Zumiez Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended January 29, 2022, a 52-week year. This is an annual filing, not a standalone fourth-quarter report. Zumiez operates specialty retail stores and ecommerce businesses under Zumiez, Blue Tomato and Fast Times; it had 739 stores across the U.S., Canada, Europe and Australia at year-end.
Financial performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net sales | $1,183.9 million | $990.7 million | +19.5% |
| Gross profit / margin | $456.7 million / 38.6% | $350.0 million / 35.3% | Margin +330 bps |
| SG&A / % of sales | $298.9 million / 25.3% | $253.1 million / 25.5% | Expense +18.1%; rate down 20 bps |
| Operating profit / margin | $157.8 million / 13.3% | $96.9 million / 9.8% | Profit +62.8% |
| Net income | $119.3 million | $76.2 million | +56.5% |
| Diluted EPS | $4.85 | $3.00 | +61.7% |
| Cash from operations | $135.0 million | $138.4 million | Down $3.5 million |
Sales growth reflected fewer COVID-related store closures, U.S. stimulus benefits early in the year, customer demand and 18 net store additions. Stores were open about 97% of possible operating days, versus 78.4% in FY2020. Sales rose across North America and other international markets; men’s apparel was the largest growth category, while hardgoods was the only category with a year-over-year decline. Approximately 54% of annual sales occurred in the third and fourth quarters.
Gross-margin improvement was attributed to 140 basis points of occupancy-cost leverage, 110 basis points of product-margin improvement and 100 basis points of lower web fulfillment and shipping costs as sales shifted back toward stores. Management said FY2021 was the company’s sixth consecutive year of product-margin gains.
Liquidity, debt and capital allocation
- Cash, cash equivalents and current marketable securities totaled $294.5 million at year-end, down from $375.5 million. Working capital was $263.2 million, versus $339.8 million.
- Operating cash flow was $135.0 million. Capital expenditures were $15.7 million. The company repurchased $193.8 million of stock through cash financing activities; total fiscal-year repurchase cost was $198.4 million for 4.6 million shares.
- No borrowings were outstanding under the Wells Fargo revolving credit facility or UBS facility. The Wells Fargo facility provides up to $25 million through December 2023 and up to $35 million thereafter through December 2024, subject to terms and covenants.
- Operating lease liabilities totaled $267.9 million, including $63.6 million current; undiscounted future lease payments were $285.4 million. These commitments are significant despite no funded debt outstanding.
- At January 29, $83.3 million remained under the then-current $150 million repurchase authorization. The filing reports that, after year-end, the company repurchased another 1.5 million shares for $67.4 million, leaving $15.8 million available.
Outlook, commentary and risks
Management expected FY2022 sales to be roughly flat with FY2021, with year-over-year declines in the first and second quarters as the company lapped prior-year stimulus-driven comparisons, followed by growth in the second half. It planned approximately 34 new stores: 15 in North America, 14 in Europe and five in Australia. Planned capital expenditures were approximately $30–$32 million. Operating expenses were expected to grow faster than sales and operating profit was expected to decline. Management nevertheless expected reduced share count from repurchases to drive a double-digit increase in diluted EPS; no specific EPS target was provided.
Key risks include the ongoing effects of COVID-19 on stores, customers and supply chains; inflation in wages, freight and merchandise costs; changing fashion preferences and markdown exposure; intense retail and ecommerce competition; seasonality; foreign exchange exposure; reliance on foreign suppliers and distribution facilities; and cybersecurity, privacy, labor and regulatory risks. Management noted that it may not be able to fully recover cost inflation through higher prices.
Unusual items include a $2.8 million estimated settlement accrual for a California wage-and-hour class action, subject to court approval, and $2.2 million of long-lived asset impairment charges. The auditor issued an unqualified opinion on the financial statements and internal control over financial reporting. The filing identifies store-asset impairment as a critical audit matter. Management stated that current litigation was not expected to have a material adverse effect overall.
Important facts for investors to verify
- Whether FY2022 sales and operating-profit trends matched management’s flat-sales and lower-operating-profit outlook, especially after the first-half stimulus comparison.
- Whether product margins and inventory quality held up amid inflation, supply-chain constraints and potential markdowns.
- The realized cash and per-share effects of post-year-end buybacks, including remaining authorization and competing cash needs for store growth and leases.
- Progress and returns from the planned 34 store openings and the expected $30–$32 million capital spending program.
- Final court approval and payment of the California class-action settlement, and any material changes in impairment or other contingencies.
- Liquidity and investment-portfolio developments: cash and marketable securities declined, and the securities portfolio had $1.8 million of unrealized losses at year-end.