Good day, ladies and gentlemen, and welcome to the Zumiez Inc. fourth quarter and fiscal 2008 year end earnings call. My name is [Ann] and I will be your coordinator for today's call. (Operator Instructions) Before we begin, I would like to remind everyone of the company's safe harbor language: The following discussions may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Please note that actual financial results of the company for the periods being discussed may differ materially from the financial results projected or implied in the forward-looking statements. Additional information concerning factors that could cause actual financial results to differ materially from projected results is contained in the company's annual report on Form 10-K and other documents filed by the company with the Securities and Exchange Commission. The company disclaims any intent or obligation to update forward-looking statements. No recording or rebroadcast of this call is permitted without the company's express written permission. I would now like to introduce your host for today's conference, Rick Brooks, CEO of Zumiez. Please proceed, sir.

Thank you. Good afternoon and thanks for joining us to discuss the Zumiez fourth quarter and fiscal 2008 year end results. Joining me today is Trevor Lang, our Chief Financial Officer. Following opening remarks Trevor will review our financial and operating highlights. 2008 was marked by a number of unprecedented events in the U.S. economy which created the most challenging retail climate that we have ever dealt with. When the year began there were signs that the U.S. consumers were starting to pull back on their discretionary spending and we reacted accordingly, implementing a plan to manage and grow the business in a choppy environment. Needless to say, starting in September the market deteriorated much faster and further than we or anyone had projected. As the year progressed, we took additional measures to improve our position without sacrificing the level of service and unique store experience that our customers have come to expect from Zumiez. While 2008 was clearly challenging, we reacted swiftly. Our actions included driving sales where opportunity existed. For example, footwear comped up double digit for the year and our sales team drove an increase in units per transaction which helped offset lower traffic levels. We controlled SG&A, which grew at about half the rate of square footage growth, and we maintained a strong working capital position. We managed inventories, which were down 13% on a square footage basis, consistent with our same-store sales decline in the fourth quarter, and this allowed us to preserve cash. We ended the year with nearly $79 million in cash and current marketable securities, the most in our history, no debt, and our working capital position has never been stronger. On balance, I believe we acted quickly and prudently in 2008 to the changing retail environment. Unfortunately, as we begin 2009…

Thanks, Rick. Good afternoon, everyone. I'll first talk about fiscal 2008 and then discuss 2009. In November we laid out how we planned on managing the significant downturn the retail industry experienced in the second half of fiscal 2008. While we are not happy with our financial performance, I am proud of the execution and discipline our organization mustered in fiscal 2008. We ended the year with clean inventories, a lean cost structure, and our cash and working capital positions have never been better. In the fourth quarter net sales totaled $125.5 million, a decrease of 0.9% compared to $126.6 million in last year's fourth quarter. The decrease in net sales was driven by a comp store decline of 13.4% offset by the opening of 58 new stores since the end of the prior year. Our sales in our stores west of Texas, which represented about 54% of our comp store sales, comped down in the negative high teen range while our stores in the South, Midwest and Northeast comped down in the high negative single digits. Our web comped up about 50% for the quarter. From a product perspective, footwear continues to be our best-performing department, while our apparel departments are our weakest. Gross profit for the fourth quarter decreased to $40.6 million or 32.4% of net sales compared to gross profit of $48.6 million or 38.4% of net sales in the fourth quarter last year. The decrease in gross profit margin of approximately 600 basis points was driven by lower product margins worth about 370 basis points, while the rest of deleveraging on a negative comp primarily in store occupancy expense. The decline in product margin was primarily due to our apparel business, which is about half of what we sell in the fourth quarter. Moving to expenses,…

(Operator Instructions) Your first question comes from Jeff Klinefelter - Piper Jaffray.

Rick, I know you don't like to get into a lot of brand discussions, but given the ongoing weakness in the apparel business can you talk directionally or generally about where you see opportunities? I think you've mentioned before that overdistributed brands or multi-point distributed brands in malls tend to underperform versus your more exclusive type or smaller niche brands. Can you give us any more color on where you see your opportunities to go after share in a shrinking market?

A couple of areas I think I can give you some flavor around just in general product, Jeff. The first thing is I think one of our objectives, as we said throughout the commentary, is to continue to differentiate our model and small brands do that for us. So I think you are going to see us continue to focus on developing the small brands. We're working very closely with them. So that is one area we think we have an opportunity is to continue to work with those small brands and help them develop their business. I'd also say one of the things we're doing generally as it relates to product is we're really trying to work with all of our brands very closely. We're trying to give them more information about how we're thinking about planning the year further out so they can plan their business as effectively as possible also. So those would be a couple of things, Jeff. We're also looking at, relative to product, how we're thinking about, again, that multi-tiered price structure, how brands fit into it, where it makes most sense based upon literally a brand-by-category combination. I think you're going to see us do things like really try to clearly delineate what product goes at what price points and what the value proposition is at each of those multi-tier price points. And with that I think it's fair to assume that we're going to try to push for a higher initial markup at each of those tiers of prices. So, I mean, we're doing a number of things with our brands to try to foster the partnership we have with them, help them build their business while we achieve our objective, too, in this process, both in terms of sales and margin.

