Zumiez Releases 10-K
josh hunter
- March 23 2009
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Zumiez, Inc. filed its 10-K statement on March 23.
Unless you’re some kind of masochist, then you probably don’t want to read the entire thing. So, here are some interesting bullet points from the document.
As of January 1, 2009, Zumiez operates 343 stores primarily located in shopping malls. The typical store is 2,900 square-feet, and over the past five years [2003-2008] Zumiez has maintained net sales per square foot in excess of $420.
In the same period of time the company has increased its store count from 113 to 343, increased net sales from 118 million dollars to 409 million dollars, and increased operating profit from 7.5 million to 24.6 million dollars.
On New Stores:
-Zumiez plans to open 37 stores in 2009, however according to the 10-K: “Unlike previous years, the number of stores opening may increase or decrease due to market conditions … As we look to fiscal 2009 and beyond, we will likely slow this rate of growth until we see the macroeconomic environment improve. We plan to open new stores in both existing and new markets.”
-In addition Zumiez says that as of January 31, 2009 approximately 78.1 percent of its stores had been opened or remodeled within the previous five years
Above store list shows the number of stores by state [as of Jan 1, 2009]
On Enhancing Marketing And Promotions:
-”We believe that a key component of our success is the brand exposure that we receive from our marketing events, promotions and activities that embody the action sports lifestyle … In addition, we use our ecommerce presence, designed to convey our passion for the action sports lifestyle, to increase our brand awareness. We plan to continue to expand our integrated marketing efforts by promoting more events and activities in our existing and new markets.”
-According to the 10-K, the company’s advertising expense was approximately, 651,000 dollars, 748,000 dollars, and 763,000 doollars in fiscal 2006, 2007, and 2008, respectively.
On Merchandising:
-”Our goal is to be viewed by our customers, both young men and young women, as the definitive source of merchandise for the action sports lifestyle … We seek to identify action sports oriented fashion trends as they develop and to respond in a timely manner with a relevant in-store product assortment … We believe that offering an extensive selection of current and relevant brands used and sometimes developed by professional action sports athletes is integral to our overall success. No single brand accounted for more than 6.6% and 6.9% of our net sales in fiscal 2007 and fiscal 2008, respectively.”
On Purchasing/ Private Label:
-”In order to identify evolving trends and fashion preferences, our staff spends considerable time analyzing sales data by category and brand down to the stock keeping unit, or “SKU” (an identification used for inventory tracking purposes) level, gathering feedback from our stores and customers, shopping in key markets and soliciting input from our vendors … We source our private label merchandise from foreign manufacturers around the world. We have cultivated our private brand sources with a view towards high quality merchandise, production reliability and consistency of fit. We believe that our knowledge of fabric and production costs combined with a flexible sourcing base enables us to source high-quality private label goods at favorable costs.”
-”Sales from private label merchandise accounted for 15.0 percent of our net sales in fiscal 2008. We may take steps to increase the percentage of net sales of private label merchandise in the future, although there can be no assurance that we will be able to achieve increases in private label merchandise sales as a percentage of net sales. Because our private label merchandise generally carries higher gross margins than other merchandise, our failure to anticipate, identify and react in a timely manner to fashion trends with our private label merchandise, would likely have a material adverse effect on our comparable store sales, financial condition and results of operations.”
On Seasonality Of Business:
-”Historically, our operations have been seasonal, with the largest portion of net sales and net income occurring in the third and fourth fiscal quarters, reflecting increased demand during the back-to-school and year end holiday selling seasons. During fiscal 2008, approximately 58% of our net sales and 76% of our net income occurred in the third and fourth quarters. As a result of this seasonality, any factors negatively affecting us during the last half of the year, including unfavorable economic conditions, adverse weather or our ability to acquire seasonal merchandise inventory, could have a material adverse effect on our financial condition and results of operations for the entire year.”
On Lease Expenses:
- “All of our stores, encompassing approximately 1,005,000 total square feet as of January 31, 2009 are occupied under operating leases. The store leases range for a term of five to ten years and we are generally responsible for payment of property taxes and utilities, common area maintenance and marketing fees … We do not own any of our retail stores or our combined home office and distribution center, but instead we lease all of these facilities under operating leases. Payments under these operating leases account for a significant portion of our operating expenses and has historically been our third largest expense behind cost of sales and our employee related costs.
