Zumiez Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2015, the 13 weeks ended May 2, 2015. Zumiez operated 616 stores: 557 in the U.S., 37 in Canada and 22 in Europe, alongside ecommerce businesses. Comparisons are with the 13 weeks ended May 3, 2014, unless otherwise noted. Amounts are in U.S. dollars.
Financial performance and liquidity
| Metric | Q1 FY2015 | Q1 FY2014 | Change |
|---|---|---|---|
| Net sales | $177.6 million | $162.9 million | Up 9.0% |
| Comparable sales | Up 3.0% | Not stated here | Growth driven by higher dollars per transaction; comparable transactions declined |
| Gross profit / margin | $56.5 million / 31.8% | $50.5 million / 31.0% | Profit up 11.9%; margin up 80 bps |
| SG&A / sales | $52.4 million / 29.5% | $46.8 million / 28.7% | Expense up 11.9%; ratio up 80 bps |
| Operating profit / margin | $4.1 million / 2.3% | $3.7 million / 2.3% | Operating profit up 11.1% |
| Net income | $2.8 million | $2.5 million | Up 11.0% |
| Diluted EPS | $0.09 | $0.09 | Unchanged |
| Operating cash flow | $1.7 million | $16.6 million | Down $14.9 million |
Gross margin improvement reflected a 100-basis-point increase in product margin and 30 bps of supply-chain efficiencies, partly offset by 50 bps of store-occupancy deleverage. SG&A as a share of sales rose mainly because of store operating expense deleverage and Blue Tomato incentive expense; corporate-cost leverage partly offset the increase.
At May 2, 2015, cash and cash equivalents were $11.8 million and current marketable securities were $139.0 million; total current assets were $288.0 million against current liabilities of $86.1 million. Inventory was $104.1 million, up from $93.9 million at January 31, 2015. Total assets were $505.5 million and shareholders’ equity was $364.4 million. The filing reports $3.1 million outstanding on international revolving credit lines, no borrowings on the U.S. secured revolver, and no other long-term debt. It states available liquidity and expected borrowings are sufficient for foreseeable operating needs and planned capital spending for at least 12 months.
Material changes and notable items
- Sales increased $14.7 million: store additions and a $4.8 million comparable-sales increase were partly offset by a $5.0 million adverse foreign-exchange impact. The company cited 58 net store additions since the prior-year quarter.
- North American sales rose 7.0%; European sales rose 33.6%. Foreign-currency translation reduced comprehensive income: other comprehensive loss was $0.5 million, versus $2.3 million of other comprehensive income in the prior-year quarter.
- Operating cash flow fell to $1.7 million from $16.6 million. Working-capital movements included a smaller increase in accounts payable than in the prior-year period, inventory investment, and payroll and income-tax payments.
- Investing cash outflow was $14.8 million, including $8.8 million of fixed-asset additions and net purchases of marketable securities. Financing cash inflow was $4.1 million; there were no repurchases under the public share-repurchase program during the quarter.
- Blue Tomato incentive payments: the company determined store-opening and performance metrics had been achieved, subject to review of audited financial statements. It expects to pay €6.0 million (reported as $6.8 million at the quarter-end exchange rate), half in cash and half in about 0.1 million common shares. Q1 expense was $0.6 million.
Outlook, commitments and risks
- Management expected fiscal 2015 capital expenditures of approximately $39–$41 million, primarily for leasehold improvements and fixtures related to 57 planned new stores, plus remodels and relocations. Actual openings and spending may differ.
- Future minimum operating-lease payments totaled $415.8 million; outstanding merchandise purchase orders were $212.0 million. The company generally may cancel purchase orders before shipment, except for certain private-label and international commitments. These amounts do not include all rent-related operating costs or contingent rent.
- Key disclosed risks include seasonal sales concentration in the third and fourth quarters; fashion and discretionary-spending shifts; mall traffic and retail competition; foreign-exchange exposure; inventory markdowns; international expansion and integration; supply-chain and vendor risks; and substantial lease obligations. The company also identifies labor-cost, weather, ecommerce/security, and investment-credit/liquidity risks.
- The filing gives no specific sales or earnings guidance. It warns interim results may not indicate full-year performance. Management reported no material change in the risk factors in its latest Form 10-K, no material change in market-risk profile, and no off-balance-sheet arrangements. Disclosure controls were deemed effective at quarter-end.
Most important facts for investors to verify
- Whether comparable-sales growth and transaction trends persist, and whether new stores deliver expected returns.
- Whether gross-margin gains can continue while SG&A and store occupancy costs rise.
- Why operating cash flow declined sharply and how inventory and payables develop through the seasonal build.
- The final audited Blue Tomato incentive calculation, payment timing, and related cash and share dilution.
- Liquidity and investment quality, including municipal securities and variable-rate demand notes; the filing reports $143.9 million of investments in these categories in its risk discussion.
- Execution of the 57-store plan, $39–$41 million capital-spending outlook, and management of substantial lease and purchase commitments.