Zumiez Earnings Call NUGGETS: AUR Gains, Accessories Business

On Thursday, Zumiez, Inc. (NASDAQ:ZUMZ) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

AUR Gains

Betty Chen – Wedbush Morgan Securities Inc.: I was wondering Rick if you can give us a little bit more color, I think it was really helpful for you, for us especially to hear about the timing of back-to-school and certainly we’ve seen that shift later and later every year. Can you share with us by any chance, certainly it looks like August ended with a very strong sales number, about 17% the last week. What have you seen in early September trends, if anything you can share with us there? Then also as we think about the business in the back half, if we should be looking for maybe flattish AUR gains after some very strong trends there, what are some potential drivers for comps? Is it traffic and if that’s the case you know how is the team thinking about driving traffic or transactions to kind of offset the AUR piece of the equation?

A Closer Look: Zumiez Earnings Cheat Sheet>>

Richard M. Brooks – CEO: I just want to say again, I think we’ve kind of laid out of how we are viewing August results and how we’re thinking about the execution of back-to-school flowing through. As you said, it’s definitely having (indiscernible) as evidenced by that last week and we’ll see how it plays out as we move through September, but we are not going to comment about any specifics around – as is our policy around September results. We will wait till we get the whole month in and then we report to you later in the year. As it relates to thinking about the back half a bit further out and as – you all know our business has been AUR driven for a number of quarters now and as we’ve said over the last few calls, we expect to see that start to transition and a lot of this has to do with mix shifts in our business relative to trends, relative to accessory trends, relative to the pricing changes a year ago. We do expect to see that over time transactions will take a lead versus AUR. Now I really don’t think that again that – I think a lot of this is really being driven by the mix within our business, not necessarily that per se there are fewer transactions in that sense is that we’re just capturing the share of wallet differently with our consumers. So I think that will be a natural way for it to play out. We’ve seen these cycles over the years in the past and so I don’t anticipate that we’ll see anything unusual, but a flow-through towards where transactions – as those AUR gains change and our mix flow through the new categories are driving the business today. That will be a very natural transition of the business and I don’t think hopefully it’s anything where we’ll be having to focus on too much. I hope this will be a natural flow into transaction led trend.

Accessories Business

Sharon Zackfia – William Blair & Company: Had a few questions. I think the gross margin gain year-over-year if I excluded everything correctly, it was – it’s kind of the strongest gain we’ve seen in close to two year and I know you said merchandise margin as positive. It seems like it was pretty significantly positive, so I’m not sure if that is mix shift or if there is something else that you planned for really well in July quarter, what’s driving that? Then secondarily, I think accessories were negative in August. If you could talk a little bit about what going on in the accessories business, if that’s just a function of the late back-to-school or help us understand a little bit about what’s happening in that kind of important part of the business?

Richard M. Brooks – CEO: Thank you, Sharon. Again, you’re right about margin in Q2, so it was a very strong performance at the product margin level, and there is a lot of mix shift that’s involved in there as it relates to that, as again categories move around and we move more towards apparel driven departments of business (indiscernible). A lot of it is relative to mix and again as you know, our business is so diverse in terms of the breadth of categories that we represent, that I know this gets hard for everyone to understand and appreciate how complicated it is, but fundamentally, there’s two things happening here good. I think our buyers do great obviously in terms of driving our margin forward and negotiating with our partners on price. I would also add that our inventory levels in terms of the quality of inventories are in very good shape. I think we all feel very strong about our position, so I think that reflects in markdown levels and the kinds of promotions that we do, when we have that stronger position. Then lastly again, you’re right, there are some mix shifts relative towards our apparel.