Just a couple of follow up things on factual information that I think's interesting for those that have followed us. We have continued the trend of having diversity within our top 10 and top 20 brands. And again, we think that's a very good thing - '07 to '06 we had about three brands enter our top 10. That changed again '07 to 08, where brands have gotten more relevant and more hot. And so, again, we think that's a good thing because that means there's freshness and newness that is exciting to our consumers and they're buying more of it. Also those of you who have followed us for awhile have heard us say that we're agnostic to individual brands - what we put out there is what the consumer tells us. And I think as part of that actually our private label for the first time in a very long time has actually gone down just a bit from 15.4% last year to just right around 15% this year, which in our mind speaks to the strength of some of these small brands that are coming up and taking market share. So we think that differentiation and that change in the marketplace is a good thing because it always means we should have something fresh and new that that kid's looking for.

In terms of price points or if we think about maybe not a matrix, but a continuum of pricing good, better, best or opening price point up to higher price point - are you and the brands together working on a more compelling mix shifted down toward opening price points? Are they coming to you with ideas? It seems like the retailers that are converting right now are really just very focused on price points, even more so than percent off promotions.

Again, for us, Jeff, it is literally a brand-by-category process and working with our brands on that. There's some brands that we would not want to see discounted in any way, shape or form. We can sell them at full price and we want to sell them at full price. So, again, it depends on each brand's positioning, what their goals are, if we can help them add categories that they're not currently serving, then we're going to try to help them do that.

One other question on real estate, really two part - one, your new stores, are those stores essentially locked in or do you feel like in a perfect world would you be opening fewer stores in this environment or are you getting better deals and that's helping to change the four-wall model even with lower volumes when you open? And then as just another part of that question, is there a thought here that there might be some off-mall opportunities for you given what's likely the disruption in the independent community?

Okay, I'll back up a bit on your real estate question, Jeff, and talk about a little bit more of the last five - six months of last year and where we're at with what we're seeing. It's 37 new stores this year. I'll start by saying last August we had - you know, when you get the real estate pipeline going, we had a lot more deals done last August than these 37. As we got into September, we started trimming deals relatively dramatically. So we tried to trim it down into locations and the geographies that we felt were the best geographies for us. That's kind of how we got down to the 37 number. And that was a process, again, like always, trying to be a good partner and work with our landlords, work with particularly those landlords that are really key for, we think, our future growth. At this point our real estate came as kind of a re-task to focus on working with landlords and working on our lowest contribution stores, highest occupancy cost stores to see what we could do in terms of improving the cost structure. So we're doing that. We're continuing to talk to landlords and build our relationships with the landlords. At this point as we kind of look beyond 2009 I would tell you that we're really going to wait for a tick up to do any major deal making as we see the market today. So another way of saying that, as we've said in the comments and then even looking at 2010, we're trying to maintain our maximum financial flexibility, real estate deals being a part of that. So that kind of gives you a little background as to how we got the 37, why we think we're at that 37. I would say in this environment, also, I just would add that I don't think anything's ever totally locked in, so we'll make the adjustments we need to make, that we think are necessary to make. As it relates to the off-mall stuff, Jeff, as you know, we have a few off-mall locations today in different configurations and, as we said, historically they've performed well. And as you're alluding to, there are some off-mall players that have struggled. I'm not saying we're not going to do that at some point, but it's clearly not on our radar screen for this year. We're going to stick to what we know and what we think we do best.

Your next question comes from Sharon Zackfia - William Blair & Company, LLC. Sharon Zackfia - William Blair & Company, LLC: Rick, of the 37 locations you're going to continue to open this year, can you give us any idea of where the emphasis is geographically or by age of market? And what kind of stores did you cut out of the original pipeline? Is there any commonality among there?

Well, first I'll make a couple of opening comments. I'll let Trevor talk more specifically, Sharon, about the geography of the stores themselves. First, well before '08 we had adjusted to the reality of the types of centers that weren't working, so really we didn't have any planned in '09 that were the more difficult centers for us, those lifestyle centers, any new centers. All those got pretty much trimmed out before we got into the '09 pipeline. So from that perspective we were focusing on regional malls that we felt had good potential for us. With that, then, I'll let Trevor talk a little bit about the geography of the locations.

