Zumiez - Earnings Call - Q1 2026

Executive Summary

• Q1 2026 revenue was $184.3M (+3.9% YoY) with comps +5.5% and North America comps +7.4%; EPS was $(0.79). Gross margin expanded 70 bps to 30.0%; excluding a $2.9M legal settlement (~$0.13 per share), management said consolidated results exceeded the high end of guidance for both sales and loss per share.
• Q2 2026 guidance: revenue $207–$214M, comps −1% to +3%, product margin up YoY, operating loss $(0.7)–$(4.0)M, and loss per share $(0.09)–$(0.24); pressures include lower interest income on reduced cash and a wider loss mix in Europe alongside FX headwinds.
• Strategic actions: 1.8M shares repurchased in Q1 at $13.82 (total $25.2M); new $15M authorization approved June 4, 2025 (through June 30, 2026). Quarter-end cash and marketable securities were $101.0M; no debt.
• Narrative/catalysts: resilient North America at full price selling, tariff mitigation via sourcing diversification (China exposure targeted to ~30% by year-end), and private label scaled to ~30% of Q1 sales, while Europe started slower and remains the key profit challenge.

What Went Well and What Went Wrong

What Went Well

• North America strength: comps +7.4% and outsized performance drove consolidated comp +5.5% despite tariff uncertainty; full-price selling supported margins.
• Gross margin expansion: Q1 gross margin rose to 30.0% (+70 bps YoY), driven by leverage and merchandising execution.
• Private label momentum and product newness: private label reached ~30% of Q1 sales (vs. ~28% in FY24), supported by strong new brand curation; “Consumers continue to respond positively to our merchandise assortments and shopping experience evidenced by strong full price selling” — Rick Brooks.

What Went Wrong

• Europe/International softness: other international net sales −0.2% YoY in Q1 and comps −2.3%; May comps in other international −14.8%, highlighting a slower start and FX/macro pressures.
• SG&A deleverage from one-time cost: SG&A was 40.8% (+20 bps YoY) due to a $2.9M legal settlement (~$0.13 per share); operating margin remained negative at −10.8%.
• Lower cash vs prior year: cash + marketable securities declined to $101.0M (from $146.6M) primarily due to repurchases and capex, pressuring interest income and contributing to guided EPS loss in Q2.

Transcript

Speaker 1

Good afternoon, ladies and gentlemen, and welcome to Zumiez's first quarter fiscal 2025 earnings conference call. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this call. Before we begin, I'd like to remind everyone of the company's safe harbor language. Today's conference call includes comments concerning Zumiez's business outlook and contains forward-looking statements. These forward-looking statements and all other statements that may be 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 Zumiez's filings with the SEC. At this time, I will turn the call over to Rick Brooks, Chief Executive Officer. Mr. Brooks.

Speaker 0

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 our first quarter performance and the evolving trade environment before touching on our strategic priorities for the remainder of 2025. Chris will then take you through the financials and our outlook for the balance of the year. After that, we'll open the call to your questions. I'm pleased to report that our first quarter results demonstrate the continued momentum we built throughout 2024, with our North American business proving resilient despite an increasingly complex macroeconomic backdrop. Comparable sales for the company grew 5.5%, marking our fourth consecutive quarter of positive comparable sales growth. This performance reflects the successful execution of our strategic initiatives and our team's ability to adapt quickly to changing market conditions.

What's particularly encouraging is that our results exceed the high end of our guidance ranges for both sales and profitability, excluding a one-time legal settlement that Chris will touch on later. Our strong full-price selling performance demonstrates that consumers continue to respond positively to our merchandise assortments and shopping experience, validating the investments we've made in product newness, private label expansion, and customer engagement. The resilience of our North American business gives me confidence in our ability to manage through the global trade environment. In response to changes in the landscape, we've taken decisive action to further diversify our sourcing base and expect to have meaningfully reduced our exposure to China by the end of 2025. This diversification, coupled with continued partnership with our manufacturers and vendors, as well as selective price adjustments, will help us offset the impact of tariffs on our business.

While the ultimate impact on consumer sentiment from ongoing trade negotiations remains uncertain, our proactive approach positions us to outperform the market regardless of how these dynamics evolve. As we progress through 2025, we remain focused on three strategic priorities. First, accelerating top-line expansion through strategic investments and winning with consumers. Our approach to injecting assortments with newness continues to resonate strongly with our customers. Following our successful launch of over 120 new brands in 2024 and 150 brands in 2023, we remain committed to bringing fresh, unique products to market that our customers can't find elsewhere. These newer brands now represent a meaningfully larger portion of our sales compared to historical levels, confirming that our curation strategy is working. Our private label expansion has also exceeded expectations, reaching nearly 28% of total sales in 2024 and increasing to 30% in the first quarter of 2025.

