Zumiez Inc. (ZUMZ) Q1 2013 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and welcome to the Zumiez first quarter fiscal 2013 earnings call. [Operator Instructions] Before we begin, I would like to remind everyone of the company's Safe Harbor language. Today's conference call includes comments concerning Zumiez's business outlook and contains forward-looking statements. These particular forward-looking statements and all other statements that may be made on this call that are not based on historical facts, are subject to risks and uncertainties, and actual results may differ materially. Additional information concerning a number of factors could cause actual results to differ materially from the information that will be discussed is available in Zumiez's filings with the SEC. I would now like to turn the call over to Mr. Rick Brooks, Zumiez's Chief Executive Officer. Please go ahead, sir.

Thank you, and welcome, everyone. I'm joined today by our Chief Financial Officer, Chris Work. I'll begin today's call with some prepared remarks and then Chris will take you through our financial and operating highlights for the first quarter. After that, we'll open the call up for your questions. Our first quarter came in better than we initially projected, with net sales of $148 million and EPS of $0.08, both above the high end of our expected ranges. Comparable sales were down 0.7% for the quarter, which was also better than our original guidance of a decline in the mid-single-digit range. After a challenging month in February, sales trends improved during March and April. This was encouraging, given the unseasonably cold weather in the U.S. throughout much of the quarter, underscoring the strength of our brand and desirability of our diverse merchandise offering. Over the past year, we've made strategic investments towards building and further enhancing our leading position in the global action sports marketplace. The largest of which was our acquisition of Blue Tomato last summer, followed by our ongoing investments to expand our e-commerce and omni-channel platforms, and of course, investments in our people. These investments are critical to our long-term success. However, as we discussed in our earnings call in March, we're way on our short-term profitability compared with a year ago. That was the case in the first quarter as the combination of comparable store sales decrease and increased cost structure resulted in decreased operating margins and earnings. As I said previously, our focus remains on building a sustainable, long-term foundation for growth. To achieve this, we continue to dedicate our time and resources towards increasing the productivity of our current stores, developing a leading omni-channel platform and growing our footprint, both domestically and abroad. Let me take a minute to update you on those efforts. One of the key pieces of our differentiated business model has been, and will continue to be, investing in the Zumiez team. For example, a couple of weeks ago, we held our annual managers retreat, where all of our managers engaged in an intense program of teaching and learning, designed to empower our leaders to impact their teams on a daily basis. We truly believe this experience is second to none, and this year was yet another statement of how we are successfully enhancing the training and growing our culture as we grow our business. Our employees are passionate about the lifestyle, and it's our collective responsibility to ensure they have the training, tools and empowerment to deliver a genuine, high-quality in-store experience for our customers. This unique customer experience is the life blood of our top line success and is a key component to driving consistent, long-term comparable store sales gains. We are also investing heavily in enhancing and expanding our unique perspective on the action sports lifestyle into the virtual space. During the quarter, sales referrals through zumiez.com and bluetomato.com brought our total e-commerce penetration to 11.8%. There is still a great deal of a room to further integrate our selling platforms, but we continue to make important strides towards creating an omni-channel business that gives consumers quick and easy access to the product they want, however they want, anytime they want, and also delivers the same great Zumiez brand experience they've come to expect from us. This quarter, we opened 7 new stores, 5 in the U.S. and 2 in Canada. This brings our total global footprint to 503 stores, including 22 in Canada and 6 in Europe. As we begin our third year operating in Canada, we continue to see tremendous growth potential for our brand in the Canadian marketplace. We anticipate that we can nearly triple the number of existing stores we have in this market in the years to come. We also see room for new store growth in the U.S. and continue to plan our business year to be between 600 and 700 stores. As we evaluate and execute on opportunities in the U.S., it's important to note that we'll actively manage the entire store portfolio, and we expect to close some low performing stores. Our goal here is to reach all markets in the U.S. with the right number of high productivity stores and a strong omni-channel presence. In Europe, our focus has been, and continues to be, building out on our infrastructure to support future market share gains. As the economy in Europe continues to struggle, we are leveraging our strengths as best-in-class operators to successfully navigate the near-term headwinds and position the business to accelerate, once the environment in Europe turns around. In the face of this tough environment, Blue Tomato's sales increased 8.6% in the quarter, compared to the quarter a year ago. The nuances may be different, but the story here hasn't changed. Our diverse and differentiated product assortments, combined with the unique lifestyle-focused culture that underpins the way we approach selling, still guide our way as we expand our global reach and position our business for the future. We remain true to our mission to be the leading, global action sports lifestyle retailer, and every dollar we invest in our business is dedicated to that end. With that, I'll hand the call over to Chris.