The stores that we're planning on opening for next fiscal year, 7 or 19% of them will be in the West, 7 or 19% of them will be in the South. We'll have about 10 or 27% in the Midwest, and we'll have 13 or 35% of them in the Northeast. And as you followed our sales guidance, that follows where we've had our best results. An interesting thing, I think, if you look at our results for the year, we would have comped down about flat for the year had the West just been about flat, and so obviously we're paying close attention to that. The western part of the country, especially California, Arizona, Nevada and Florida have been difficult for us since September '07. We obviously were aware of that as we were cutting these deals in the first part of the year, so we focused more of our stores around parts of the country that were doing the best for us. Sharon Zackfia - William Blair & Company, LLC: And then secondarily, I think you mentioned you might try to push for higher IMU this year. I guess I'm curious as to what kind of opportunity you think you might have there and when you might be able to recognize some of that benefit. And then maybe a corollary to that is if you could give us some sort of perspective on your markdown cadence so far in the first quarter versus the fourth quarter.

So on the IMU, I think we're taking a hard look across each category within the departments and identifying what the consumer is willing to pay and designing the garment, whether it's our private label or working with our vendors, to try and hit those price points under the auspice that we are going to have probably a little bit less product in our stores and we need the sell-throughs to improve from where they were last year. So I think there's probably more opportunity in the back half of the year than there is in the first half of the year, and that has been an ongoing effort that we really started in the late fall, early winter season of last year. So we're hopeful that that will be fruitful for us. Sharon Zackfia - William Blair & Company, LLC: And then on the markdown cadence so far in the first quarter?

You've got to look at it by department. And so, as you guys know, we have sort of the five major departments - the footwear, the accessories, the hard goods and the apparel - and I'd say obviously the footwear department is comping very nicely for us, so the markdowns are materially below where they would have been last year. We actually were comping negative for most of the first quarter in footwear last year. I think in the accessories and the shoes, the markdowns are a bit higher than last year - I'm sorry, the accessories and the apparel. And in the skate hard goods, no meaningful difference. Sharon Zackfia - William Blair & Company, LLC: I guess my question wasn't versus last year; it was more versus the fourth quarter. I mean, your inventories are obviously tighter as you exited the fourth quarter. Are we seeing some mitigation of the markdown activity sequentially?

Yes. Yes, I'm sorry, I was doing year-over-year. So yes, if you looked at our markdown cadence of how we operated during the holiday season versus where we are now, I would say our markdowns are not nearly as high as they were in the fourth quarter.

Your next question comes from Jim Duffy - Thomas Weisel Partners.

I just had a question on your thoughts on the outlook for merchandise margins with some of the direction that you're taking with higher IMUs versus maybe your need to compete with other promotional activity in the mall.

You know, again, what we're talking about here, Jim, is the broad approach of trying to hit a multitiered strategy, so we're trying to hit the price point that we believe we need to hit to be competitive on the mall. That's the first place to start. And then we're saying we're going to try to build in additional IMU into that strategy.

Presumably you should be able to do it at better margins than you did in the fourth quarter, where you were more reacting to the price points in the mall.

That is the expectation we have clearly laid out for our buyers. And I think that, as Trevor said, the opportunity there is bigger in the back half of the year where we have more time to plan and react than it is here in the first couple of quarters of this year. The second thing, though, that I have to say relative to this is that we are also - we think we're doing a pretty good job of planning our inventory levels, of how we're planning to execute our strategies around product and margins as we move into '09. We still are at the mercy of the marketplace in terms of competitors that may not be rational in their pricing strategies, and so that's kind of the caveat we have here as we talk about what we're planning to do. We also have to be realistic that we need to be competitive in the marketplace relative to what our competitors are doing because the overall governing strategy for this year, to be absolutely clear, is to come out of this year in a very strong, equally strong capital position as we're in today. So you're not going to see us let inventory back up in our system.

The other thing, Jim, just to be clear on this. Higher IMU does not necessarily mean higher price. IMU's a calculation off of the cost, so we can have a higher IMU with a lower retail. I just want to be clear about that. When people hear higher IMU, they shouldn't expect that means a higher average unit retail.

And again, I'll add just the last thought there which is that we have some brands that are selling at full price, Jim, and that's the real mission we have here is we want to sell those brands at full price. And so those brands that have those strategies, have that limited distribution, are selling. We have some brands that are doing quite well.

So near term you expect to be still a little bit in reactionary mode; however, towards the back half of the year you intend to have some merchandise strategies in place which help you to be competitive but presumably make better markup?

That's correct.

And then, Trevor, a question for you. I was just looking at SG&A per average door, down about 11% in the fourth quarter, which is a meaningful drop from the improvements that you had been making. What's the outlook for that on a go forward basis? Is that because you're not paying bonuses and so forth, or how much more opportunity is there on a metric like that?

