Zumiez Inc. — FY2011 Form 10-K
Reporting period: Fiscal year ended January 28, 2012 (52 weeks). The filing is an annual report; fourth-quarter figures are included below because the request references Q4. Zumiez operated 444 stores in 38 U.S. states and Canada and sold action-sports apparel, footwear, equipment and accessories through stores and ecommerce.
Financial performance
| Metric | FY2011 | FY2010 | Change |
|---|---|---|---|
| Net sales | $555.9 million | $478.8 million | +16.1% |
| Gross profit / margin | $201.7 million / 36.3% | $167.8 million / 35.0% | Margin +1.3 percentage points |
| Operating profit / margin | $60.2 million / 10.8% | $37.4 million / 7.8% | Profit +61% |
| Net income | $37.4 million | $24.2 million | +54% |
| Diluted EPS | $1.20 | $0.79 | +52% |
| Comparable-store sales | +8.7% | +11.9% | Growth moderated |
| Operating cash flow | $68.1 million | $48.5 million | +$19.6 million |
Fourth quarter: Sales were $183.9 million versus $156.2 million; operating profit was $31.3 million versus $24.0 million; net income was $18.7 million versus $15.0 million; diluted EPS was $0.60 versus $0.49. Comparable-store sales rose 9.7%, compared with 13.0% in Q4 FY2010. Approximately 61% of FY2011 sales occurred in Q3 and Q4 combined.
Liquidity and capital: Cash, cash equivalents and current marketable securities totaled $172.8 million, up from $128.8 million; working capital was $197.9 million, up from $155.4 million. Cash and cash equivalents alone were $14.8 million. Investing activities used $68.1 million, including $25.5 million in capital expenditures and net purchases of marketable securities. The company had no revolver borrowings at year-end; its secured facility provided up to $25 million, with an accordion to $35 million, and expires September 2013. Total liabilities were $89.9 million, including $34.3 million of long-term liabilities; operating lease commitments were $414.0 million, not recorded as conventional debt on the balance sheet.
Material changes and drivers
- Sales growth reflected 8.7% comparable-store growth and a net addition of 44 stores. Transaction dollars increased, mainly from higher average unit retail, while comparable-store transactions and units per transaction declined.
- Gross margin improved 130 basis points, attributed to prior-year distribution-center exit costs, occupancy leverage, distribution efficiencies and product-margin improvement; higher ecommerce shipping costs partly offset gains.
- SG&A rose 8.4% in dollars but fell from 27.2% to 25.5% of sales, reflecting store expense efficiencies, lower corporate costs as a share of sales and the prior-year litigation charge.
- Ecommerce contributed 7.3% of sales, up from 4.7%. Store count increased from 400 to 444; 45 stores opened and one closed.
Outlook, risks and unusual items
- For FY2012, management expected sales to increase, supported by comparable-store growth, approximately 50 new stores (including up to 10 in Canada) and ecommerce. Management said earnings would increase if sales projections were achieved; no specific earnings or sales-growth target was provided.
- Management planned $42–$44 million of FY2012 capital expenditures, anticipated slightly higher inventory per square foot and expected cash, short-term investments and working capital to increase, with no revolver borrowing anticipated.
- Planned investments included ecommerce and supply-chain capabilities, a new Lynnwood home office and relocation of the ecommerce fulfillment center to Edwardsville, Kansas. The company expected $0.9–$1.0 million of relocation expenses and approximately $1.2 million for headquarters relocation and related lease costs.
- Key risks include fashion and inventory misjudgments, discretionary-spending and mall-traffic weakness, seasonality and adverse weather, rising merchandise/labor/freight costs, vendor and foreign-sourcing disruption, execution of store expansion and facility moves, and substantial lease obligations. Most merchandise is branded; cotton, labor and transportation cost increases may pressure margins.
- Investments included $159.3 million in state and local government securities and variable-rate demand notes, which carry credit and liquidity risks. A $0.9 million auction-rate security remained classified as a long-term investment and subject to limited liquidity.
- Prior-period presentation changes reclassified certain costs between SG&A and cost of goods sold. The company also revised prior cash-flow statements for an immaterial fixed-asset accrual error; reported revenue, operating profit, net income, cash balances and equity were unchanged. FY2010 included a $2.1 million employment-litigation settlement charge and distribution-center exit costs.
Most important facts for investors to verify
- Whether FY2012 comparable-store growth, new-store openings and Canadian expansion met management’s expectations, and whether growth translated into earnings.
- Whether margin gains persisted as product, cotton, labor and shipping costs changed, and as ecommerce grew.
- The composition, credit quality and liquidity of marketable securities, especially municipal securities, variable-rate demand notes and the auction-rate security.
- Cash generation and planned capital spending relative to $414.0 million of operating lease commitments and expansion requirements.
- Execution and costs of the Kansas fulfillment-center and Lynnwood headquarters relocations; the filing does not provide FY2012 results for these subsequent plans.