Thanks, Rick. Good afternoon, everyone. Let me start by briefly reviewing our first quarter results, reviewing our guidance for next quarter and giving a few thoughts around fiscal 2013. Then we'll open up the call for your questions. First quarter net sales were $148.5 million, up 14.3% over the first quarter of last year. Breaking that down a little further, North American sales were up $9.5 million or 7.3% over the prior year quarter and Blue Tomato added $9.1 million to our top line this quarter. Our first quarter benefited from the addition of 48 net new stores since the end of our first quarter last year, including the 6 acquired in Europe, offset by negative 0.7 comparable store sales. Breaking down the category performance for the quarter, our men's, accessories, footwear and boy's comped negative, while juniors and hardgoods comped positive. Transactions were down in the quarter, while dollars per transaction benefited from higher average unit retail prices and an increase in units per transaction year-over-year. Due to a variety of factors, many external, we believe our February sales results are not indicative of our long-term performance of our business. When looking at the March and April periods together, which we believe is more representative of our overall trends, comparable store sales increased 3.2%. And in addition to our juniors and hardgoods business, footwear also comped positive in that time frame. Comparable e-commerce sales increased 13.1% in the first quarter, which is included in our consolidated, comparable store sales. Gross profit for the first quarter was $48.0 million or 32.3% of net sales, compared to $42.1 million or 32.4% of net sales in the first quarter of 2012. Product margins in the quarter improved 60 basis points, which was more than offset by the deleveraging effect of a negative comp, an increased e-commerce fulfillment and shipping cost as a percent of total sales. SG&A expenses for the quarter were $43.9 million or 29.6% of net sales, compared to $34.8 million or 26.8% of net sales in the prior year quarter. The increase over prior year quarter is a result of deleveraging our cost structure on negative comp, as well as the contingent future incentive payout payments and amortization of intangible assets associated with the Blue Tomato acquisition. First quarter operating profit was $4.0 million or 2.7% of net sales, compared to $7.3 million or 5.6% of net sales during the first quarter of last year. Net income in the quarter was $2.5 million or $0.08 per diluted share, compared to $4.5 million or $0.14 per diluted share in the first quarter of 2012. Included in the results for the first quarter were costs of $1.7 million, impacting our diluted earnings per share by approximately $0.05, which included $1.1 million of estimated earn-out and $0.6 million of intangible amortization related to the acquisition of Blue Tomato. Results in the prior year quarter include $0.4 million or approximately $0.01 per diluted share for acquisition-related costs. Moving on to key balance sheet highlights. We ended the quarter with cash and current marketable securities of $97.6 million, down from $171.2 million a year ago. This decline was driven by cash paid for the acquisition of Blue Tomato, capital expenditures related to new store growth and cash paid to repurchase our common shares, partially offset by cash generated by operations. As of the end of the quarter, we had $2.1 million in outstanding debt, related to debt acquired from Blue Tomato, and no outstanding balance on our revolving credit facility. Capital expenditures in the quarter were $6.4 million, primarily driven by new store build outs since the end of our 2012 fiscal year. Inventory was $90.9 million at May 4, 2013, up 29% from $70.4 million at April 28, 2012. In North America, on a per square foot basis, inventory was up slightly compared to the end of the 2012 first quarter. Overall, we remain confident in the quality of our inventory, as we move into the second quarter. During the first quarter, we repurchased approximately 0.2 million shares of our common stock for an average cost per share of $22.36, for a total of $3.7 million. As of May 4, 2013, we had $12.5 million remaining in our previously announced stock repurchase authorization. Now let me outline our guidance. As always, in putting forth this guidance, we want to remind everyone of the complexity of estimated sales, product margin and earnings growth, given the variety of factors that impact performance, including challenging macroeconomic conditions. For the second quarter, we are planning comparable store sales to be flat to an increase of 2%, and total sales to be in the range of $155 million to $158 million. We expect consolidated operating margins to be in the 3.5% to 4.5% range, with diluted earnings per share between $0.12 and $0.14. Included in our second quarter guidance are an estimated $1.6 million or approximately $0.04 per diluted share in ongoing cost associated with the Blue Tomato acquisition, consisting of $1.0 million in contingent earn-out cost and $0.6 million in intangible amortization. As a reminder, the calendar shift resulting from an extra week in fiscal 2012, will impact sales results by period and quarter throughout the year. In the second quarter, we estimate a favorable sales impact of approximately $5 million to $6 million as the back-to-school sales week will shift out of the third quarter. This shift will have a similar, unfavorable impact on the third quarter sales. As Rick touched on in his comments, our outlook for the year has not changed. And as many of you know, our business is seasonal, with the majority of our sales and earnings occurring on the back half of the year. While sales trends have improved during the past couple of months, consumer sentiment remains tough to gauge, and there is still uncertainty about the sustainability of a global economic recovery. Because of this, we will continue our practice of not providing specific earnings guidance for the full year. However, I do want to reiterate the thoughts we shared with you in March. We are planning our comparable store sales to increase in fiscal 2013, although we are cautious in our outlook and believe this could be lower than comparable store sales in 2012. Excluding the impact of the inventory step-up associated with the Blue Tomato acquisition, we achieved record product margins during fiscal 2012. And while our product margins were strong in the first quarter, they can be impacted by a variety of factors, most notably, shifts in product mix, both domestically and internationally. Our current projections for 2013 consolidated product margins, excluding the impact of the inventory step up in the prior year are flat to down slightly. We plan to continue making strategic investments that we believe will reap long-term benefits, focused on enhancing the customer experience across multiple channels, growing our international footprint and investing in our people and infrastructure to support our domestic and international growth in 2013 and beyond. We expect these investments to deleverage our overall gross margin, as well as SG&A for 2013. However, to the extent we achieved positive comparable store sales for the year, we expect operating profit to increase. As a reminder, fiscal 2012 included an extra week, resulting in a 53-week fiscal year. While this was a benefit to sales and earnings growth in fiscal 2012, it'll be a detriment to sales and earnings growth rates in fiscal 2013. Estimated earn-out expense, related to the Blue Tomato acquisition, is projected to be approximately $4.0 million in fiscal 2013, and the amortization of intangible assets associated with the transaction is expected to be approximately $2.4 million in fiscal 2013. We are now planning to open 58 new stores in 2013, including 9 in Canada and 6 in Europe, with a cadence similar to our historical openings of 2/3 prior to back-to-school and 1/3 after. We estimate our net store growth, after closures to be 52 to 54 stores. As an administrative note, we have removed the 2 seasonal Blue Tomato stores from our total store count, as these stores are not representative of our full line store base. We expect capital expenditures for the year to be between $40 million and $42 million, compared to $41 million in 2012, the major capital projects being the new store openings and planned store remodels. We also expect depreciation and amortization to be approximately $28 million, an estimated 22% increase over fiscal 2012. We anticipate our annual effective tax rate to be consistent with our fiscal 2012 results. Finally, our weighted average shares used in the calculation of diluted earnings per share for the full year is projected to be approximately 30.3 million shares, which includes the impact of 0.2 million shares repurchased during the first quarter. Any additional share repurchases during the year from the 12.5 million remaining in our authorized repurchase program, will further reduce our share count. And with that, we will now open up the call for some questions.

