Zumiez’s October 29 Quarter; Consistently Pursuing a Solid Strategy

I know I’ve written about it before, but let’s review the pillars of Zumiez’s strategy as I see them before we get to the numbers. Here’s the link to the 10Q if you’re interested.

  • Find and retain employees who are actively committed to the action sports lifestyle and make sure they are customer service focused. I suspect this might restrain their growth sometimes, but that’s okay.
  • Have a wide selection of established and new brands, including ones that are hard to find in other places. Manage these brands, and the associated inventory, so you can be generally less promotional than competitors. Their largest vendor represented less than 7% of total sales during the quarter.
  • Grow only as fast as you can find the right mall locations and staff.
  • Be the only mall retailer that offers hard and soft goods in a specialty shop-like environment.
  • Continuously work to have systems and procedures in place that let each store carry what its customers want to buy.
 In broad brush, this hasn’t really changed since the company was founded.
 
Zumiez’s 442 stores in 38 states now include 10 in Canada. Sales for the quarter ended October 29th were up 10.3% to $154 million compared to $135.9 million in the same quarter last year. Comparable store sales were up 6% and a net of 42 new stores have been opened since the end of the quarter last year. Ecommerce sales were 6.4% of the total, or $9.9 million. In the same quarter last year they were 4.4% of the total, or $6 million.
 
It’s interesting to hear how they talked about the comparable store sales increase during the conference call. CFO Marc Stolzman said, “The comparable store sales gain was primarily driven by an increase in dollars per transaction, partially offset by a decline in comp store transactions. The increase in dollars per transaction in the quarter was primarily a result of an increase in average unit retail, partially offset by a decrease in units per transaction.”
 
To me, that speaks at least partly to the success of their brand strategy. They were able to increase comparative store sales because they got more dollars per sale even though the number of transactions fell. 
 
Gross profit margin rose from 38.7% to 39.1%. The improvement was largely the result of distribution center efficiencies (remember they opened their new distribution center in California).
 
Selling, general and administrative expenses rose 11% to $37.3 million. As a percentage of sales, they were down from 24.7% to 24.3%.
 
Net income was up 14.8% from $12.3 million to 14.1 million.
 
The balance sheet is strong, and they have no debt except for the normal kinds of current liabilities every business incurs in the normal course of business. The increase in inventory was in line with the sales growth.
 
Though they didn’t talk about it in any detail, they noted that 15% to 20% of their business was private label. Private label business is particularly compelling when you’re already a retailer because of the higher margin with no additional costs. But we’ve learned in our industry that too much private label can be a bad thing. If only it was easy to know how much was too much before you got to too much. It is, I suppose, possible that Zumiez’s strategy of having a lot of brands and turning them frequently lends itself to more private label business. I’ll watch with interest to see how much they grow it.
 
Well, that’s pretty much it. When things are going well and the strategy hasn’t changed much there’s not a whole lot to write about. Here’s hoping I get to do lots of short articles like this one because of good results from a host of industry companies.     

 

 

2 replies
  1. Chuck
    Chuck says:

    Hi Jeff,

    I found this article pretty interesting as I usually do with your posts. I have a couple of questions, one directly related to this article and the other veers off onto a small tangent.

    In particular the you noted that Zumiez private label business accounted for 15-20% of their business. I’m curious, do you know what these brands or products are? It’s not like we see kids running around everywhere with Zumiez jeans and T’s.

    The other question is related to the longboard skateboard industry. While street skateboard sales have seen a decline in recent years, longboards and longboard accessory sales have increased. The sport is growing faster than ever with many brands (even non-hardgood brands) jumping on this fast moving train. My question to you is where do you see this going in the coming years for brick and mortar and online retailers. Also, do you see it as a bubble or trend in the skate industry. In my opinion, I do see it peaking, but I do not see it peaking soon, and I do not see it as a bubble with negative fallout.

    This is my first reply to an article of yours so I’m looking forward to your thoughts.

    Thank you,
    Chuck DeMoss

    • jeff
      jeff says:

      Hi Chuck,
      The Zumiez’s number comes, I think, from their last conference call. I don’t recall seeing any product branded “Zumiez” the last time I was in the store. I recall their private label snowboards, but not the brand name. My belief is that it not usual for retailers to put their own name on their private label.

      Okay, on to the long board issue. I hate it when people ask good questions, because it takes a while to answer.

      First, I’d estimate that longboards and related product are more than half of skate hard goods at this point. And I agree that it’s an article of faith that street sales are down, but I’m cautious about that conclusion. Here’s why. My belief is that a whole bunch of street decks are now shop decks, blanks, internet purchased, made in China, completes sold in chain stores, etc. They sell for a lot less than traditional branded pro decks. So you could have a big decline in revenue among those brands and still have an overall increase in street skate deck sales. I’m not saying that’s true, but I bet you can’t prove me wrong. The decline we really know about (at least what I know about) is from the so called “core” brands. We lack good data. How many street decks are sold at Walmart?

      Also, we haven’t considered the extent to which longboarding is taking sales from street. Don’t ask me how much that is. I don’t know.

      As to whether or not longboarding is in a bubble, I have no idea. It’s mathematically impossible for existing growth rates to continue. When you’re a $1 million company, it’s not so hard to grow by 50%. When you’re $100 million, it gets a lot harder. It’s just the nature of percentages. Will there be a decline in growth in longboarding at some point? Sure. Will it completely crash like street skating has done a few times? I don’t think so because my sense is it has a broader appeal. Street skating, when it was growing, was cool, underground, and a bit exclusive; Kind of like snowboarding in the mid 90s. Longboarding seems more inclusive, but please keep in mind that I’m cautious about trying to interpret the motivations of the skateboarding age group.

      You might also recall that until the Chinese barreled into the skate market around 2003, skaters had no choice but to buy from one of the established brands.

      Longboarding still seems to have some evolving technology. Street decks don’t. The evolving technology makes longboards less of a commodity for the time being. I’m afraid a lot of street skaters see a deck as a commodity, and commodities are good things to buy on the internet. But that doesn’t mean that all street decks will be sold on the internet. As I implied in the article, if I didn’t say it directly, I don’t quite think the internet and brick and mortar have figured out how to coexist yet. They’re working on it.

      Okay, hopefully this is a satisfactory answer. Problem is, I could go on forever. If you disagree with me, please say so. Those are the kinds of conversations where we both learn something.

      Thanks for engaging,
      J.

Comments are closed.