Zumiez Inc. — Q1 fiscal 2021 Form 10-Q
Reporting period: 13 weeks ended May 1, 2021. Amounts are in U.S. dollars; financial statement amounts are in millions unless noted. Zumiez operated 722 stores across the U.S., Canada, Europe and Australia. Results are unaudited.
Financial performance
| Metric | Q1 FY2021 | Q1 FY2020 | Change / context |
|---|---|---|---|
| Net sales | $279.1 | $137.8 | Up 102.6% |
| Gross profit / margin | $103.2 / 37.0% | $23.7 / 17.2% | Margin up 19.8 percentage points |
| SG&A / sales | $68.9 / 24.7% | $51.6 / 37.4% | SG&A up 33.5%; ratio down 12.7 points |
| Operating profit (loss) | $34.3 | ($27.8) | Returned to operating profit |
| Net income (loss) | $26.4 | ($21.1) | Diluted EPS: $1.03 vs. ($0.84) |
| Cash from (used in) operations | $26.9 | ($17.5) | Improved $44.5 |
- Management attributed the sales increase primarily to store reopenings compared with widespread pandemic closures in the prior-year quarter, strength in current trends and U.S. economic stimulus. Stores were open for 93.4% of possible days versus 50.2% a year earlier. The comparison is therefore materially affected by the prior-year disruption.
- Sales increased across regions; U.S. sales were $238.8 million, Canada $9.9 million, Europe $26.3 million and Australia $4.2 million. Foreign exchange added $3.9 million to reported sales.
- Gross-margin expansion reflected fixed-cost leverage, including 12.0 points from store occupancy, plus improved product margin and leverage in web fulfillment, distribution and shipping costs. Management also cited leverage in store and corporate expenses as supporting lower SG&A as a share of sales.
- Impairment losses were $2.1 million, related to operating lease right-of-use assets, versus $1.5 million in the prior-year quarter ($1.2 million of lease-asset and $0.3 million of fixed-asset impairment).
Cash, liquidity and obligations
- At May 1, 2021, cash and cash equivalents were $81.5 million and marketable securities were $318.9 million, totaling $400.4 million. Total current assets were $566.9 million and current liabilities $193.2 million.
- Cash, cash equivalents and restricted cash totaled $88.7 million, up $8.0 million from the start of the quarter. Investing activities used $21.3 million, including net purchases of marketable securities and $2.8 million of capital expenditures. Financing activities provided $1.6 million.
- No borrowings were outstanding under either the $35 million Wells Fargo facility or the UBS letter-of-credit facility. The Wells Fargo facility matures December 7, 2021 and has financial maintenance covenants.
- Operating lease liabilities totaled $306.0 million, including $67.4 million current and $238.6 million long-term. The filing reports $328.8 million of minimum lease payments including imputed interest.
- Merchandise purchase orders were $275.1 million. Most could be canceled before shipment, although specified private-label and international orders carry cancellation repayment obligations.
Outlook, risks and contingencies
- Management expected fiscal 2021 capital expenditures of approximately $20–$22 million, primarily for leasehold improvements and fixtures, and remained on track to open approximately 22 stores. It stated that available liquidity and expected operating cash flows should cover foreseeable operations and planned capital expenditures for at least the next 12 months.
- No sales, earnings or comparable-sales guidance was provided. Quarterly results are seasonal, with sales and profitability typically higher in the third and fourth quarters; management cautioned that interim results are not necessarily indicative of full-year results.
- COVID-19 remained a material uncertainty: renewed restrictions or closures, consumer behavior, economic conditions and supply-chain disruption could affect sales, operations and liquidity. Other cited risks include fashion and inventory execution, competition, vendor and freight costs, labor costs, foreign exchange, mall traffic, cybersecurity and international operations.
- A California wage-and-hour putative class action remains pending. The company said it could not estimate the ultimate outcome or a reasonably possible loss; mediation was scheduled for June 23, 2021. The company also disclosed ordinary-course litigation and self-insurance reserves of $2.1 million.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. It reported no material changes to the risk factors in its prior Form 10-K.
Important facts for investors to verify
- How much of the sharp year-over-year recovery reflects reopening and the unusually weak pandemic comparison, versus underlying comparable-sales growth; the filing does not provide a clear comparable-sales figure here.
- Whether sales and margins remain resilient as pandemic-related reopening effects and economic stimulus fade, and as costs for freight, labor and merchandise change.
- Execution of the approximately 22 planned store openings and $20–$22 million capital expenditure plan, alongside substantial lease and purchase commitments.
- Updates on the California wage-and-hour case and any resulting loss exposure.
- The Wells Fargo facility’s December 2021 maturity, renewal or replacement, and ongoing compliance with its covenants.
- The filing states that a $100 million share-repurchase authorization was approved in December 2020 and that no purchases had been made under that program as of May 1, 2021. Separately, 10,800 shares were acquired for employee tax withholding, not under the public program.