- “Total rental expense, including additional rental payments (or “percentage rent”) based on sales of some of the stores, common area maintenance charges and real estate taxes, under operating leases was $31.9 million, $43.5 million and $52.9 million for fiscal 2006, 2007, and 2008 respectively. As of January 31, 2009 we were a party to operating leases requiring future minimum lease payments aggregating approximately $191.8 million through fiscal year 2013 and approximately $134.7 million thereafter”
Results Of Operations:
Net Sales:
-Net sales increased to $408.7 million for fiscal 2008 from $381.4 million for fiscal 2007, an increase of $27.3 million, or 7.1%.
-Comparable store net sales decreased by 6.5% in the 52 week period ended January 31, 2009 compared to the 52 week period ended February 2, 2008.
Gross Profit:
- “Gross profit for fiscal 2008 was $134.5 million compared with $137.0 million for fiscal 2007, a decrease of $2.5 million, or 1.8%. As a percentage of net sales, gross profit decreased 3 full percentage points to 32.9% in fiscal 2008 from 35.9% in fiscal 2007. The decrease in gross profit as a percentage of net sales was driven primarily by store occupancy costs growing at a faster rate than sales (worth 1.4 percentage points), and lower product margins of 1.6 percentage points primarily due to apparel which is about 50% of our sales.”
SG&A:
- “Selling, general and administrative, or “SG&A,” expenses in fiscal 2008 were $109.9 million compared with $98.0 million in fiscal 2007, an increase of $11.9 million, or 12.1%. This increase was primarily the result of costs associated with operating new stores as well as increases in infrastructure and administrative staff to support our growth partially offset by a decrease in stock-based and incentive compensation expenses. As a percentage of net sales, SG&A expenses increased 1.2 percentage points to 26.9% in fiscal 2008 from 25.7% in fiscal 2007. The increase in SG&A expenses as a percentage of net sales was primarily attributable to additional new store depreciation and store wages and benefits relative to the growth in net sales and increased shipping cost to stores, somewhat offset by a decrease in stock-based compensation and incentive compensation expenses.”
Operating Profit:
- “As a result of the above factors, operating profit decreased to $24.6 million for fiscal 2008, compared with $38.9 million in fiscal 2007 a decrease of $14.3 million or 36.8%. As a percentage of net sales, operating profit was 6.0% in fiscal 2008 compared with 10.2% in fiscal 2007.”
Net Income:
- Net income decreased to $17.2 million, in fiscal 2008 from $25.3 million in fiscal 2007 a decrease of $8.1 million, or 32.1%. As a percentage of net sales, net income was 4.2% in fiscal 2008 compared with 6.6% in fiscal 2007.
Liquidity/ Capital:
- “The significant components of our working capital are inventory and liquid assets such as cash, marketable securities and receivables, reduced by short-term debt, accounts payable and accrued expenses. Our working capital position benefits from the fact that we generally collect cash from sales to customers the same day or within several days of the related sale, while we typically have payment terms with our vendors.”
- “As of January 31, 2009, we held two $1.0 million Auction Rate Securities valued at $1.8 million, net of approximately $0.2 million temporary impairment charge. One of these $1.0 million securities failed to sell at its scheduled auction in March 2008. In May 2008, the remaining $1.0 million security failed to sell at its scheduled auction. The interest rates for these securities reset to a prescribed “failure” tax-free rate of 6.55% and 3.20%, respectively. We currently do not intend to hold these securities beyond their next auction date and will try to sell these securities when their auction dates come up in March 2009 and May 2009. However, uncertainties in the credit markets this fiscal year have prevented us and other investors from liquidating holdings of auction rate securities in recent auctions for these securities because the amount of securities submitted for sale has exceeded the amount of purchase orders. If the March 2009 and May 2009 auctions fail, we plan to hold these securities until the next auction date and the securities coupon rate will reset to a prescribed “failure” rate.”
To read the complete 10-K, CLICK HERE.
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