Zumiez Earnings Call: Growth Amid Challenges

Zumiez ((ZUMZ)) has held its Q4 earnings call. Read on for the main highlights of the call.

During Zumiez’s recent earnings call, the company expressed a generally positive sentiment, highlighting several key achievements and strategic initiatives. The call underscored positive trends in comparable sales growth and operating profitability, alongside strategic moves like expanding their private label offerings. However, challenges were acknowledged, particularly in international markets and holiday season sales, which fell short of expectations. Despite these hurdles, Zumiez’s strong cash position and margin improvements were emphasized as positive aspects, though concerns were raised about increased inventory levels and ongoing store closures.

Positive Comparable Sales Growth

Zumiez reported a notable 5.9% increase in comparable sales for the fourth quarter, marking the third consecutive quarter of positive growth. This consistent upward trend highlights the company’s ability to drive sales despite a challenging retail environment.

Significant Improvement in Operating Profitability

Operating profit more than doubled to $20 million, with earnings per share (EPS) increasing by 95% to $0.78 after adjustments. This significant improvement reflects Zumiez’s effective cost management and operational efficiencies.

Strong Performance in Core Categories

The men’s and women’s categories demonstrated strong momentum, with women’s becoming the largest growth category for the quarter. This indicates a successful alignment with consumer preferences and a robust product offering.

Private Label Expansion

Zumiez’s private label business grew to nearly 28% of total sales, up from 23% in 2023. This expansion underscores the company’s strategic focus on enhancing its brand portfolio and capturing higher margins.

Gross Margin Expansion

The company achieved a gross margin increase of 190 basis points to 36.2%, driven by improvements in product margin and reduced web shipping costs. This reflects Zumiez’s ability to optimize its cost structure effectively.

SG&A Expense Reduction

SG&A expenses decreased by 1,690 basis points, with significant contributions from cost management and the absence of previous goodwill impairment charges. This reduction highlights Zumiez’s commitment to maintaining a lean operational model.

Strong Cash Position

Zumiez ended the year with a robust cash and current marketable securities position of $147.6 million and no debt on the balance sheet. This strong financial footing provides the company with flexibility for future investments and strategic initiatives.

Sales Shortfall During Holiday Season

Despite overall positive trends, total sales were $7 million below the midpoint of initial guidance due to lower than planned sales in mid to late December in North America. This shortfall highlights the challenges faced during the critical holiday shopping period.

Challenges in International Markets

International net sales decreased by 6.4% in the fourth quarter, with Europe experiencing a 4.1% decline in comparable sales for the year. These challenges underscore the difficulties in maintaining growth in diverse global markets.

Increased Inventory Levels

Inventory levels rose by 13.8%, driven by tariff-related inventory pull-forward and sales shortfalls. This increase presents a challenge in managing stock efficiently and aligning with sales forecasts.

Continued Store Closures

Zumiez closed 31 underperforming locations in 2024 and plans to close an additional 20 stores in 2025. This strategic move aims to optimize the store portfolio and focus on more profitable locations.

Forward-Looking Guidance

Looking ahead, Zumiez provided optimistic guidance for the upcoming year. The company anticipates sales growth of 1% to 3% in Q1 2025, with comparable sales expected to rise between 3% and 5%. For fiscal 2025, Zumiez aims to grow total sales despite the planned closure of 20 stores, with expectations of further leverage in gross margin and stable SG&A costs. The company plans capital expenditures between $14 million and $16 million, focusing on strategic investments, private label expansion, and enhanced customer engagement.

In conclusion, Zumiez’s earnings call painted a picture of a company navigating both opportunities and challenges. The overall sentiment was positive, with notable achievements in sales growth and profitability. However, the company remains vigilant in addressing international market challenges and managing inventory levels. With strategic initiatives in place, Zumiez is poised for continued growth and operational efficiency in the coming year.