor by way of a number of initiatives, together with changes to staffing fashions at decrease quantity shops. We now have made structural adjustments with transport and logistic prices company-wide, decreased low cost promoting in contrast with final yr’s elevated ranges and proceed to implement different cost-saving alternatives in lots of areas all through the group.
Whereas we’ll not be capable to enhance earnings on unfavourable gross sales outcomes over the long-term, is a mix of those initiatives that helped us cut back the loss per share within the first quarter regardless of the gross sales decline. Total, these changes in our working technique, mixed with our robust stability sheet with greater than $145 million in money, place us properly to navigate the present surroundings and emerge a stronger and extra worthwhile firm.
Earlier than I flip the decision over to Chris, I simply want to thank every of our staff members for his or her onerous work and dedication. Your collective efforts have been the important thing to our continued progress this quarter, and I am really appreciative to all you do. I look ahead to additional advancing our strategic goals within the yr forward, as we work towards delivering higher worth for our shareholders.
With that, I am going to flip the decision over to Chris to debate the financials.
Chris Work
Thanks, Rick and good afternoon, everybody. I’ll begin with a evaluation of our first quarter outcomes. I am going to then present an replace on our Could gross sales tendencies and a few perspective on how we’re excited about the total yr. First quarter web gross sales have been $177.4 million, down 3% from $182.9 million within the first quarter of 2023. Comparable gross sales have been down 2.4% for the quarter.
As Rick talked about, our North America enterprise comparable gross sales have been up year-over-year, marking the primary time we have seen development within the area since 2021. This was offset by a decline in worldwide gross sales, as we put higher emphasis on full worth promoting in Europe, which benefited margins however pressured our top-line income. From a regional perspective, North America web gross sales have been $142.7 million, a lower of 0.9% from 2023. Different worldwide web gross sales which consists of Europe and Australia have been $34.7 million down 10.8% from final yr.
Excluding the impression of overseas foreign money translation, North America web gross sales decreased 0.9% and different worldwide web gross sales decreased 10.6% year-over-year. Comparable gross sales for North America have been up 0.3% and comparable gross sales for Different Worldwide have been down 13% for the quarter. From a class perspective, males’s with our largest constructive comping class, adopted by girls’s. Hardgoods with our largest unfavourable comping class, adopted by Equipment and Footwear.
The consolidated lower in comparable gross sales was pushed by a lower in transactions, partially offset by a rise in {dollars} per transaction. {Dollars} per transaction have been up for the quarter, pushed by a rise in common unit retail and a rise in items per transaction. First quarter gross revenue was $51.9 million in comparison with $49.4 million within the first quarter of final yr. Gross revenue as a share of gross sales was 29.3% for the quarter in contrast with 27% within the first quarter of 2023.
The 230 foundation level enhance in gross margin was primarily pushed by an enchancment of 70 foundation factors in product margin. 70 foundation factors of leverage in transport prices, 20 foundation factors of leverage in distribution middle prices, 20 foundation factors of leverage in retailer occupancy prices, and a good thing about 60 foundation factors associated to a combination shift away from service and associated transport income within the prior yr’s outcomes, which carried a unfavourable margin throughout the prior yr quarter.
SG&A expense was $72.1 million or 40.6% of web gross sales within the first quarter in comparison with $70.7 million or 38.7% of web gross sales a yr in the past. The 190 foundation level enhance in SG&A bills as a p.c of web gross sales resulted from the next: 60 foundation factors enhance in annual incentive compensation, 50 foundation factors resulting from timing of worker coaching that’s anticipated to be a profit within the second quarter. 50 foundation factors resulting from non-store wages and 40 foundation factors resulting from retailer wages tied to each deleverage on decrease gross sales, in addition to wage price will increase.
Working loss within the first quarter of 2024 was $20.2 million or 11.4% of web gross sales in contrast with working lack of $21.4 million or 11.7% web gross sales final yr. Web loss for the primary quarter was $16.8 million or $0.86 per share. This compares to a web lack of $18.4 million or $0.96 per share for the primary quarter of 2023. Our efficient tax price for the primary quarter of 2024 was a 14.4% profit in contrast with a 12.6% profit within the yr in the past interval.
Turning to the stability sheet. The enterprise ended the quarter in a robust monetary place. We had money and present marketable securities of $146.6 million as of Could 4, 2024 in comparison with $155.3 million as of April 29, 2023. The $8.7 million enhance in money and present marketable safe — sorry, $8.7 million lower in money and present marketable securities over the trailing 12 months was pushed primarily by capital expenditures of $17.5 million offset by $9.1 million in money supplied by working actions.