[Operator Instructions] Your first question comes from the line of David King from Roth Capital.

I guess, first off, kind of digging into that guidance a bit, for the flat to up 2% comp for the second quarter. I guess, to what extent is that a function of what you've seen so far in May, and I assume that it includes some of your expectations for the higher back-to-school week, and then Rick maybe, or Chris, you can just comment on, or remind us again when Blue Tomato and its e-com business, is added to the comp base, and what impact that might have, please?

Yes, great. Thanks, Dave. Thinking about May, we won't give any commentary around May yet. We'll wait until we finish the month. In regards to the sales shift, the guidance does include the $5 million to $6 million that we laid out, that will move from Q3 to Q2. So that is included within our guidance. And then lastly, I think your question was when does Blue Tomato come into the comp. We closed that transaction on July 4 of 2012. So we will start to anniversary that in both these stores we acquired, as well as their website will roll into our comp after the 4th of July, 2013.

Okay, that's helpful, and then, just so maybe then, I understand not -- you not wanting to comment on May, but we're, I guess, further into now. So maybe asking the question a little bit -- in a different way. I guess to what extent is that zero percent to 2 percent x the other factors we talked about, a reflection of May versus general consumer sentiment out there in the market that, I think, you kind of alluded to in just ongoing concerns macro, et cetera?

It's, David, it's -- let's just say, again, we're not commenting on May. But it's so -- it is we, I -- we realize we said that the March, April period is running higher, but it's only a few weeks into a long quarter, and we're just putting the guidance out there, the zero percent to 2 percent range.

Okay. And then, maybe then as a follow-up, the -- in terms of the categories you're expecting for growth it seems that footwear seems to have now shown some improvement after some of the changes you've made there. I guess do you expect that to continue? And then, maybe on the Junior side, think one of your competitors talked about some of the things they're seeing in terms of traction from existing action sports brands, rolling out product that's more well received or better received by female customers. Is it fair to assume that you guys are seeing some of that as well, if you could just comment?

