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Zumiez Refocuses Efforts to Stop Store Expansion For Stronger Brand Growth

Zumiez's Growth Strategy Update
ShreddER May 12, 2024
zumiez store
@Zumiez

Skate shop rival Zumiez had a rough time recently but made some money in Q4. Their net sales increased by 0.6% to $281.8 million for the 14-week fourth quarter of fiscal 2023 that ended on February 3. They earned over $280.1 million in the 13-week quarter ending January 28, 2023. However, their comparable sales were down by 3.9%.

According to reports, North American sales were down 3.4%, while sales in other international markets went up by 15.2%. Zumiez faced challenges like competition for the discretionary dollar, inflationary pressure on consumers, and stricter trends in certain business categories. Men's clothing was the only category with positive comparable sales, while women's was the most negative, followed by Accessories, Hardgoods, and Footwear.

The decrease in comparable sales was due to a decrease in transactions, which was partially offset by an increase in dollars per transaction. Dollars per transaction were up for the quarter, driven by an increase in units per traction and an increase in average unit retail. Gross profit was 34.3% of sales for the fourth quarter, compared with 34% in the fourth quarter of 2022.

The increase in gross margin was driven by 70 basis points of benefit in shipping costs related to better outbound shipping rates, 60 basis points positive impact related to a mix shift away from service and related shipping revenue in the prior year results, which carried a negative margin during the prior-year quarter, and 30 basis points of leverage in store occupancy costs related to a reduction in total expense year-over-year combined with the modest increase in sales related to the extra week.

However, these benefits were offset by a 110 basis point reduction in product margin due to discounted selling to manage aged inventory, which was generally in line with the company’s expectations, and a 20 basis points of deleverage in fixed and other costs included in gross margin.

Zumiez had a net loss of $33.5 million in Q4 and $62.6 million for the fiscal year, which includes a goodwill impairment charge of $41.1 million. Zumiez decided to slow store growth and focus on profitability in Europe, resulting in the goodwill impairment charge and the corresponding impact on the future cash flow projections of its Blue Tomato business.

Total net sales decreased by 8.6% to $875.5 million for the 53-week ended fiscal 2023 year ended February 3. This is compared to the $958.4 million they earned for the 52-week period ended January 28, 2023.

Despite these challenges, Zumiez's CEO expressed optimism and mentioned that the men's business turned positive in November, with growth accelerating in both December and January. Overall, momentum reportedly built throughout the quarter, with total sales trends improving month-to-month, culminating in January turning to positive comparable sales, fueling fourth quarter sales and adjusted EPS that were both above the high-end of the retailer’s guidance ranges.

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