That's a good question and, you know, we've mentioned a few times that we believe we reacted very quickly in '08 and pulled out costs. And we've talked about that on some of the previous calls, things like new hires and bonuses and other costs that were discretionary in nature, we pulled those out. I will tell you the biggest reduction in the fourth quarter was in the things you mentioned and that we have paid a substantial lower amount of incentive-based compensation and the way we structured our equity based compensation in '08 versus '07 was a benefit to us in fiscal '08 as well. And so when people are thinking about fiscal 2009 and the 10 full percentage points we talked about in operating margins coming down in both the first quarter relative to the first quarter last year and the second quarter relative to the same quarter last year, actually the biggest majority of that decline is not necessarily in product margins but it is deleveraging on the comp. Our product margins, I think, will probably be down 100 basis points, maybe 150 basis points, but the bigger issue is that we had 21% more square footage at the end of the year. That will come down as we open fewer stores. But as you think about our rent structure and our depreciation, which is our second and fourth highest costs, those expenses don't go down as you have a negative comp. So the bigger deleveraging event that we have for certainly the first half of the year is that we've got a lot of new stores and they're going to be paying rent and depreciation and store expenses on that and that's the bigger driver of the negative operating margin is just the cost structure. The product margin is not the biggest driver of that deleveraging event.

Through the first three quarters of the year, is there opportunity on in-store labor or are you as lean as you want to be there?

You almost need to break it between the first half and the second half, Jim. If you look at the first half, we actually build our store labor by week by store; we're still small enough we can do that. Almost 80% of our stores will be operating at minimum hours in the first six months with the exception of a few peak weeks like Easter, things like that. But we will not have much opportunity at the store cost level until we get into the back half of the year. So yes, I would say we did a pretty good job of managing those costs last year. Again, a substantial amount of our stores will be operating at minimum hours through the first six months. There's a few malls - I think it's like 30 to 40 - that have changed their minimum operating hours; we'll take advantage of that. But I don't see that there's a lot of costs to be leveraged in the first half of the year considering the fact that we've, again, ratcheted those costs back in '08 and a substantial amount of those stores will be operating along minimal expenses in the first half of '09.

Your next question comes from Mitch Kummetz - Robert W. Baird & Co., Inc. Mitch Kummetz - Robert W. Baird & Co., Inc.: Trevor, on Q2 did I hear you right? Did you say that you expect the operating margin to be similar to or a drop in margin similar to that in Q1?

Yes. Mitch Kummetz - Robert W. Baird & Co., Inc.: And does that by default imply that the comp will be down as much in Q2 as Q1 or is there something else happening on the margin side in Q2 that we should be thinking of?

No, I think our current expectation is - at least, the way we're planning the business, right we're being very cautious about what we think's going to happen because this is such a unique environment for all of us. But I guess our plan would assume that those comps would continue at the rate, maybe a bit higher, into the second quarter. We certainly hope things are better than that and our results will be better to the extent they are, but we think it's prudent to plan for the worst and hope for the best. Mitch Kummetz - Robert W. Baird & Co., Inc.: Just to clarify, when you say maybe a bit higher, you mean maybe a bit worse, right?

Yes. Mitch Kummetz - Robert W. Baird & Co., Inc.: And then on your Q1 comp assumption, negative mid to high teens, that's worse than the trend that you've seen this past month and also in the fourth quarter. Is there something that you're seeing over the last week and a half that would suggest that business will be worse over these last two months of the quarter?

Well, as Trevor said, Mitch, I mean, what we're trying to do is be prudent because when you plan, I think, to operate a business in this environment, you have to plan conservatively. You have to make sure inventory is positioned appropriately and you have to be able to have a baseline, a conservative baseline for planning your costs. And we've done that, we believe, for all of 2009. So we're not going to comment on anything relative to the last week and a half. And I'll remind everyone, too, that the Easter shift's going to take place. No matter how you look at March, you can't look at March - we say this every year - you can't look at March on a stand-alone basis. You have to look at March and April combined to get the real trend we're going to see. So we're not prepared to talk on anything other than the numbers we've released. Mitch Kummetz - Robert W. Baird & Co., Inc.: And that's actually my next question - how should we be thinking about the impact of the Easter shift on those two months?

As you guys know, Easter is moving from Week 4 of March to Week 2 of April. And the biggest piece of that change is going to be the lead-up week, obviously. People will be buying more and that lead-up week will move from what was Week 3 of March to Week 1 of April. So our assessment is that there'll be a slight detriment to the month of March and you'll get a slight benefit in the beginning part of April, but I don't think it's going to be overly meaningful. Mitch Kummetz - Robert W. Baird & Co., Inc.: And then the margin assumption implied by your Q1 comp and earnings guidance, how should we be thinking of that in terms of the deterioration between gross margin and SG&A?

Good question. It's actually about equally split. You'll have about 500 basis points come out of gross margin and then about 500 basis points come out of SG&A. And then within the gross margin, probably 70-plus percentage of that is going to be due to the deleveraging effect. The rest of it will be to lower product margins. Mitch Kummetz - Robert W. Baird & Co., Inc.: And then you guys were kind enough to say that your footwear comp was up double digits for the fourth quarter, I believe it was, or maybe that was for the full year.

Oh, yes. Mitch Kummetz - Robert W. Baird & Co., Inc.: Could you say what the apparel comp was for the full year? Obviously you comped negatively; apparel's the biggest part of your business. Could you say what that was?

