Zumiez, the global specialty retailer, which sees Europe, Australia, and Canada as its biggest growth areas, suffered a 74 percent drop in operating income to $10.4 million from $39.8 million for the second quarter that ended Oct. 29. Ebit was $9.6 million versus $41.2 million in the year-ago period as gross margin slid to 34.5 percent from 39.6 percent. Product margins decreased by 40 basis points year-over-year in the face of an accelerated promotional retail environment and increased mix pressure. Net income fell by 78 percent to $6.9 million from $30.7 million.
While total Q2 revenues slipped by 18 percent to $237.6 million from $289.5 million, Zumiez did generate 13.8 percent constant-currency sales growth in the European and Australian markets, where it operates 75 and 21 Blue Tomato banners, respectively. Combined European and Australian sales fell 2.3 percent on a reported basis to $31.3 million. North American sales, meanwhile, fell by 19.9 percent to $206.3 million. All product categories produced lower year-over-year sales, with men’s as the most negative category, followed by hardgoods, women’s accessories, and footwear.
“While our business trajectory is softened in the short-term, we remain very confident in the long-term outlook for Zumiez,” CEO Richard Brooks told analysts.
The group is currently forecasting Q4 revenues of $258 to $265 million and a consolidated operating margin between 3.4 percent and 4.7 percent for the period ending Jan. 28, 2023. For the 31 days ended Nov. 29, Zumiez disclosed a 23.9 percent year-over-year sales decline as comparable sales fell by 24.8 percent. During the first month of Q4, constant-currency sales outside North America were up by 7.7 percent and down 27.4 percent in the home market, where it operates 615 doors.
Zumiez was more bullish on its Q4 outlook when it reported back-to-school period results a few months ago. But a shifting retail environment toward more promotions has put added pressure on the full-price, full-margin retailer. Each of the group’s geographic segments outside of the U.S. performs below the U.S. in product margin. Trend-wise, the retailer is seeing private-label merchandise continuing to grow as more consumers seek value.