This is up from 23% in 2023 and just 11% five years ago. This growth demonstrates our team's ability to anticipate trends and deliver value-conscious options that resonate with our customer base, providing us with another important avenue for profitable growth. We continue to invest in customer engagement through best-in-class service both in stores and online. Our ongoing investments in training and technology are enabling us to connect with customers in increasingly personalized and relevant ways, strengthening our relationship that has been the foundation of our success for nearly five decades. Second, maintaining our disciplined focus on profitability across all markets. In North America, our focus on full-price selling has helped us maintain healthy margins by growing market share. Driving product margin, coupled with operational efficiencies we implemented throughout 2024, continue to drive meaningful results.

The closure of 3,100 performing locations, combined with comprehensive staffing model optimizations and structural cost reductions in shipping and logistics, has created a more streamlined and profitable operating model. In Europe, the market environment remains challenging. After making progress in 2024 in sales, product margin, and operating results, 2025 is off to a tougher start. With a slower start, we are actively working to drive the top line through new and unique product selection while also remaining focused on full-price selling and controlling costs. Third, leveraging our strong financial position to navigate uncertainty while investing in growth. Our balance sheet remains robust, with over $101 million in cash and current marketable securities at the end of the quarter, providing us with the flexibility to respond to both challenges and opportunities as they arise.

This financial strength has allowed us to continue investing in our strategic initiatives while also returning value to shareholders through our share repurchase program. The first quarter of this year, we bought back 1.8 million shares, or 9.4% of the company based on our year-end 2024 outstanding shares. In addition, today, we have announced a new buyback plan authorized by our board for an additional $15 million to continue driving long-term value for our shareholders. While we're operating in an environment marked by macroeconomic uncertainty and evolving trade dynamics, I'm confident in our ability to continue delivering value for all of our stakeholders. The strategies that have driven our success throughout the company's history remain as relevant today as ever, and our team's proven ability to adapt and execute gives me optimism about our prospects for the remainder of 2025. Our path forward is clear.

Stay focused on bringing unique, trend-right product to our customers through the engagement initiatives that have fueled our success while maintaining the operational discipline that has enhanced our profitability. We've demonstrated our ability to navigate challenging cycles before, and I'm confident we're well-positioned to continue that tradition. Before I turn the call to Chris, I want to thank our entire team for the continued dedication and adaptability in an environment that continues to change rapidly. The commitment to our culture and our customers remains the cornerstone of everything we accomplish, and I'm grateful for your efforts as we navigate this dynamic environment together. With that, I'll turn the call to Chris to discuss the financials.

Speaker 2

Thanks, Rick, and good afternoon, everyone. I'm going to start with a review of our first quarter results. I'll then provide an update on our second quarter-to-date sales trends. First quarter net sales are $184.3 million, up 3.9% from $177.4 million in the first quarter of 2024. Comparable sales were up 5.5% for the quarter. As Rick mentioned, the primary driver was our North America business, which showed outsized strength even as macroeconomic uncertainty spurred by global trade policy intensified during the period. For the first quarter, North America net sales were $149.7 million, an increase of 4.9% from 2024. Other international net sales, which consist of Europe and Australia, were $34.6 million, down 0.2% from last year. Excluding the impact of foreign currency translation, North America net sales increased 5.2%, and other international net sales decreased 0.1% year-over-year.

Comparable sales for North America were up 7.4%, marking the fifth consecutive quarter of comparable sales growth. After positive comparable sales in the important fourth quarter of 2024, our other international comparable sales turned negative in the first quarter, and were down 2.3%. From a category perspective, women's was our largest positive comping category, followed by men's, footwear, and then accessories. Hard goods was our only negative comping category. 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 and an increase in units per transaction. First quarter gross profit was $55.3 million, up 6.6% compared to $51.9 million in the first quarter of last year.

Gross profit as a percentage of sales was 30% for the quarter, compared with 29.3% in the first quarter of 2024. The 70 basis point increase in gross margin was primarily driven by leverage of our stochasticity costs on higher sales. SG&A expense was $75.2 million, or 40.8% of net sales in the first quarter, compared to $72.1 million, or 40.6% of net sales a year ago. The 20 basis point increase in SG&A expense was driven by a 160 basis point increase from a one-time $2.9 million legal cost associated with the settlement of a wage and hour lawsuit in California. This increase was partially offset by 70 basis points of leverage in non-wage store operating costs, 30 basis points of leverage in corporate costs, and 40 basis points of leverage across several other items, such as wages, training, and annual incentive compensation.

