Zumiez Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended February 3, 2024 (53 weeks), compared with the 52-week fiscal year ended January 28, 2023. The filing is an annual report; it also reports that fourth-quarter sales increased 0.6% including the extra week, but declined by a low-single-digit percentage excluding it.
Business context and performance
Zumiez operates specialty retail stores and ecommerce businesses under the Zumiez, Blue Tomato and Fast Times names, selling apparel, footwear, accessories and hardgoods. It had 756 stores at year-end across the U.S., Canada, Europe and Australia. It opened 19 stores and permanently closed 21 during FY2023.
Management described FY2023 as the second challenging year following record sales in FY2021. Sales trends improved sequentially during FY2023, but full-year sales remained below the prior year and below FY2019 levels. The company attributed pressure to inflation’s effect on customer discretionary spending, competition for consumer spending and weakness in certain categories.
Financial metrics
| Metric | FY2023 | FY2022 |
|---|---|---|
| Net sales | $875.5 million | $958.4 million |
| Gross profit / gross margin | $280.9 million / 32.1% | $324.7 million / 33.9% |
| Operating income (loss) / margin | ($64.8 million) / (7.4%) | $31.1 million / 3.2% |
| Net income (loss) | ($62.6 million) | $21.0 million |
| Diluted earnings (loss) per share | ($3.25) | $1.08 |
| Cash provided by (used in) operations | $14.8 million | ($0.4 million) |
| Capital expenditures | $20.4 million | $25.6 million |
- Net sales fell 8.6%. North America sales declined 13.1%; international sales outside North America rose 14.0%. Foreign exchange added $2.5 million to reported FY2023 sales.
- Gross margin declined 180 basis points, reflecting 130 basis points of occupancy-cost deleverage and a 70-basis-point decline in product margin, partly offset by 20 basis points of distribution efficiencies.
- SG&A rose 17.7% to $345.7 million, or 39.5% of sales, including a $41.1 million Blue Tomato goodwill impairment. The company also recorded $2.9 million of long-lived asset impairment.
- Cash, cash equivalents and current marketable securities totaled $171.6 million at year-end, versus $173.5 million a year earlier. Working capital was $182.5 million, down from $194.4 million.
- There were no borrowings outstanding under the $25 million secured revolving credit facility at year-end. Total operating lease liabilities were $220.8 million; undiscounted future lease payments were $240.1 million.
Changes, outlook and notable items
All merchandise categories had lower comparable sales year over year. Footwear was the largest declining category, followed by women’s, accessories, hardgoods and men’s. Management said men’s sales turned positive during the back-to-school period and fourth quarter, with emerging brands contributing to momentum. Private-label merchandise increased to 23.0% of sales from 18.4% in FY2022.
For FY2024, management plans to prioritize same-store sales, customer experience, operational efficiency and a return to profitability. It expects to open approximately 10 stores, end the year with fewer stores than at FY2023 year-end, and spend approximately $14–$16 million on capital expenditures. Management aims for product-margin expansion and controlled spending, but said the macroeconomic outlook remains unclear; no specific sales or earnings guidance was provided.
The credit agreement, amended in November 2023, has a December 1, 2024 maturity, a SOFR-plus-1.75% borrowing rate and a 0.50% unused commitment fee. It includes quarterly EBITDA and 1.25:1.0 quick-ratio covenants, and restricts dividends and stock buybacks through maturity without bank approval. Management expects available liquidity to cover foreseeable operations and planned capital spending for at least 12 months.
The $41.1 million goodwill impairment fully wrote off Blue Tomato goodwill. Management cited operating losses, limited scalability, macroeconomic pressures and reduced planned store growth in Europe, shifting focus toward profitability and cash flow. The company also disclosed a California wage-and-hour representative action under PAGA; it is investigating the claims and intends to defend itself. Management said current litigation is not expected to materially adversely affect results or financial condition. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Key risks and investor verification points
- Verify whether improving quarterly sales trends continue, especially excluding the extra fiscal week, and whether men’s-category momentum can offset ongoing weakness elsewhere.
- Assess the path to restoring gross and operating margins, including markdown levels, occupancy and labor-cost deleverage, and the impact of the goodwill and store-asset impairments.
- Monitor European operations and Blue Tomato’s ability to improve profitability and cash generation following the reduced store-growth plans and goodwill write-off.
- Review compliance with amended credit-facility covenants, the facility’s December 2024 maturity and any refinancing or replacement arrangements.
- Consider the company’s substantial lease commitments, seasonal sales concentration (57% of FY2023 sales came in the third and fourth quarters), and $180.9 million of outstanding merchandise purchase orders.
- Track consumer discretionary spending, fashion and inventory risk, competition, foreign-exchange exposure, supply-chain costs, and the disclosed PAGA litigation and tax valuation allowances.