Zumiez, the global specialty retailer that operates 70 Blue Tomato stores in Europe, suffered an 85 percent drop in second-quarter operating profit to $5.0 million from $32.0 million for the period ended July 30. Ebit was down by 83 percent to $5.5 million as net income came in 87 percent lower year-over-year at $3.1 million versus $24.0 million. Gross margin slid to 34.1 percent from 39.1 percent year-over-year as the retailer experienced a sales drop in its higher-margin U.S. operation.
Period revenues declined by 18 percent to nearly $220 million from $268.7 million. In a difficult comparison, North American sales dropped by 20 percent year-over-year to $189.9 million, while revenues from Europe and Australia declined by 3.4 percent to $30.1 million. The retailer’s Fast Times banner in Australia was said to be “performing exceptionally well” with strong product margins despite a slight dip in sales. Meanwhile, management said the company’s business in Europe was stronger than in Canada or the U.S.
Zumiez described the operating environment in the U.S., where it has 612 doors, as increasingly more challenging caused by lingering supply chain disruptions, higher logistics costs, a tight labor market, negative currency impacts and high inflation levels. Through the first 37 days of Q3 ending Sep. 5, the company said year-over-year sales were down by 18 percent, with North American comparable sales off 19.5 percent. Comparable sales for the combined European and Australian markets were down by 2.7 percent year-over-year and up 25.1 percent from the same period in 2019. Hard goods, followed by women’s, accessories and footwear, were the most negative merchandise categories.
The retailer has witnessed a spike in customer interest in private label, lower-priced offerings away from higher-priced brands during the first half of 2022 and will respond accordingly in the coming period in certain product areas. Private label products accounted for about 21 percent of Zumiez’s overall revenues in 2015 before eventually declining to 11 percent of total. Last year, private label sales equaled 13 percent of overall revenues.
The company’s current FY22 outlook calls for an 18 to 19 percent decline in total sales as the annual operating profit slips some 73 to 77 percent on lower sales and inflationary cost pressures, among other factors. The company’s penetration of sales outside the U.S. will increase significantly in Q4 to approximately 21 percent of the business versus 16 percent in the year-ago period. Plans remain in place to open 14 stores in Europe and five in Australia this year, and 16 in its home North American market.