As of Could 4, 2024, now we have no debt on the stability sheet. On June 5, 2024, the Board authorized the repurchase of as much as 25 million of widespread inventory. The repurchase program is anticipated to proceed by way of June 30, 2025 except the time interval is prolonged or shortened by our Board of Administrators. We ended the quarter with $146.8 million in stock, down 0.7% in contrast with $147.9 million final yr. On a relentless foreign money foundation, our stock ranges have been down 0.1% from final yr.
Given the gross sales backdrop, we’re proud of our ending stock stability for the primary quarter and I count on to proceed to usher in newness, as we transfer into the necessary back-to-school season and all through 2024. Now to our fiscal Could gross sales outcomes. Web gross sales for the 4 week interval ended June 1, 2024, elevated 1.8% in comparison with the 4 week interval ended Could 27, 2023. Comparable gross sales for the 4 week interval ended June 1, 2024, have been down 0.2% from a comparable interval within the prior yr.
From a regional perspective, web gross sales for our North America enterprise for the 4 weeks ended June 1, 2024, elevated 2.5% in comparison with the 4 week interval ended Could 27, 2023, whereas our different worldwide enterprise decreased 1.1%. Excluding the impression of overseas foreign money translation, North America web gross sales for the 4 weeks ended June 1, 2024 elevated 2.6% from the prior yr, whereas Different Worldwide web gross sales decreased 0.4% in contrast with 2023. Comparable gross sales for North America elevated 1.5% for the 4 week interval ended June 1, 2024 in comparison with the identical weeks within the prior yr. whereas comparable gross sales for our Worldwide enterprise declined 7.3%.
From a class perspective, in fiscal Could 2024, males’s was our largest constructive comparable gross sales development class adopted by girls’s. The accent class was our largest decline in comparable gross sales, adopted by hardgoods and footwear. The comparable gross sales lower was pushed by a lower in transactions, partially offset by a rise in {dollars} per transaction. {Dollars} per transaction elevated for the 4 week interval, resulting from a rise in common unit retail and a rise in items per transaction.
With respect to our outlook for the second quarter of fiscal 2023, I need to remind everybody that formulating our steering includes some inherent uncertainty and complexity in estimated gross sales, product margin and earnings development given the number of inside and exterior elements that impression our efficiency. We’re anticipating whole gross sales for the second quarter to be between $199 million and $204 million or 2.5% to five% gross sales enhance.
The second quarter will profit from the calendar shift, which can pull one week of heavier back-to-school quantity into the second quarter and out of the third quarter. Adjusting for this shift, we’re estimating second quarter gross sales to be unfavourable low single digits to flat for the quarter when in comparison with the identical week within the prior yr. We count on our second quarter 2024 product margins will likely be barely constructive. Consolidated working loss as a p.c of gross sales for the second quarter is anticipated to be between unfavourable 4.5% and unfavourable 3% and we anticipate our loss per share will likely be between unfavourable $0.30 and unfavourable $0.40 in comparison with a lack of unfavourable $0.44 within the prior yr.
As we contemplate the total yr outlook, we nonetheless consider there to be uncertainty and volatility within the macro surroundings. Given this, we’ll chorus from giving particular monetary steering, however do need to share our expectations for the yr which might be unchanged from our March launch earlier this yr. We now have skilled a number of unfavourable gross sales tendencies over the previous two years, pushed by the pandemic, inflation, competitors for the discretionary greenback, unfavourable model tendencies and basic world instability.
Given the magnitude of the multiyear decline, we consider that we’re starting to see the impression of these unfavourable enterprise tendencies average, and our present outcomes are exhibiting that new tendencies are taking maintain. This consists of our males’s class being constructive throughout the final two quarters and our girls’s class turning constructive within the first quarter. Presently, we consider we will construct upon these tendencies all through 2024 and see whole gross sales development for the total yr.
After two years of inauspicious efficiency in product margin, we consider that with a extra secure gross sales surroundings, we’ll develop product margin in 2024. With gross sales development in 2024, we anticipate that we’ll leverage SG&A prices year-over-year past the profit we’ll obtain of transferring previous the $41.1 million goodwill impairment cost we recorded within the fourth quarter of 2023. With the beforehand talked about assumptions, we consider we’ll return to constructive working margins for the total yr, whereas efficient tax charges are prone to fluctuate considerably by quarter, we anticipate that our full yr efficient tax price will likely be roughly 47% in fiscal 2024.