Yes. I think, Mitch, I'm just flipping here. I mean, they were down - I'm looking at them independently here. It was down in the low teens. Mitch Kummetz - Robert W. Baird & Co., Inc.: When you think about your outlook by department, obviously footwear's been your best-trending business but pretty soon you're going to be coming up against anniversarying when that turned positive in '08 and then also anniversarying some of the merchandise changes at [PacSun]. Is that a business that you would expect to maintain momentum in and continue to comp positively? I assume your Q1 comp outlook assumes a positive comp in footwear. Is that correct?

That is correct. And let's just talk a little bit longer, Mitch, about the cycle here. As you might imagine, particularly knowing, having been around us a bit, we have been pushing footwear over the last few months, have been accelerating our push because it is a category that's been working. So you're finding a broader presentation. We're shifting mix relative to the brands of the hottest, and we're expanding our wall presentations of footwear. So I think our estimations are that the comp will moderate as we start cycling up against last year's positive comps. We still anticipate that we have opportunity in footwear as these trends typically run longer than a 12-month cycle. Mitch Kummetz - Robert W. Baird & Co., Inc.: Have you also seen higher ASPs as being part of the comp improvement there?

We are seeing a mix shift, Mitch, away from our sale footwear to full-priced footwear, so yes. Mitch Kummetz - Robert W. Baird & Co., Inc.: Obviously, a lot of pressure on the business in the first half, maybe some opportunity in the back half, particularly Q4, but it sounds like, irregardless of comp, on the margin side of the business it sounds like there's opportunity there maybe for some higher IMU in the back half, less pressure from occupancy in the back half or just the impact of fewer stores hitting the P&L in the back half and maybe also some more opportunities to cut costs in the back half, especially on the store payroll side. Am I hearing you correctly on those? Is that a fair way to look at it?

Yes, with the one caveat, again, that we have to assume that our competitors are not irrational in terms of the pricing of their inventory positions.

Your next question comes from [Brandon Ferrell - Unidentified Firm].

I had a question, just a follow up on footwear. I know you guys are going to start lapping comps there and you've got PacSun's exit, which has helped. Just trend-wise as you think about what's going on with your various vendors of footwear and then as you analyze in-store activity, are there any trends in the category that make you more or less confident in its ability to continue to perform?

Again, I'll kind of re-emphasize some of the comments with Mitch, Brandon, and that's that, again, I don't think we look at it - we don't typically see trends run a year and then fade. We're seeing a good footwear trend. We're seeing a variety in silhouettes within footwear. And we have the advantage, again, because of our position in the marketplace that we have some uniqueness to the brand selection compared to most of the mall-based retailers. So I think that gives us some position. Now we have, in our plan - again, as Trevor said, you plan conservatively in this environment we have assumed that the comps moderate as we come up against last year's. That's kind of when this category took off for us. But offsetting that is the fact that we're chasing it with product, we're chasing it with bigger presentations within the stores.

As far as store growth goes, just philosophically, Rick, I mean, you talked about improved retail fundamentals or needing to see them for an uptick in store growth again. When you think about that, how long will retail fundamentals need to persist in an improved fashion for you to feel more comfortable in raising store growth expectations again? And then maybe on top of that, should fundamentals improve and you raise your store growth expectations, do we assume a step function back to 20% annually or are we talking about a more gradual increase?

Great questions, Brandon. I don't have a clear answer for you. It's kind of, I think, we'll know it when we see it kind of answer revolving around seeing an uptick in transactions for a period of time. I'd love to see that be a driver of our comps, rather than a decline in transactions being a driver of negative comps. So it's one of those things where I think we'll know it when we see it kind of things. Now, I think you're going to see us be more gradual as things uptick. Again, I think the game today is going to be - the winning formula today is not so much a growth formula as it is managing the balance sheet. So I think we're going to make sure that we're cautious around that and even once we see what we feel is a convinced uptick, Brandon, it's not like our pipeline is sitting here full. It's going to take some time to fire back up the real estate pipeline and that could take anywhere from three to six months.

On the product differentiation front or just the tiered pricing strategy, is that a byproduct of just needing to be more price competitive in a more differentiated fashion and then just generally weak retail trends or do you actually see yourself adhering to the strategy even if the operating environment improved going forward?

To be clear, we've done this multi-tier strategy for a very long period of time, virtually the entire time I've been here at Zumiez for 16 years, so this is nothing new to us. It's really the intensity, I guess, that we're managing with. As I said in response to Jeff's comment earlier, it's about how we're really trying to clearly delineate the value proposition now at each price level and making sure we're working closely with, as Trevor said, with the brands to make sure that the make is right at each level for the price point we're selling it at. And those combination of things is how we're trying to drive IMU, at each price point. And I would tell you going forward we're going to continue with this strategy. This is not something new. We believe that the whole action sports lifestyle resonates at all socioeconomic levels, so it's a smart way for us to serve every customer constituent we have no matter what socioeconomic level they're at.

