Zumiez Inc. — Form 10-Q Summary
Reporting period: Quarter ended October 30, 2021. Comparisons are to the quarter ended October 31, 2020; nine-month comparisons are to the corresponding prior-year period. Zumiez operates Zumiez, Blue Tomato and Fast Times, with 733 stores across the U.S., Canada, Europe and Australia, in addition to ecommerce.
Financial performance
| Metric | Quarter | Nine months |
|---|---|---|
| Net sales | $289.5 million, up 6.8% | $837.2 million, up 27.0% |
| Gross profit / margin | $114.7 million / 39.6%, versus 39.0% | $322.8 million / 38.6%, versus 33.4% |
| Operating profit / margin | $39.8 million / 13.8%, versus 14.0% | $106.1 million / 12.7%, versus 6.5% |
| Net income | $30.7 million, versus $29.1 million | $81.1 million, versus $33.4 million |
| Diluted EPS | $1.25, versus $1.16 | $3.20, versus $1.32 |
| Operating cash flow | Not provided for the quarter | $71.9 million, versus $81.8 million |
Quarterly sales growth reflected current-trend demand, more stores open than in the prior-year period, and a more normalized U.S. back-to-school season. Nine-month growth also benefited from prior-year pandemic-related store closures and domestic economic stimulus. Quarterly gross margin improved on product margin and lower web shipping and impairment costs, partly offset by higher inventory shrinkage. Nine-month margin gains reflected fixed-cost leverage and improved product margin. SG&A rose 10.1% in the quarter, faster than sales, taking its sales ratio to 25.8% from 25.0%; for nine months, SG&A rose 22.3%, but its ratio declined to 25.9% from 26.9%.
Liquidity, cash flow and capital
- At October 30, cash and cash equivalents were $75.5 million and marketable securities were $262.5 million, together $338.1 million. Current assets were $546.9 million versus current liabilities of $217.6 million.
- No borrowings were outstanding under either credit facility. The Wells Fargo revolving facility provides up to $25 million through December 1, 2023, and up to $35 million thereafter through December 1, 2024; availability is reduced by letters of credit.
- Nine-month operating cash flow was $71.9 million. Inventory increased $41.7 million in the cash-flow reconciliation; cash paid for operating leases was $59.1 million. Investing activities provided $26.2 million, while financing activities used $96.2 million, principally for repurchases.
- The company repurchased 2.482 million shares during the nine months for $102.6 million, at an average $41.32 per share. A further 0.5 million shares costing $23.1 million were repurchased after quarter-end. The September authorization was up to $150 million; $63.2 million remained after those subsequent purchases.
- Operating lease liabilities totaled $284.9 million, including $64.4 million current. Merchandise purchase orders were approximately $229.9 million, generally cancellable before shipment subject to stated exceptions.
Outlook, commentary and risks
- Management expected fiscal 2021 capital expenditures of approximately $19–$21 million and remained on track to open approximately 23 stores during the year, including remodels and relocations. It expected available liquidity and borrowing capacity to cover foreseeable operating needs and planned capital expenditures for at least 12 months. No sales or earnings guidance is provided in the filing.
- Management attributed sales gains to trend execution and store reopenings, and identified higher average unit retail as a contributor to increased dollars per transaction. It also cited higher store wages, corporate costs, and reduced government subsidies as quarterly SG&A pressures.
- COVID-19, potential store closures, supply-chain disruption and seasonal demand remain significant uncertainties. Other stated risks include changing fashion preferences, inventory markdowns or shrinkage, freight and labor cost inflation, competition, foreign exchange, and dependence on vendors and mall traffic.
- A California wage-and-hour class action reached a resolution in principle subject to court approval. The company recorded an estimated $2.8 million settlement expense in nine-month SG&A. It also recorded $2.1 million of operating-lease asset impairment losses during the nine months.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. It said there were no material changes to the risk factors in its prior Form 10-K.
Most important facts to verify
- Whether sales and margins remain strong after accounting for prior-year pandemic comparisons and seasonal effects.
- Inventory levels and availability, shrinkage, product margins, and exposure to freight, labor and supply-chain costs.
- Operating cash flow and working-capital trends, particularly inventory growth and lease cash payments.
- Remaining share-repurchase authorization, cash and marketable-securities balances, and compliance with credit-facility covenants.
- Final court approval and payment terms for the $2.8 million settlement, and progress on planned store openings and capital spending.