We’re planning to open 10 new shops throughout the yr, together with three in North America, three in Europe and 4 shops in Australia. That is down from 19 shops in 2023 and 32 shops in 2022, as we give attention to optimizing our present footprint. We’re planning to shut roughly 20 to 25 shops in fiscal 2024 with most of our closures in North America. The variety of closures may go up or down, relying on the working leads to every location, in addition to our potential to work with our landlord companions.
We count on our capital expenditures for 2024 to be between $14 million and $16 million in comparison with $20.4 million in fiscal 2023 and $25.6 million in fiscal 2022. The discount is primarily resulting from fewer deliberate retailer openings. We count on that depreciation and amortization, excluding non-cash lease expense, will likely be roughly $23 million and in step with the prior yr. We’re at present projecting our diluted share rely for the total yr to be roughly 19.8 million shares. Any shares repurchased throughout the yr will cut back the share rely from this estimate. And with that, operator we want to open the decision up to your questions.
Query-and-Reply Session
Operator
[Operator Instructions] Our first query comes from the road of Mitch Kummetz of Seaport.
Mitch Kummetz
Yeah. Thanks for taking my questions. Rick, on the power of the lads’s enterprise and now you are seeing some positives on girls’s. Is it largely model associated? Or is it utilized to any specific classes? Are you able to simply possibly present slightly bit extra coloration on what’s taking place attire to the place you are seeing the advance there?
Rick Brooks
Certain. Mitch, I am glad to try this. And I’ll let you know, it is actually the identical for each males’s and girls’s. There are actually two issues driving the advance in our enterprise. It’s the efficiency of our Non-public Label relative to pattern. I believe our groups have simply — we have achieved only a actually good job there. [Private Label] (ph) for a few years in a row now. And it continues to resonate. I consider that what we’re doing is admittedly taking share on — significantly within the bottoms enterprise out there. So I believe that is been actually robust.
And the second factor is in attire is new manufacturers, is the freshness of the providing that we’re providing with new and rising manufacturers out there. It is each these issues for each males’s and girls’s [matures] (ph), what actually is driving the enterprise is newness and being on the pattern cycles. And it is actually been — that is the place we’re actually seeing the traction.
Mitch Kummetz
After which on the brand new model facet of it, if I recall accurately, a number of years in the past you had kind of a [trio] (ph) of manufacturers that basically emerged to develop into fairly highly effective on the attire facet. Like how does this stack as much as that? Like do you see kind of the identical trajectory that we’re simply early innings? Or is there any kind of takeaways from that that may inform you as to form of what’s taking place right here?
Rick Brooks
Certain, Mitch, and I can form of take it away extra broadly as a result of the previous few years have been fairly loopy about how we need to have a look at them. However sometimes, what we have seen traditionally as we have seen ourselves focus quantity within the prime 10 and prime 20 manufacturers after which deconcentrate as new manufacturers come up and we lose quantity from those which might be trending down. After which what we discover is which of these new manufacturers develop into the following huge manufacturers after which we reconcentrate quantity again within the prime 10 and prime 20 vendor base.
So for me, that is in step with that historic sample now, the place we actually had a dearth of latest manufacturers throughout the pandemic. I believe, that was positively as Chris stated, there’s a myriad of issues over the previous few years that made our enterprise powerful. That’s one other one in every of them that I might say was a problem popping out of the pandemic.
And so we simply did not have that pool of latest manufacturers that — and none of these manufacturers that did launch then have actually labored in any respect for us. It’s actually the power has been within the final two years and significantly final yr, with the manufacturers we have launched. So I count on that we’re going to correctly now return to that form of sample. And as I stated within the feedback, we’re seeing that the place these new manufacturers are at, they’re traditionally forward of tempo relative to what we have seen in this type of now rising and concentrating now — they’re going to develop, and we’ll discover out which a type of develop into actually top-tier manufacturers right here over the following couple of years.
Mitch Kummetz
After which, Chris, you talked about the calendar shift in 2Q. By my math, it appears to be like such as you’re speaking about $10 million. Does that sound about proper? And may you additionally — I do know you are not giving 3Q steering, however I might guess, an equal, if not possibly greater hit to the third quarter. Are you able to possibly deal with that in order that we get our fashions proper?
Chris Work
Sure. Sure, comfortable to try this. I imply, after we have a look at the yr and what’s remaining within the yr, your quantity round $10 million is just about spot on. It really works out to be proper round 5% of development simply tied to the calendar shift. Once more, that is back-to-school weeks transferring into the second quarter because the calendar shifted with the transferring previous the 53rd week. The overwhelming majority of that or truly all of that may actually come again within the third quarter.