Just to follow up on the second half '09 discussion, following up on what Mitch said, I get the sense there are opportunities in the back half of '09; the first half's going to be weak. Is there a potential offset to those opportunities to the extent that you've already booked your snow category, you've potentially booked it very conservatively and it's a big portion of the business in the back half of '09. Is that an offset?

What do you mean? Are you saying the - I mean, snow business defined as snow hard goods, snow jackets and snow pants in the fourth quarter's about 17% of our sales. So, I mean, that's 20% of our sales at its peak. And you're right. We've booked some of that - not all of our snow business. We have booked probably some of the hard goods, but the rest of the fourth quarter is still under evaluation and that'll be our next big booking that we'll make over the next few months.

And, again, for us it's a brand-category combination of what the strategy is for that brand and that category of product and you should assume this discussion around our ability to build margin and IMU into those categories holds true for snow also.

And Brandon, this is another good point. We talked about this in one of our conferences, that when you look at all the retailers, we all have a different stand on how '08 worked out for us. And if you look at our business, our business through August, which is the peak selling period of back-to-school, our same-store sales were down about eight-tenths of 1 percentage point. And if you look at our earnings through the first six months of fiscal '08 they were only down $0.02 a share in EPS and that's up against a 50% increase in '07, right? So we did pretty well through the first seven months of last year. Then September hit, you know, they had the Lehman and all of that kind of stuff going on, and our business, along with everybody's business, kind of fell off a cliff. We started from comping up in August on top of a 17 comp the year before; our business started comping down very significantly in September - we all saw that - and then we saw the panic that hit retailers in the promotional environment. So we do think that our first half is going to be much more challenging because we're up against much higher numbers over the last really five years. But as we get into the back half, assuming, as Rick said now two times, that there's a rational approach to how the other retailers price their products, that there is a lot more opportunity really starting in September for us.

Your next question comes from Linda Tsai - MKM Partners.

Could you talk about your marketing plans? Are you doing anything differently this year maybe in terms of communicating some of the value you're focused on? Does it make sense to spend more on marketing in the second half in terms of the rational spending or the rational pricing environment you've spoken about?

Well, I'll comment briefly on marketing. First is that our marketing spend has never been huge. I'll just make that general comment to start with. As we look at what we're doing in marketing, I'll break down the two components - there's the instore piece of it and there's kind of the consumer-focused piece of it. On the consumer-focused piece we are going to maintain doing some of the big events we've done historically like our Couch Tour event, including the amateur skate competition that we do through that event. So those things that touch the consumer that we felt were absolutely critical to our brand position we are going to be maintaining throughout this year is the current plan. As relates to in-store promotion, I think you're going to see us be very selective about what we do there and turn on the promotion and the appearance based upon the time of year, how we feel we're going to evaluate the time of year and the season and when it's time to drive some volume, as well as relative to, again, those commodity categories versus those brands that are being driven more by full-price selling and distinctive product. So, Linda, it's going to be a mix, I guess, is what I'd tell you. And again, lastly, I'll just say again, we're going to respond to the marketplace and our competitors as we need to.

Your next question comes from Jeff Van Sinderen - B. Riley & Company, Inc. Jeff Van Sinderen - B. Riley & Company, Inc.: What are your latest thoughts on visual merchandising for a presentation for apparel? Are you guys thinking about that any differently in this retail climate?

Yes, we are, as you might imagine. As you know, Jeff, one of our hallmarks has always been the great sales talent that we have out on our sales floor. And with that has always been, as you know, our stores have always been relatively dense in inventory levels to meet the high productivity of our stores. So with inventory levels coming down, I think you're going to see us try a number of different things. Not to diminish anything - we're not going to do anything to diminish the quality of our sales efforts and we're going to encourage our salespeople to be better than ever on that front, to sell multiple units, drive dollars, those things are all going to continue. But because we're bringing inventory levels down, I think we have the opportunity, through working with our product - a close partnership between our product team and our field team to take a look at how we're merchandising stores, feature more products, feature more brands, more collections of products. And I think you'll see more of that particularly as we get towards the back half of the year. Jeff Van Sinderen - B. Riley & Company, Inc.: And then I wonder if you can update us on new store performance and recent [inaudible]. Is there any change there in terms of trend relative to your more mature stores?

The class of '07 obviously finished its full year anniversary throughout '08 and we obviously watch that very closely. The class of '07 did actually over 70% of total store volume, so that is better than - we thought it would be doing in the 65% range. Now that's obviously a function of comps coming down 6.5% for the full year, so I think our new stores performed at, maybe slightly below, our expectations, but our comping stores coming down brought that ratio up. Historically the company's been anywhere from 60% to 70% - that new stores first-year volume would be 60% to 70% of mature store volume. I think regarding the class of 2008, it's too early to tell. I don't think we'd feel comfortable giving projections based on where we're at in the cycle and how much guessing we'd have to be doing because a lot of these stores have only been open for a few months. So I think we're reasonably pleased with the class of '07. I should also mention the class of '07 had EBITDA margins of close to 20%, so those things are flowing a lot of cash in their first year. But, again, the business changed so substantially in September that, depending on how things work out this year in the September on timeframe, that'll have a lot of reflection on how the class of '08 performs when you get through those peak selling periods.

