Zumiez Inc. — Q1 FY2024 Form 10-Q
Reporting period: 13 weeks ended May 4, 2024, compared with the 13 weeks ended April 29, 2023. Zumiez operates specialty retail and ecommerce businesses under the Zumiez, Blue Tomato, and Fast Times names. It operated 751 stores across the U.S., Europe, Canada, and Australia.
Financial performance
| Metric | Q1 FY2024 | Prior-year quarter | Change |
|---|---|---|---|
| Net sales | $177.4 million | $182.9 million | Down 3.0% |
| Gross profit / margin | $51.9 million / 29.3% | $49.4 million / 27.0% | Profit up 5.1%; margin up 230 bps |
| SG&A | $72.1 million / 40.6% of sales | $70.7 million / 38.7% of sales | Expense up 1.9%; sales ratio up 190 bps |
| Operating loss | $20.2 million | $21.4 million | Loss narrowed |
| Net loss / diluted loss per share | $16.8 million / $0.86 | $18.4 million / $0.96 | Loss narrowed |
| Cash used in operating activities | $18.6 million | $12.9 million | Cash outflow increased |
Gross-margin improvement reflected higher product margin and leverage in web shipping, distribution-center, and store-occupancy costs, plus a favorable mix comparison. SG&A rose due to incentive compensation, store wage rates and deleverage, employee-training timing, and non-store wages. Sales declined despite higher dollars per transaction, as transactions fell. Hardgoods, accessories, and footwear were weaker; men’s and women’s clothing partially offset declines. Europe and Australia sales together fell 10.8%; North America fell 0.9%.
Financial position and liquidity
- At May 4, cash and cash equivalents were $74.9 million and current marketable securities were $71.8 million, totaling $146.6 million. Cash, cash equivalents, and restricted cash totaled $83.7 million for cash-flow reporting purposes.
- Current assets were $321.0 million and current liabilities were $157.3 million. Inventory was $146.8 million, up from $128.8 million at fiscal year-end.
- No borrowings were outstanding when the $25 million Wells Fargo revolving facility was terminated on May 3, 2024. The company said available liquidity and operating cash flows should cover foreseeable operating needs and planned capital expenditures for at least 12 months.
- Operating lease liabilities totaled $214.2 million, including $59.2 million current and $155.0 million long-term. These are lease obligations, not borrowings under the terminated credit facility.
- Operating cash outflow was $18.6 million; investing activities provided $8.0 million, mainly from net sales and maturities of marketable securities, while financing activities provided $0.2 million.
Outlook, risks, and notable items
- Management expects FY2024 capital expenditures of approximately $14–$16 million and remains on track to open about 10 stores, alongside remodels and relocations. No full-year revenue or earnings guidance is provided in the filing.
- Management cited inflationary pressure on consumers, competition for discretionary spending, and category-specific challenges. It noted that overall sales trends had continued on a positive trajectory, while sales still declined in each market during the quarter.
- The company identified consumer confidence and spending, fashion and inventory risk, competition, labor and merchandise costs, foreign exchange, supply-chain disruptions, and seasonality among its risks. Sales and profitability are typically higher in the third and fourth quarters.
- Outstanding merchandise purchase orders were $221.6 million; most can be canceled before shipment, though certain private-label and international orders carry cancellation obligations.
- A California PAGA wage-and-hour action remains pending; Zumiez said it is investigating and intends to defend itself. The filing does not provide a clear estimate of potential liability.
- On June 5, 2024, after quarter-end, the board authorized repurchases of up to $25 million of common stock through June 30, 2025, subject to extension or shortening. No publicly announced repurchase program was in place during the quarter.
- Management reported effective disclosure controls as of May 4, 2024 and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether transaction trends and sales stabilize, especially in Europe and Australia and in hardgoods, accessories, and footwear.
- Whether gross-margin gains can be sustained while SG&A remains elevated relative to sales.
- Inventory growth, markdown exposure, and working-capital cash needs as the company enters its seasonally stronger periods.
- Execution and funding of the planned store openings and $14–$16 million capital-expenditure program.
- Potential outcomes or financial exposure from the PAGA litigation and the amount and timing of any share repurchases.