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Zumiez: Big brands hurting our sales and margins

By Tiffany Montgomery
November 20, 2008 3:50 PM

Zumiez CEO Rick Brooks said Thursday that the trend of new and smaller action sports brands performing better than large national brands continued in the third quarter.

During Zumiez's third quarter conference call, Brooks said the larger, more widely-distributed apparel brands continue to negatively impact Zumiez overall sales and margins, especially as Zumiez has increased promotions to compete with other teen retailers at the mall that are lowering prices on the big brands.

Apparel accounts for about 50 percent of Zumiez overall sales and continues to be the most challenging category, Brooks said. An analyst asked if the company was going back to the big brands and asking for help. Brooks said those conversations are steady and constant.

Total sales in the third quarter rose 7.9 percent to $112.2 million. Same-store sales fell 5.8 percent. Net income fell 16 percent to $6.8 million.

Zumiez executives sounded quite pessimistic during the call. Brooks called October the worst month in company history. As a result of the tough environment, the company slashed expenses, reduced capital expenditures for the rest of this year and next, and lowered full year sales and earnings guidance. The company is now forecasting revenue of $406 million to $410 million for the year vs. the previous estimate of $418 million to $425 million. It anticipates a same-store sales decline in the mid teens for the fourth quarter.

Zumiez has slowed its square footage growth for 2009 and is also holding off on signing new leases for 2010 until it sees how this holiday season turns out.

The only positive news out the conference call was the performance of footwear, which posted a low, double digit comp increase. Because footwear is doing well, the company is investing more in that area, executives said. Zumiez sees opportunities in footwear and accessories as mall competitors reduce those categories.

Skate hardgoods, which had been strong for the first six months of the year, posted a mid teens decline in comp sales, as did apparel. Accessories logged a negative, low-single digit decline.

Executives are concerned about the snow business, which started slow thus far in the fourth quarter. Snow hardgoods accounts for 8 percent of sales in the fourth quarter and snow jackets and pants, 10 percent. The company assumes snow sales will be soft this winter because it is a discretionary, high-ticket item. Zumiez is already cutting prices to move goods, it said, and is delaying placing its orders for next winter until it sees how this holiday season shapes up.

Zumiez stores in the Pacific Northwest and Rocky Mountains Plains took a turn for the worse during the third quarter, and stores in California, Arizona, Nevada and Florida continued to be weak. Stores in the Midwest and Northeast were the strongest performers.

The company ended the quarter with $65.5 million in cash and marketable securities.

 


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