Release Date: September 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Zumiez Inc (ZUMZ, Financial) reported stronger-than-anticipated performance in the second quarter, exceeding expectations.
- Total sales for the second quarter increased 8% year-over-year to $210 million, surpassing guidance.
- Men's and women's categories showed significant growth, with women's category posting strong double-digit growth.
- Comparable sales in North America were up 5.9%, indicating strong regional performance.
- The company has a strong balance sheet with more than $125 million in cash and no debt.
Negative Points
- International sales, particularly in Europe, declined, impacting overall performance.
- Hardgoods category experienced the largest negative comparable sales growth.
- The shift in the retail calendar will negatively impact third-quarter net sales growth.
- The company is closing approximately 25 underperforming stores in 2024, indicating challenges in certain locations.
- The macroeconomic environment in Europe remains challenging, affecting profitability and sales.
Q & A Highlights
Q: Rick, it sounds like the business really inflected well for back-to-school. Can you walk us through why that was? How much of that was the consumer showing up for events and you guys just taking advantage of that?
A: I think it's about momentum in our business. We've been seeing steady quarter-over-quarter improvement. This is driven by the strength of our private label business, new brands resonating with customers, and our sales teams offering value without cutting prices. There's a whole new look for young people, and our teams anticipated and executed well on this trend.
Q: Do you think you can hold that momentum through the gap between back-to-school and holiday? Is that embedded in the guide for the third quarter?
A: We expect to see quarter-to-quarter improvement in Q3 over Q2. We are guiding to about 7% to 9% in total sales, slightly below the run rate but still positive. The peaks have gotten stronger, and we expect the business to remain positive for the remainder of the quarter.
Q: On the European business, is the tougher comp performance mainly a function of the shift in strategy or a tougher macro environment?
A: It's definitely a tougher macro environment, particularly in important markets like Germany. We are seeing some trends play out positively, such as our private label performing well. However, our focus on curated and differentiated assortments may result in losing some less profitable sales in the interim, but we expect margin improvement.
Q: Can you unpack the hardgoods category for us and its impact on the overall business?
A: The skate hardgoods business saw a peak during the pandemic, making subsequent years tougher. We are currently at an all-time low in terms of penetration. However, some regions like Australia and Canada are starting to see positive results. We are hopeful to find the bottom in this category and see a potential halo effect once it inflects positively.
Q: Any color on how you're thinking about promotionality in the back half, given fewer selling days between Thanksgiving and Christmas?
A: The back-to-school season was promotional, and we expect the holiday season to be as well. However, we focus on delivering value without cutting prices, using bundling concepts and private label products to maintain margins. We aim to lead on trend and newness to support our full-price, full-margin strategy.
Q: As retailers face higher operating costs, including labor, what do you see regarding competitors in your core space exiting the business?
A: Higher labor costs are a challenge for us and other retailers. We are aggressively managing labor productivity and optimizing store operations. We believe we can drive operating margin results despite these challenges and continue to compete effectively in the market.
Q: Why wouldn't we expect a similar level of flow-through in the third quarter and balance of the year, given the positive comp and operating margin improvement?
A: The calendar shift impacts the third quarter, with $10 million shifting out of Q3 into Q2, affecting the bottom line by about $0.09 or $0.10. Despite this, we are seeing good flow-through and leverage in various areas, and we are working to refund incentives after a few years of not having much incentive at all.
Q: Is there any quantifiable margin impact from closing stores over the last two years? How do you see the U.S. fleet going forward?
A: The closures had minimal impact on the bottom line as they were mostly marginally profitable stores. We consider various factors like profitability, trade area impact, and center conditions when deciding on closures. We are managing the fleet to optimize performance and may reassess as comps turn positive.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