After which as everyone knows, within the fourth quarter, we simply have one other detriment as a result of the 53rd week goes away from – we’re having an additional week in 2023 that we do not have in 2024. So these are the principle calendar shifts that we’ll expertise right here. I’ll level out, as you have a look at Could outcomes, it’s in all probability higher to give attention to the comp in Could as properly. You will see slightly bit of truly simply the amount shift even begins in these Could reported comps or reported gross sales tendencies. So comparable gross sales are the true key barometer to measure the enterprise.
Mitch Kummetz
All proper. Thanks guys. Good luck.
Rick Brooks
Thanks Mitch.
Operator
Thanks. Our subsequent query comes from the road of Richard Magnusen of B. Riley.
Richard Magnusen
Good day. Properly, thanks for taking our name. First, are you able to present extra particulars round your plans to handle stock throughout back-to-school, any technique for — though you probably did point out that you just’re specializing in full worth any technique on managing any kind of promotional or discounted merchandise packages all through that interval? After which additional are there any excellent tendencies that you just consider you may capitalize on that [end of period] (ph).
Rick Brooks
All proper. I am going to begin after which Chris can add on. So first, sure, we’re going to — we consider now we have some issues which might be actually working. And you will see us be aggressive in these areas, appropriately aggressive on stock positions throughout these durations. And once more I believe our groups have achieved whether or not you’re looking right here on the stock outcomes on the finish of Q1 or by way of final yr. I believe our staff doing a very good job managing inventories, however we’re going to go — we will make the suitable investments in stock that we consider we must always base on what’s driving the enterprise ahead. And naturally, again to high school, these attire classes are extra necessary to us, on a relative foundation when it comes to combine.
So sure, we will likely be making investments there, however I believe now we have good and applicable threat mitigation methods in place for these investments. However we consider truly we’ve obtained, good alternative there to drive quantity relative to taking some stock positions. We do additionally, although, count on that back-to-school be as promotional as ever. And I believe that we’ll see our opponents be historically in all probability extra promotional than we’re. However what we will do is we will do what we do for patrons, I believe, rather well, which is lead on pattern, have to chill new manufacturers in place after which use our Non-public Label and our Bundling efforts to supply worth as we bundle transactions for patrons.
And I believe that is the best way we all the time foresee we will actually add that worth for our shopper base. Make them some good offers and [narrow] (ph) the non-public label enterprise to try this. So with that, once more however that is motion additive to margin if we will do this. So it might be a great worth for the client, nevertheless it’s additionally a great worth for us and for our shareholders. In order that’s form of our pondering and the way we’re excited about back-to-school at this level. Chris, I am going to allow you to add the rest?
Chris Work
Sure. The one factor I might add is as we quantify the numbers, this may be our third quarter in a row we have seen stock declines. I believe the groups are actually targeted on managing stock at tight ranges. You are seeing that in each the product margin trajectory we had within the first quarter in addition to what we’re forecasting right here for the second quarter. And the very last thing I’d simply add to what Rick is saying is simply this concept that now we have the flexibility to chase.
I believe that is one thing that our purchasing groups have achieved a great job of their administration of stock to have the ability to actually discover tendencies right here and chase. And what’s distinctive about our present pattern line is, once more, whereas not fairly the place we need to be but by any means, it continues to get higher. We’re seeing that development, as we have talked about right here on this name in males’s and girls’s. We’re seeing one thing like footwear that’s down low-single digits, not down as considerably as what we have seen over the past couple of years. And the stock positions are getting in a greater spot.
So then you definately take all three of these collectively, and also you’re actually speaking about 75% of our enterprise. And that is necessary as a result of if we glance concerning the overwhelming majority of our now 45-plus years that we have operated, we have operated throughout these 5 departments, and it is uncommon that we see all of them comp constructive. However right here, we’re in a spot the place we’re beginning to see 75% of the enterprise in a very great place. And so in a spot that we consider we will hopefully speed up as we transfer by way of the yr. So proud of the place the stock stands comfortable that now we have the flexibility to chase as we see tendencies which might be actually working right here and — I believe we have got some good model companions behind us which might be able to chase as properly.
Richard Magnusen
All proper. Properly, thanks. I get again into the queue.
Operator
Thanks. [Operator Instructions] I might now like to show the convention again to Rick Brooks for closing remarks. Sir?
Rick Brooks
Thanks. And once more, simply I need to supply my appreciation for everybody’s curiosity in Zumiez and our continued problem to work by way of what’s been a very difficult yr over the previous few years, and I believe we’re feeling good about our quarter-to-quarter tendencies, and we have been wanting ahead once more, discuss to you in September. Thanks, all people.
Operator
This concludes at the moment’s convention name. Thanks for collaborating. Chances are you’ll now disconnect.