Zumiez Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended January 28, 2023 (52 weeks). This is an annual filing, not a standalone fourth-quarter report. Zumiez operates specialty retail stores and ecommerce businesses under the Zumiez, Blue Tomato and Fast Times names; it had 758 stores at year-end.
Financial performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net sales | $958.4 million | $1,183.9 million |
| Gross profit / margin | $324.7 million / 33.9% | $456.7 million / 38.6% |
| Operating profit / margin | $31.1 million / 3.2% | $157.8 million / 13.3% |
| Net income | $21.0 million | $119.3 million |
| Diluted earnings per share | $1.08 | $4.85 |
| Cash from operating activities | $(0.4) million | $135.0 million |
- Sales fell 19.0%; management attributed the decline primarily to inflationary pressure on consumers and comparison with the prior year’s stimulus-supported demand. Transactions and dollars per transaction decreased.
- Gross margin contracted 470 basis points. Drivers included fixed-cost deleverage on lower sales, higher web shipping costs and shrinkage, and a 50-basis-point decline in product margin.
- SG&A declined 1.8% to $293.6 million, but increased to 30.7% of sales from 25.3% as lower revenue drove deleverage.
- The effective tax rate rose to 35.2% from 25.7%, primarily reflecting valuation allowances on deferred tax assets related to foreign losses.
Liquidity, debt and capital allocation
- Cash, cash equivalents and current marketable securities totaled $173.5 million at year-end, down from $294.5 million. Working capital was $194.4 million, versus $263.2 million a year earlier.
- Operating cash flow was negative $0.4 million, compared with $135.0 million generated in FY2021. Capital expenditures were $25.6 million.
- The company had no borrowings outstanding under its Wells Fargo revolving facility at year-end; $0.6 million of standby letters of credit were issued but undrawn. The facility provides up to $25 million through December 1, 2023, and up to $35 million thereafter through its December 1, 2024 maturity, subject to terms and covenants.
- Operating lease liabilities totaled $254.3 million on a present-value basis; undiscounted future lease payments were $269.0 million. The company reported no cash dividends declared to date.
- Zumiez repurchased $87.9 million of stock in FY2022. The December 2021 authorization was completed in March 2022.
Changes, outlook and notable items
- FY2022 followed a record FY2021: sales decreased 19.0% and diluted EPS decreased 77.7%. Management said inflation and competition from travel and entertainment weighed on discretionary spending.
- Management described the FY2022 macroeconomic outlook as unclear, citing persistent inflation, lower customer savings and rising credit-card balances. It did not provide specific FY2023 sales or earnings guidance.
- For FY2023, management planned approximately 23 new stores and forecast capital expenditures of $21–$23 million. Its stated priorities include customer experience, inventory discipline, international growth and operating efficiencies.
- A €3.2 million ($3.6 million) German government subsidy related to pandemic-era costs was recognized as a reduction in SG&A in FY2022.
- The company recorded $2.1 million of long-lived asset impairment losses. Goodwill impairment testing resulted in no goodwill impairment. A California wage-and-hour class-action settlement of $2.8 million was paid in FY2022; a separate California PAGA wage-and-hour action filed in October 2022 was being investigated and defended.
- Key disclosed risks include discretionary-spending weakness, rapidly changing fashion preferences and markdown exposure, foreign sourcing and shipping costs, labor costs, foreign-exchange movements, mall and ecommerce traffic, cybersecurity, and seasonal concentration: about 54% of FY2022 sales occurred in the third and fourth quarters combined.
Important facts for investors to verify
- Whether sales, transaction trends and product margins stabilize after the sharp FY2022 decline, particularly through the back-to-school and holiday periods.
- Whether operating cash flow recovers and inventory is converted to cash without substantial markdowns.
- Progress and returns on planned store openings and the $21–$23 million FY2023 capital-spending plan.
- Compliance with the credit facility’s financial covenants and the company’s ability to manage substantial lease commitments.
- Developments in the California PAGA action, foreign tax-asset valuation allowances, and any further store or intangible-asset impairments.
The independent auditor issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. The filing identifies goodwill and intangible-asset impairment and store-asset impairment as critical audit matters.