Your next question comes from Connie Wong - Wedbush Morgan.

Are you guys making any changes to recruiting and training given this prolonged deterioration in the macro environment?

No major changes, Connie. I would tell you that clearly recruiting has become a lot easier in this environment. I think there are a lot of people seeking us out because of our profile and our history. So I think the feedback from the field team has been that it's obviously easier in this environment to be out recruiting. So we view that as an opportunity.

One follow up on that. As we've gone through, like every business in America, and have cut costs pretty substantially from our historical trend rate, I think the senior team as well as the Board have been adamant that training is one of the areas that will be the very last to be cut and things would have to be pretty dire. We're one of the only retailers I'm aware of that brings the senior store leadership together four times a year. We bring all of our store managers together three times a year. And it's hard to explain unless you experience those events the camaraderie and the level of education that we're able to deliver on that. So I would characterize that as not one of the areas that we have cut substantially. We've done things smarter and got some cost out of it that way, but that is not one of the areas that we're willing to sacrifice at this point because we think that's one of the top four pillars of our organization that makes us unique and if we had to make that severe of a cut, things would have to be pretty tough.

What tax should we be using going forward for fiscal 2009?

That's going to be a fun one. I think the tax rate for the first six months of the year is going to be closer to our historical rate. It's going to be a sort of high 30% range. And I think we're just not comfortable giving a rate beyond that until we see how the year progresses. And the reason it's going to be a little interesting is just due to the level of interest-free income and that's a permanent difference on our tax return, which is part of the reason, as I mentioned in my prepared comments, that our tax rate was lower this year. So I think as people are modeling I would for now use a rate that's at or slightly higher than our historical 38%.

Your next question comes from Jennifer Black - Jennifer Black & Associates. Jennifer Black - Jennifer Black & Associates: I wondered first - and I apologize if you answered this already - what kind of a comp do you need to get leverage?

Jennifer, I think that's going to be around 3% to 5%. We're not as focused on that considering the comp guidance we're giving, but our cost structure is such that we pull back costs when things get tough; we invest in the business when our comps are ahead of plan. So we have some ability to manage that, but we need a minimum of 3% to 5% to get leverage on the SG&A. Jennifer Black - Jennifer Black & Associates: And then can you update us on your plans for e-commerce?

As I think Trevor said in his comments, our e-commerce business comped up 50% in the fourth quarter, so we're making good progress there, Jennifer. I think we are clearly viewing that as an opportunity for us. And, again, Trevor said in the prepared comments that that is one of the areas we are investing in in terms of capital dollars, in terms of trying to get ourselves more capabilities on our platform than we have today. We have made some talent investments in that area over the last year. So I think it's an area that, not just as we look at '09 but as we look at '09 and beyond, we see that as a real opportunity for us to continue to build a distinctive business, particularly as it relates to us being a lifestyle retailer and a multi-channel lifestyle retailer. I think it really makes a lot of sense for us to be making some significant investments there. Jennifer Black - Jennifer Black & Associates: I know we talked about your store associates. Has there been any change in the way you incentivize them? And then I also wondered, you talked about the events and I wondered if there were any more incremental events you added maybe grassroots and are there any timing shifts with like the Couch Tour?

Okay, there was a lot there, so let me try to get at each one of those. We'll start with the events, Jennifer. There is no major timing shift relative to Couch Tour. We're going to do the same number of stops as we did the prior years. And we're very excited; we have some of the best teams in the action sports industry participating in our tour this year. I think it's got of excitement out there within our field team because there's some teams we haven't had previously that are coming out to join us this year. So we are going to maintain, again, those consumer-facing events that we think are so important to reaching our to our consumer and giving back to our consumer. So no change on that front. And I think Trevor commented on the training events. That is just one area that will be the last thing we touch. We have adjusted costs around it, taken some cost out of those events, but the integrity of those events remain intact and the power relative to the training and education that goes on and giving back to our employees, those things all remain in place. Jennifer Black - Jennifer Black & Associates: So the incentives for your employees - that's really what my question was. Those incentives are still there?

Yes. You're absolutely right. They are still in place relative to our commission structure. Jennifer Black - Jennifer Black & Associates: That's what I was asking.

That is absolutely in place, Jennifer. Now we may refocus things for particularly our managers relative to what they can control and impact. In these kind of environments, that means we're going to focus them more on dollars per trans and units per trans and a combination of those two, and we're going to look for those stores that are struggling around that and try to drive performance in those areas. Jennifer Black - Jennifer Black & Associates: And then on the events what I was really trying to get at is would you do any more grassroots events that don't cost money, that aren't expensive events? Is there anything that's creative do you know what I'm asking?

