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Zumiez ordering conservatively for 2008

By Tiffany Montgomery
May 23, 2008 7:26 AM

Zumiez executives said during the company's first quarter earnings conference call that they are maintaining their conservative outlook for the rest of the year.

Zumiez beat its earnings guidance in the first quarter by cutting expenses and controlling inventory. Same-store sales declined 0.8 percent.

Here are some details.

Financials: Sales rose 14.4 percent to $78.7 million. Net income fell to $1.4 million from $1.6 million the same period last year. Gross profit as a percentage of sales was 31.2 percent, down slightly from the same period last year. Zumiez ended the quarter with $68.2 million in cash and securities.

Transactions: Store transactions declined, but units per transaction and dollars per transaction increased.

Inventory: Inventory per square foot declined by 8 percent. When Zumiez first saw the slowdown in November, merchandise teams immediately began lowering their open to buy plans. CEO Rich Brooks said Zumiez benefits because its model is based on branded goods produced by outside vendors. That allows Zumiez to not take an order, cancel orders, have vendors participate in markdowns or return goods.

Best categories
: Skate hardgoods, boys apparel and shoes.

Worst categories: mens and womens apparel.

More on footwear: While better than some other categories, it still comped slightly negative. That is an improvement, however. Zumiez executives attributed this to three things: trend right shoes, especially with color; easier comparisons; and PacSun exiting the shoe business.

Tough markets: California, Arizona, Florida and Nevada combined posted negative same-store sales. Those states account for 31 percent of sales, or 29 percent of all stores. If those states combined had posted a flat comp, total company same-store sales would have increased 2.5 percent. Zumiez believes business in those states will remain challenging. In the long term, Zumiez still believes in the markets and will open 20 of its 57 new stores this year in those areas.

Strong markets: Texas, Illinois, Wisconsin and New Jersey.

Second half better than first half: The company believes sales will pick up in the back half of the year. Executives base this on their belief that: Zumiez is trend right; holiday will happen to some degree; and footwear will get a boost during back to school and holiday.

Guidance: Zumiez reaffirmed its guidance for the year. Sales should range from $430 million to $445 million. The company is assuming flat to a low single-digit comp increase for the year. Earnings per share should be 90 to 93 cents.

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