Operating loss in the first quarter of 2025 was $19.9 million, or 10.8% of net sales, compared with an operating loss of $20.2 million, or 11.3% of net sales last year. Net loss for the first quarter was $14.3 million, or $0.79 per share, inclusive of the previously mentioned one-time legal settlement worth $2.9 million, or $0.13 per share. This compares to a net loss of $16.8 million, or $0.86 per share for the first quarter of 2024. Our effective tax rate for the current quarter was 9.1%. Turning to the balance sheet, the business ended the quarter in a strong financial position. We had cash and current marketable securities of $101 million as of May 3, 2025, compared to $146.6 million as of May 4, 2024.

The decrease in cash and current marketable securities over the trailing 12 months was driven primarily by share repurchases and capital expenditures of $50.4 million and $14.7 million, respectively. This was partially offset by $17.2 million in cash provided by operating activities. As of May 3, 2025, we have no debt on the balance sheet. During the first quarter, we repurchased 1.8 million shares at an average cost, including commission, of $13.82 per share for a total cost of $25.2 million. This fully exhausted the buyback authorization approved by the board of directors in March. On June 4, the board of directors approved a new repurchase authorization for up to $15 million of common stock. This repurchase program is expected to continue through June 30, 2026, unless the time period is extended or shortened by our board of directors.

We ended the quarter with $149.9 million inventory, up 2.1% compared to the $146.8 million last year. On a constant currency basis, our inventory levels were up 1.1% from last year. As we discussed in our fourth quarter earnings call, we pulled inventory receipts forward in the fourth quarter of 2024 in anticipation of potential tariffs. As of the end of the first quarter, inventory is now in line with the prior year, and we anticipate ending fiscal 2025 down from the end of fiscal 2024 when we pulled forward the inventory. We feel good about the quality of our inventory on hand. Now, to our May sales results. Net sales for the four-week period ended May 31, 2025, increased 0.7% compared to the four-week period ended June 1, 2024. Comparable sales for the period increased 1.4% from the comparable period in the prior year.

From a regional perspective, net sales for our North America business for the four weeks ended May 31, 2025, increased 2.9% compared to the four-week period ending June 1, 2024, while our other international business decreased 9.6%. Excluding the impact of foreign currency translation, North America net sales for the period increased 3% from the prior year, while other international net sales decreased 12.7% compared to 2024. Comparable sales for North America increased 5.1% during the period, while comparable sales for other international decreased 14.8%. From a category perspective, women's was our largest positive comping category, followed by hard goods. Men's was our largest negative comping category, followed by footwear and accessories. The consolidated increase in comparable sales was driven by an increase in dollars per transaction, while comparable transactions were down during the period.

Dollars per transaction were up for the period, driven by an increase in average unit retail, partially offset by a slight decrease in units per transaction. With respect to the outlook for the second quarter of fiscal 2025, I want to remind everyone that formulating our guidance involves some inherent uncertainty and complexity in estimating sales, product margin, and earnings growth, given a variety of internal and external factors that impact our performance. This is even more pronounced in today's environment, with the current tariff situation that adds additional uncertainty and complexity to pricing and the potential to limit the ability of the consumer to continue to spend. That said, our recent trend line has been encouraging, and we feel that we have a good line of sight into the next couple of months, assuming no additional unexpected changes in the regulatory environment.

Based on quarter-to-date results, current tariff rates, and actions taken thus far to mitigate the increased cost from higher tariffs, we are anticipating total sales to be between $207 million and $214 million for the 13 weeks ending August 3, 2025, representing a -2% to 2% sales change from the prior year. Comparable sales growth for the same time period is expected to be between -1% and 3%. For the second quarter, we are expecting product margin to increase from the second quarter of last year. Consolidated operating loss for the second quarter is expected to be between $0.7 million and $4 million, compared to a loss of $0.4 million in the prior year. We anticipate loss per share will be between $0.09 and $0.24, compared to a loss of $0.04 in the prior year.

Overall, the high end of our guidance is showing a slightly lower operating profit from the core business on a low single-digit top-line growth. However, we are seeing pressure on total earnings due to a decline in interest income on lower cash levels and a slightly higher loss in Europe, which is further impacted by unfavorable foreign currency movements from the prior year. The mix of our loss shifting toward Europe creates an unfavorable effective tax rate, and our stock buyback has also added to the loss per share, given we have reduced overall share count. While our share buybacks will have a negative impact on earnings per share in the quarter, we expect it to have a positive impact on the full year and into the future as we generate earnings.

