Zumiez sales decreased by a reported 12.8 percent in the four weeks ended May 27 compared to the year earlier, continuing to trend downwards after its top line in the first quarter ended April 29 fell by 17.1 percent to $182.9 million. Management attributed the decrease to a challenging marketplace, as U.S. consumers rein in discretionary spending due to high inflation and excessive industry-wide inventory levels put pressure on the company’s full-price selling model.
For the operator of the Blue Tomato retail chain, one bright spot was represented by its international business, although “some levels of macro distress” are also impacting its activities in Europe and Australia.
First-quarter sales were $144 million, a decrease of 22.7 percent on a reported basis, while international sales were $38.9 million, up by a reported 13.3 percent and 17.1 percent higher at constant-currency rates. First-quarter comparable sales in Europe and Australia grew by 12.8 percent and 8.7 percent, respectively, while they slumped by 24.2 percent in North America. In May alone, overall comparable sales fell by 14.3 percent, reflecting a 17.5 percent decrease in North America and a 4.2 percent rise in international business.
Christopher Work, CFO, told analysts that the company was “encouraged by some strong results in Germany and Austria,” its more established markets in Europe, while the newer markets of Netherlands and Norway “performed quite well.” Zumiez, which is now present in eight European countries, is setting its sights on approaching breakeven on an operating profit level after posting an operating loss of undisclosed dimensions in the region in 2022. The company is already profitable in Australia.
The first quarter gross margin narrowed by 5.8 percentage points to 27.0 percent, with lower sales driving deleveraging on fixed costs, particularly store occupancy costs. Zumiez registered an operating loss of $21.4 million against an operating profit of $0.5 million the year earlier, as the operating margin amounted to a negative 11.7 percent versus a positive 0.2 percent the year earlier. The net loss widened to $18.4 million, or $0.96 per share, from red ink of $0.4 million, or $0.02 per share.
For the second quarter ending July 29, 2023, Zumiez anticipates sales of $187 to $192 million, down by 12.7-15.0 percent against the $220 million seen the year earlier. The operating margin is expected to be between a negative 7.7 percent and a negative 9.2 percent. Loss per share is projected at $0.63-$0.73.
Management expects the company’s product margin to be more pressured during the first half as the company “works through aged inventory” and the market remains promotional before margins stabilize and perhaps expand in the last part of the year.
Zumiez intends to open about 23 new stores in the full financial year, including up to eight in North America, 10 in Europe and five in Australia. “These openings are contingent on finding the right locations with complementary economics,” said Work. “While that is our normal practice, challenging circumstances, such as those we are currently experiencing, may cause us to reduce our store openings if we are unable to negotiate deals that achieve our financial targets.
