Zumiez reported a 12% increase in revenue for the quarter that ended August 2nd to $177 million from $158 million in the same quarter they last year. Their net income was up 57.3% from $4.74 to $7.46 million. Naturally, with that kind of good result, the stock fell 18.8% the next trading day from $32.4 to $26.31.
I don’t think I’d make it as an analyst on Wall Street. It’s not that I’d only focus on the current quarter’s results. The analysts also had some concerns about the rest of the year and those aren’t unreasonable. But if they took any kind of longer term perspective (which I’m beginning to think isn’t allowed if you’re an analyst) they might have focused on Zumiez’s efforts with the omnichannel stuff a bit more. I’ll get back to that, but first let me do what I always do- the numbers.
Zumiez ended the quarter with 535 stores in the U.S., 33 in Canada and 14 in Europe. They expect to end the year with 18 European stores. The sales increase was the result of having a net of 53 more stores open in this year’s quarter as well as a 3.4% increase in comparable store sales. Remember they include ecommerce in their comparable store sales (as I think they should). Interestingly, the 3.4% increase includes a 22.2% increase in ecommerce and only a 1.4% increase in comparable brick and mortar sales. Total ecommerce sales were 9.6% of total sales ($17 million) compared to 8.8% in last year’s quarter.
North American sales rose 10.1%. European sales were up 57.6% to $9.5 million and represented 5.4% of total sales.
The gross profit margin fell from 34.9% to 34.5% mostly due to a 0.6% decrease in product margin. SG&A expenses rose from $47.3 to $49.3 million. They fell as a percentage of revenues from 30% to 27.9%. 0.70% of the decline was because Zumiez didn’t need to accrue any additional cost for the Blue Tomato earn out.
The balance sheet is in good shape. I would note that for the six months ended August 2, net cash provided by operating activities was $30.5 million compared to $9.9 million in the same six months last year. I like cash.
Okay, now for the fun part. Here’s the first risk factor Zumiez lists. “Our ability to attract customers to our stores depends heavily on the success of the shopping malls in which many of our stores are located; any decrease in customer traffic in those malls could cause our sales to be less than expected.”
I don’t necessarily take risk factors too seriously, but I don’t ignore them either. This one caught my attention because it was listed first, I didn’t recall seeing it before, I posted something about the future of malls recently, and I think the trends in malls have a strong relationship to the evolution of a retailer’s omnichannel strategy. Or maybe I mean that omnichannel strategies are causing some of those trends.
It’s all kind of a big mish mash of trends, possibilities, experiments, false starts, new ideas, and unexpected relationships. I don’t know the answer. Neither does Zumiez. But they do seem to know they are stuck with it and are working hard to find out what works and what doesn’t.
Let me quote CEO Rick Brooks a few times. Please keep being quotable Rick. I love it when I can write these things by cutting and pasting.
“…we view really what we are doing- the integration of building a channeless retail experience for our customers- as a never ending job because the customers are in charge, they are the ones that have the power in today’s world because of smart technology, we need to go where they want to go, however they want to do it, we’re going to be there to serve them and we don’t know exactly what that’s going to look like again. I tend to think with their early stages of this transition not the latter stages.”
“So we’re going to try all sorts of things, we’re going to measure what happens when we close stores and markets, what happens to the integrated omnichannel business. Well we already know it’s a huge list when we open stores in markets. But so we’re going to continue and to really experiment with these ideas and measure where we’re going to be.”
“As we continue to expand our omnichannel capabilities and bring our highly differentiated and lifestyle relevant product and perspective to the marketplace, we believe that we can maintain strong merchandise margins through full price selling.”
“We also strongly believe that the enhanced connection with our consumers that is enabled by heightened omnichannel presence will be a key point of differentiation in the rapidly evolving retail landscape.”
I’ve written a few times that the biggest risk was taking no risk at all, and I’m guessing Zumiez’s management team would buy into that. They don’t know how this all going to work, but they know it’s happening and if they aren’t part of it, they will not prosper.
I’ve quoted CEO Brooks enough, but also interesting was his discussions about opening (or closing) stores. The goal is not to open stores. It’s to have the right kind and size of stores in the right place supported with the correct omnichannel presence and activities. Whatever you do with stores, you do it to meet a customer requirement. Maybe there are some places where you would have opened stores in the past, but now you won’t and not opening will be net positive for your bottom line.
If I could get Mr. Brooks and members of his team in a bar and get a few drinks into them, I’d love to find out how their organizational structure is evolving in response to the omnichannel and retail evolution. To me, it seems like every function is connected to and influenced by every other function in ways they haven’t been before. At least for me (a closet organizational dynamics junkie) this is going to be fun.
You can see where a strong balance sheet comes in. Whether you’re a brand or a retailer, you need to be paying attention. You’re going to spend some money on things that aren’t going to work, but that has to be okay.