Regarding the full year 2025 results, as we have discussed, there has been increased uncertainty and volatility since March when we provided our initial thoughts for the full year. The announcement of tariffs, subsequent temporary suspension of reciprocal tariffs, and ongoing discussions on the topic have impacted supply chains and consumer confidence. If significant tariffs are reinstated, higher costs may lead to increased retail prices, potentially straining consumers' discretionary income and negatively affecting our results. While this all provides less visibility into the year than we had in March, we continue to trend on plan in North America through the end of May, and under the current circumstances and tariff levels, we believe that achieving our previously mentioned annual expectations for fiscal 2025 remains feasible.

To reiterate, we believe that we will see year-over-year sales growth in 2025, despite the closure of 33 stores in fiscal 2024 and 20 store closures planned in 2025, which combined are estimated to have a negative impact on sales of $14.7 million for the year. We anticipate modest year-over-year growth in product margin in 2025, on top of 70 basis points of improvement in fiscal 2024. We anticipate driving additional gross margin leverage through other expenses, occupancy, distribution, and logistics. Finally, we believe that we can hold our 2025 SG&A costs, excluding the one-time legal charges, relatively flat as a percentage of sales with our fiscal 2024 results through continued focus on expense management, while also investing in important long-term strategic initiatives. Combined, these expectations will drive a year-over-year increase in operating margins and net profit for fiscal 2025, bringing the company back to profitability.

Included in these fiscal 2025 expectations are the following: nine new store openings during the year, including six in North America, two in Europe, and one in Australia. We also plan to close approximately 20 stores in fiscal 2025, including up to 17 in the U.S., two in Canada, and one in Europe. We expect our capital expenditures for 2025 to be between $14 million and $16 million, compared to $15 million in fiscal 2024 and $20.4 million in 2023. We expect that depreciation and amortization, excluding non-cash lease expense, will be approximately $22 million in line with the prior year. While effective tax rates are likely to fluctuate significantly by quarter, we anticipate that our full effective tax rate will be roughly 50%-60% in fiscal 2025. We are currently projecting our diluted share count for the full year to be approximately 17.5 million shares.

This share count does not include the impact of any future share repurchases, including the repurchase approved on June 4, 2025, by the board of directors. With that, Operator, we would like to open the call for questions. Thank you. Ladies and gentlemen, to ask a question, please press star 11 on your telephone, then wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Mitch Kmetz with Seaport Research Partners. Your line is open. Yes, thanks for taking my questions. Let me begin on tariffs. I was hoping you could just walk us through that a little bit more. I think when we last met, China was at a 20% tariff. There was no universal tariff. Obviously, we know where that's gone.

Can you remind us what your China exposure is for the year? How are you seeing tariffs impact your COGS, both in terms of what you're doing with private label and what you're seeing in terms of pricing on the third party you use? What are you guys doing to mitigate the cost increases? Any more color on tariffs, I think, would be helpful. Yeah, sure, Mitch. I'll take a crack at this here and let Rick chime in if I've missed anything. As you would expect, this is something we've spent a lot of time on. Our teams have been super diligent. I give them just a ton of credit with how hard they've worked to kind of navigate through this. We started to work on this really last November as the landscape started to change. We got pretty proactive.

As we talked about in our March call, we brought in $7 million at cost from inventory that was coming from China to really try to get ahead of what might have been coming at us. This was really a benefit in the first quarter and probably will be throughout 2025. I think as you think about tariffs in our business, it's important to note that 30% of the product is our own private label. So we control the sourcing all the way through bringing it into the country. The other 70% is branded. So it requires us to work with our brands. To kind of break down your question, let me kind of tackle this from a sourcing perspective and a cost perspective. I think from a sourcing perspective, we've made a lot of progress in 2025.

When we ended 2024 and on our March call, we talked about having a fairly high concentration from China. We were roughly 50% of our product was coming out of China. That percentage has been pretty consistent in the first quarter. That said, we expect to see a meaningful decrease as we move through the year. In fact, our back-to-school, just kind of like-for-like time period, will be down about 50% year-over-year, and holiday, we expect the same. At this point, as we get towards the end of the year, we think we'll probably be 30% or even potentially lower in product coming out of China. Long-term, our goal in 2026 and beyond is to have no individual country represent more than 20% of our goods that we're sourcing. From a cost perspective, we've tried to be as proactive as possible.

