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Tiffany Montgomery
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Zumiez says it has admired Active for years; says shorts business difficult

By Tiffany Montgomery
May 21, 2009 4:35 PM

Zumiez CEO Rick Brooks touched briefly on the company's proposal to acquire Active Ride Shop in bankruptcy court during an earnings conference call this afternoon.

Brooks said Zumiez has admired Active for many years, but cautioned that the proposed acquisition is in the early stages and Zumiez is just starting the due diligence process. He said there is no guarantee of the outcome, and declined to address the matter further.

The company also downgraded its expectations for the second quarter after three weeks of weak sales so far in May. Every category is down in May, and Brooks said seasonal categories such as boardshorts and shorts are particularly weak. Zumiez had planned the shorts business down, and it is even weaker than expected, Brooks said. Consumers are choosing to wear items they already have and Zumiez has also been hurt by competitors taking steep markdowns and appearing to sell goods below cost, Brooks said. (See related story on PacSun earnings and how the chain is discounting swim and boardshorts.)

Zumiez CFO Trevor Lang described some competitors' markdowns on branded boardshorts that started at $50 and a few weeks later are discounted to $20 as a "losing strategy" that is only training shoppers to wait for a couple weeks for lower prices.

Zumiez said its strategy is to work with vendors to ensure there are a variety of price points in the stores and get higher initial markups in the beginning so it doesn't have to slash prices.

For the quarter, Zumiez recorded a lower than expected loss of $1.7 million due to tight controls on inventory, expenses and capital expenditures and stronger than expected product margins. In the first quarter of 2008, the company recorded net income of $1.4 million.

Total sales declined 2.4 percent to $76.8 million. Same-store sales fell 15.3 percent.

Footwear continues to be the best-performing category, and apparel the weakest. Juniors' apparel is particularly tough.

Zumiez ended the quarter with $81.1 million in cash and marketable securities.

In the second quarter, Zumiez expects sales of $78 million to $82 million with same-store sales declining in the low-to-mid 20 percent range. The company expects to record a loss of 14 to 17 cents per share.

While the volatility in sales has returned so far in the second quarter, Brooks did say there was "less panic in the air with consumers." They appear to be shopping when they have a reason, such as Easter, but are not shopping as much in non-peak periods.

 


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