Yes. I mean, I think if we found events that were - right now let's just say we're maintaining our same cadence relative to our event process throughout this year as last year. Now, if we find events that we can do relative to working with our brands where it's low cost for both of us and I think in this environment it has to be low cost for both of us - then, yes, we would take a look at expanding it. But at this point the case is basically the same.

Your next question comes from Rob Wilson - Tiburon Research.

I'm curious. Why would a management team that's looking at its operating margin drop to the 1% to 2% range want to continue growing stores as aggressively as you are?

Again, as I said earlier, Rob, this has been a process where our pipeline was full, much more full than the current store count we've talked about. So we have actually trimmed back significantly starting from last September. Post-August we started trimming back the growth significantly. So we have worked closely with our landlords to do that and, as I said, we'll continue to adjust it as we need to relative to the needs of the business. But at this point we're comfortable with the number and, as Trevor said in his prepared comments, we believe that even with that we are going to end this year with positive cash flow from operations and an equivalent if not stronger working capital position than we're in now.

Have you adjusted your pay structure for your store managers? I know they historically have been paid based upon comp store sales.

No, we have not adjusted it. And it's a really good question, Rob. You're right; that is how we've done it. And as you know, our entire organization is structured around those same measures as we move up and down - comp store sales, product margins, the earnings power of the company. So we are just all making less money is frankly what it is in this environment at this point.

Your last question comes from [Bill Pizoa] - Teton Capital Management.

I want to circle back to the last question before that yawn came through on the compensation relative to same-store sales. Given that the same-store sales are down and we're now annualizing that at least until we get into next year, is there essentially a reset button that's pressed or is it the high water mark of the same-store sales that this is based off of? And I'm not sure if I asked my question clear enough.

I understand exactly what you're asking, Bill. Our goal has always been that however we perform the prior year, that that becomes the baseline for the next year. So in that sense, yes, the reset button gets pressed every year. And the goal with that has always been to try to get our sales teams and our store managers to maximize results when we have the ability to drive sales higher. And I think you do that by giving them the opportunity to make some money in that environment.

And then the other question was relative to the increased unemployment that the country's experiencing in the recession, what impact if any do you view that as having on the number of skaters, number one, and number two, broadly speaking, on the skaters' lifestyle?

Yes, we do a lot of analysis around these things or at least read, I guess, what's coming out in the press and pay close attention, and I think the metric you're mentioning, unemployment along with probably the housing and the consumer discretionary spending and consumer confidence, those are the ones that are at the top of our list. So I think it gives us lots of concern, the unemployment rate increase that we've all been seeing over the last year and the acceleration that we've seen in the last four or five months is a major concern to us. So I think we have seen a pretty strong correlation in our business. As the unemployment rate has grown and consumer confidence has declined, that has had a big impact on our business. And I think the other thing just for us that is much more relevant somewhat related to your question is our roots are on the West Coast and the West Coast, I think, generally speaking, is having a much harder time - and I saw West Coast; I should say west of Texas, really, because the Rockies and the Pacific Northwest are included in this. Sixty percent of our sales come from stores west of Texas and the comps there are really what's weighing on us, and I think they've got some of the bigger unemployment issues and some of the larger housing issues, so just as a function of the West getting it first and hardest. And we'll see how the rest of that plays out, but yes, unemployment's an important factor.

As it specifically relates to the skate consumer, you know, skate [inaudible] continues to be actually one of our better-performing departments, so that's a high replenishment business because those kids that skate break decks and need to replace them. So it's been one of the better-performing departments for us. Again, that is such a powerful lifestyle that we've not seen as much of a drop off there as we have in the broader apparel categories.

Relative to the West Coast, given that they - or the western half of the U.S. - given that they went into the recession first, or the housing issues anyhow, are you seeing or sensing that other areas in the country are following and then that the West Coast, in fact, is showing signs of bottoming and potentially even turning up while other parts of the country are still working their way down?

I think unfortunately we have not seen any improvement in the West Coast. And I think, I guess, somewhat fortunately for us, we have not seen the level of deterioration that the western half of the states - we've not seen that level of deterioration in the South, the Midwest and the Northeast even in the fourth quarter now. I think everything declined a bit relative to the first nine months of the year, but nowhere near what we saw in the West.

Ladies and gentlemen, thank you. That concludes our question-and-answer session. I would now like to turn the presentation back to Rick Brooks for closing remarks.

Thank you very much, Ann. Again, I just want to close with saying, as always, we appreciate your interest in Zumiez and understanding about where we're going in the longer term and our position in the marketplace. So thank all of you for that and we'll look forward to talking to you again in May as we release our first quarter results. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation and you may now disconnect. Have a good day. , and are :

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