Zumiez Earnings Call Insights: Blue Tomato Analysis and Promotional Environment

Zumiez, Inc. (NASDAQ:ZUMZ) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Blue Tomato Analysis

Sharon Zackfia – William Blair: I guess I actually wanted to ask more than one question. I just wanted a clarification on Blue Tomato and how the revenues trended in this quarter? I think it’s – well you lapped the acquisition at the beginning of July so just any clarity there? And then secondarily I guess in terms of the trend you’re seeing it sounds like you had a good August and you want to be conservative on the thought process going forward. I mean, have you seen any kind of weighing in in your business, anything that particularly gives you concern relative to Zumiez’s business rather than the overall noise we’re hearing throughout apparel and mall traffic?

Richard M. Brooks – CEO: I’ll let Chris handle the Blue Tomato question, Sharon and we hear you fine by the way. So as we look at the guidance that we gave – for the third quarter, again I want to reiterate that we feel pretty good about 3% comp relative to the sequential improvement over July. As Chris said, when you see it increase in transactions, dollars per transit – unit per transit AUR is all rising, that makes us feel pretty good generally Sharon. Now that being said if we looked at the weekly cadence throughout the four weeks of August, we would tend to see that the beginning of the month was stronger than the end of the month. I think furthermore, that as we think about what’s going on generally in the consumer world today with where people are spending their money that no new fashion trends out there really in terms of major drivers of the business. I think from our perspective we – as we said in comments can envision that consumer spending might revert back to the pre-back-to-school trend line. I think that’s what’s reflected in our forward guidance relative to the zero – real flat to 2% comp number for the full quarter. Chris you want to talk about Blue Tomato and any color there?

Christopher C. Work – CFO: Yes, absolutely. As we said in the prepared remarks Blue Tomato sales in the quarter were about right around $6 million and as you recall money at their business is heavier weighted towards the winter season and late Q3 for us and Q4. From an overall perspective their comp from July forward is in the comp guidance that we gave. But what I can tell you is that in a pretty tough European environment they’ve performed very well and comped positively. So we are still encouraged by where they are at, but it is a tough environment over there. So they are comping positively ahead of the overall chain and are included in our numbers we provided today.

Promotional Environment

Sarah Soto – Roth Capital Partners: This is actually (Sarah Soto) on for Dave King. If you could just talk a little bit about the promotional environment and what you’re seeing there?

Richard M. Brooks – CEO: Sure. I’ll be glad just to do that. I mean, I guess, the story with back-to-schools is the same story that it’s been for the last few years, which is that it’s been incredibly promotional in the team sector. And our whole goal, as we’ve always said, is to position ourselves, so that we don’t have to be as promotional as the rest of them all. And I think we continue to do a pretty good job around that effort and I think that’s reflected again in the (three) comp and again the strong stats that Chris mentioned in his comments relative to again gain in transactions, again in AUR, (DPTs) and UBTs. So, we feel pretty good about our own positioning and I guess, I would say our reason we are able to achieve that positioning is that we’ve always had a really simple goal, which is we want to represent our brand partner as well and we want to be the go-to place for our branded partners through having a unique really distinctive culture, great sales experience in all of our channels of business. That those things when done right and being a preferred partner for our – preferred retail partner for our brands, allow us to be more full price and in back-to-school not only full price, but our goal is to full margin and so as you see us construct promos around the back-to-school window. That is still our goal in terms of what we are trying to do from a product strategy point of view, but it puts us in that unique position where I think in spite of an incredibly competitive price sensitive environment, we’re able to distinguish ourselves in ways that I think a lot of retailers can’t. As we look at the longer-term scenarios, again, do we see this price competition waning over the next few years, as we have in the past few years, my inclination is that we won’t know the next few years. I think it’s fundamental to some of the things we’ve been talking about for a very long time in our calls, which is that we think the last few years have been about shared consolidation of marketplace and the next few years is going to be about shared consolidation, driven a lot by fundamental changes in consumer behavior, relative to new technologies, driven by that technology driving people more to the direct channel, which is our – is why we have such a strong emphasis on omni-channel, and in our positioning there, it’s why we believe that winners will win in this share consolidation gain, and continue to win if you execute at a high level, and it’s fundamentally why we think that this can be a very competitive marketplace, the root of it all. I think there is still, particularly in the teen world, too many stores. So, longer term, I think we’re going to be safe in the competitive marketing place and our goal is to really go out and be uniquely positioned and I think August is reflective of that, of our ability to do that.

Sarah Soto – Roth Capital Partners: Then, if you could just talk about the negative footwear comp in August, we thought it would’ve been stronger given the certain key brands at other retailers.

Christopher C. Work – CFO: Certainly, to give a little bit of color around that is for us, we’re still facing some trends relative to the performance footwear, athletic footwear in that area. Although our biggest issue in footwear over the August time period related primarily to our women’s footwear site and less so are our men’s.

A Closer Look: Zumiez Earnings Cheat Sheet>>