Snowboarding

Teen retailers and especially mall retailers have had a tough year this year and Zumiez has has not escaped, however in the second quarter conference call held at 2 PM PST on August 21, 2008 CEO Rick Brooks and CFO Trevor Lang believe the company is doing very well compared to competitors.

Total net sales for the second quarter (13 weeks) ended August 2, 2008 increased by 12.5% to $92.3 million from $82.0 million reported in the second quarter ended August 4, 2007 (13 weeks). The company posted net income for the quarter of $2.7 million or $0.09 per diluted share versus $3.1 million or $0.11 per diluted share in the second quarter of the prior fiscal year. Comparable store sales decreased 1.7% for the second quarter of fiscal 2008 compared to an 11.6% increase in the second quarter of fiscal 2007.

Rick Brooks, President and Chief Executive Officer of Zumiez Inc., stated: “We continue to make positive strides in our ongoing efforts to give our customers a unique specialty retail experience, while controlling costs and effectively managing inventories during this very difficult operating environment. Due to this focus, we exceeded our earnings projection for the first six months of this year. We have opened 39 stores this year and continue to make the investments necessary to build the Zumiez chain to our goal of 800 stores.”

And here are some of the notes we pulled from the call:

• The thing thing that surprised us most is not news to anyone who follows the Zumiez stock. The company has no debt. None.

• Zumiez is focused on remaining true to the brand. “Our business model has the strength of being a branded business model,” Rick Brooks said. “We work with our brands to leverage inventories. We work very closely with the brands . . . we have a very dynamic process of moving product to where it is selling strongest.”
• “This is a very promotional environment,” Rick continued. “This macro economic climate is tough. That is making it much more price point. While I’m not going to comment on specific brand performance, this is how we see it: Those brands that we are carrying that are focusing on distribution in core shop are doing very well.. . . On the other hand there are other brands that have wider distribution outside the core retailers, brands that we’re finding are being price promoted by our competitors in the mall outside the core, and on those we’re having to be price promotional. The places we have to be promotional are with the brands that are in our non-core competitors.”
• The company believes that opening more stores is still the best use of its cash. They are completely focused on the 800 stores target and will open 57 new stores in the fiscal year.
• Performance in the stores was broken up regionally. “California, Nevada, Arizona, was rough. Texas, Illinois, Wisconsin performed nicely for us.”
• “I just want to be clear with the investment community that we feel very good with the returns that we are getting on our stores,” CFO Trevor Lang said.
• eCommerce was up 75 percent in the second quarter and 65 percent year to date. “Our ecommerce business is very strong, yet it is still a very small part of our business,” Brooks said. “We believe that there is a big opportunity to build that business over the next five years. We’re starting to do a number of things along that front.”
• Snowboard business still plays a major roll in quarter four. In October it is about 11 percent of sales and goes to 18 percent by the end of the quarter: “We’ve been doing the snowboard business for a long time,” Brooks said. “Over the last number of years we have taken the strategy that we buy well below what we think we’re going to sell. We chase the weather. Where it snows is where we move the product. Based on the results last year. We are going after the technology driven products at the high end. And at the other end we have shipped more pricepoint driven packages as we get into the season were we can move on some in the price issue.”
• There are no plans to de-emphasize snowboarding.
• Zumiez sales percentages breakdown: footwear 18%, accessory 18%, hardgoods (skate and snow) 14%, men’s apparel 33%, junior 15%, boys 2% percent.
• Investing in information technology organization, is high on the list. Zumiez thinks there are some strategic investments we will make there.
• The company is working to get better deals on real estate on a landlord-by-landlord basis. “We are one of the few growing retailers,” Brooks said. “I think we are a very attractive tenant for the landlords and we try to look at our landlords are partners. We are doing deals with the landlords that value our position and ability to generate sales.
• Sales per square foot is currently running at about $470 versus $500 last year. “We look at total flow through on the business,” Lang said. “We’ll look at our high-volume stores that do more than 800 spsf and we expand them so the sales per square foot may go down but the profitability goes up.
• Regarding the tough economic retail climate: “What we need is for the consumer to feel better,” Brook said. “And when that happens we’ll be doing better.”

And just as Brooks and Lang were about to answer a question regarding employee retention and turnover the Internet broadcast crashed mid response. The operator apologized and we disconnected.

[Link: Zumiez]

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