As we have experienced an uptick because of tariffs, we've worked with our brand partners and our manufacturers to really rethink the production process and obviously where things are coming from to keep costs as low as possible. Where needed, we have looked at prices while also kind of evaluating how we do bundling, markdowns, package deals to really try to adequately offset the costs that we are incurring for tariffs. It is an evolving backdrop, but we're pretty encouraged by the work our teams have done to get us to this point, and we'll just keep monitoring where it goes from here. Just as a follow-up to that, you're still anticipating product margin to be up year-over-year, although I think you said modestly so.

Again, how does the tariffs on private label factor into that, especially given that you do still have pretty material exposure to China, even though you've been able to reduce that? Yep. Yeah. I mean, I think it comes back to kind of the different strategies we're putting into play, right? It's working with our brands, working with our manufacturers, trying to manage, first of all, mitigate any inbound costs we can get, whether it's just the way we work together, where we're sourcing it from, things like that. Secondly, it comes to looking at how we move private label through our stores. We have used it in a bundling and promotional aspect, and we've changed the way we thought through some of that. In certain circumstances, we have had to take some prices up. It is a combination of all of the above.

I think, Jeff or Mitch, when we put all that together, we think we'll have the opportunity to still grow product margin is our strategy at this point. As you know, even pre-tariffs, we felt like we had some opportunity ahead of that to grow product margin. It is modestly. I appreciate you saying that. We probably would have had a little bit more in our thought process if it wasn't for this environment, but we continue to think we can still grow product margin. I guess my last question just on other international. I know you've kind of slowed the unit growth in Europe to focus on profitability. Correct me if I'm wrong, but I would think that the profitability there really hinges on COP. I thought I heard you say that May COP for other international was down, I think you said 14.8%.

That's correct. Can you help me understand what's going on in other international, and what can you guys do strategically to show better results there? Sure. I'll take another crack at it and let Rick chime in. I mean, and let me just kind of back up a little bit to talk about the overall landscape. I mean, we did talk in 2024 about changing our strategy with Europe. We were really slowing growth and focusing on the core business with a key thought process of driving profitability and cash flow. We ended 2024. The business was about EUR 135 million. We were losing money, but less than 2023. That being said, we didn't make the progress we were hoping to make in 2024, but we were seeing a little bit of improvement there. The best we've ever done is really right pre-pandemic.

In 2019, we got very close to break even, but it's been a tough place to operate over the last five years. With just under 90 stores now in nine countries, we definitely have a solid base, but we've really got to push to profitability. That's been our focus. The results of 2025 have started slow. You're right about May, but Q1 was not where we wanted it to be either. As I think as we look at May and we look at what we've got planned in the second quarter guidance, we are planning other international down at this point, not nearly at the significance of what May was. I think when it's all said and done, we're going to see that there were some holiday shifts and some just timing changes that will moderate what May was.

To be clear, May was below our plan and where we thought we'd be. We have started a little bit of a hole here for 2025. I think the good news for especially our Europe business is what really matters in Europe is the fourth quarter. Kind of a little different than our North America business. Over 40% of our sales are here in the fourth quarter. We are very focused on transitioning to that. We have made some changes in how we are trying to do things. We are really focused on product and bringing newness into the business. The teams, I think, are totally aligned around that and how we drive the top line, how we comp in our existing units. At the same point, we are really trying to rationalize the business around growing margin.

Even last year, as we kind of saw sales tick back, we were able to get more profitable because we were able to expand margin. We have seen actually pretty favorable margin even in May when the results were tougher. We are managing expenses and then also managing inventory levels. Really all of the above. Inventory in Europe for the first quarter was down to where we were in the prior year. I think the teams continue to make some good strides there. Again, we are really trying to set ourselves up for the big volume in the back half of the year and specifically the fourth quarter. We continue to believe in the international theory of the trends are emerging globally or locally and moving globally. That includes emerging here in North America as well as in Europe.

I think it's the best way we can serve our customers long term. All that said, we're very focused on turning out around what the business is today. Great. Thank you. Thank you. As a reminder, ladies and gentlemen, that's star 11 to ask the question. I ensure no further questions in the queue. I would now like to turn the call back over to Rick for closing remarks. All right. Thank you. I just want to close up with a big thank you, everyone, for your interest in Zumiez and your continued interest in Zumiez. We're going to look forward to talking with you next September when we get a chance to share Q2 and early back-to-school results. Thank you, everyone. Much appreciated. Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.