Well, thanks, David and I'll just comment briefly. Again, I mean, we are encouraged with the -- our first quarter results around footwear. And I think we'd said it last fall, that we had some struggles there but there are some things we thought we could do to address those issues, and I think you're seeing our efforts come to fruition on those points. So I'm pleased with the hard work of our teams. In getting, again, as we know, the issue was men's footwear, I think we're clear about that in the fall. So I'm very pleased, but again, the hard work our teams have put together, and the things they've done and we've seen improvements there in Q1. As it relates to your question on women's business, I mean, your question presumes that we haven't been doing this for a long time, relative to our relationship with brands. We've been doing this for a long time. So there's nothing new for us in regards to that. That's -- we're -- continue to move forward as appropriate, based upon the trends. So this is -- I'm glad that people liked to follow what we're doing.

Yes, and, but I guess the other question I was asking was, do you think it's fair to say that the brands is also doing a better job, in terms of offering a good Juniors offering, which I think that sometimes in the past, you can say that some of them hadn't necessarily addressed it well enough on the Junior side.

Again, that was brand by brand considerations, and I'll tell you this, some brands are doing, some brands that don't. So it's never a straightforward answer, but overall, of course, we're having a lot of success with our women's business, and we think it's -- we don't see that going that, that it's going to change as we look into Q2.

Your next question comes from the line of Sharon Zackfia from William Blair. Sharon Zackfia - William Blair & Company L.L.C., Research Division: I had a couple of questions. I guess, first on gross margin. Can you give us kind of some more insight into how e-commerce affects that, going forward? I suspect the mix is a bit different in e-commerce. And if you could talk about that, relative to how shipping plays into that, and how we really think about that, as e-commerce grows more quickly and our margin assumptions going forward?

Yes, great, Sharon. So looking at gross margin overall, as we said, product margin was very strong, but yet gross margin on a consolidated business was down 10 basis points. So in thinking through that, we mentioned 2 items. The first of which would be obviously, deleveraging on the negative comp. And as you would expect, there are fixed costs within our gross margin calculation that did not leverage, most specifically occupancy in that bucket, but others as well. Thinking about the e-commerce side of it, which is the second piece we mentioned, clearly, we have a mix change, most specifically with our Blue Tomato acquisition, bringing on additional web dollars, as well as growth in our U.S. business. So in thinking about those long-term, I -- this year, as we start to anniversary Blue Tomato, that should start to normalize a little bit, but we would expect to see some additional dollars associated with the distribution and shipping amongst those channels within gross margin. Sharon Zackfia - William Blair & Company L.L.C., Research Division: Then I guess, in aggregate, is e-commerce on a gross margin basis, similar to your bricks and mortar, or does this skew a little bit lower?

On a gross margin basis, it would be fairly similar. It would, I think, it's more of a mix issue at this point. Sharon Zackfia - William Blair & Company L.L.C., Research Division: Okay. And then, did snow -- I'm assuming you had a better snowboard first quarter than you did last year, when it didn't snow at all. I mean was that material enough to actually impact the product margin that you referred to, given that snowboards are a lower margin business for you?

No. Sharon Zackfia - William Blair & Company L.L.C., Research Division: Okay. And then lastly, SG&A. I know you guys are do a lot of investing this year. Is the cadence of year-over-year dollar growth in the first quarter, pretty representative of what we should expect for the full year. I know you kind of ramped that up as 2012 progressed I'm not sure if we should expect that to abate so much as we get back in -- into the back half of the year?

The cadence of SG&A growth is your question? Randal J. Konik - Jefferies & Company, Inc., Research Division: Yes. The dollar spend.

Yes. We will continue to ramp that up as we move throughout the year. Most specifically, one of the things that we talked about, in areas of growth, is investments in our websites. And we will be launching our new websites here in the future. And on the back half of the year those will have a more significant impact on our cost structure.

Your next question comes from the line of Jeff Van Sinderen from the B. Riley.

Rick, any further thoughts on how the weather phenomenon impacted your Q1, and I know that comparisons get easier for you for the next couple of quarters, but do you think that the late arrival of spring weather helps your Q2? And then I guess, looking forward to back-to-school this year, I know you have the 1 week shift from Q3 to Q2. But any reason to think that the peak weeks might be generally later this year, or peak selling might be generally later this year, for back-to-school? You think maybe that the spring purchasing activity could cause some sort of a push out of back to school peak spending, any thoughts on that?

Sure, Jeff. I'll share our thoughts, and that's exactly what they are, they're thoughts. Let me first start by -- with your weather question, and it's, of course, if we want to talk about it, about weather, right, which I -- I don't like to talk about weather, as a reason for business moving the way it does. It is a factor. But if we just talked about weather this year, we also have to talk about how great it was a year ago, right? And so that where we have to start, because of course, is relative on a comparable basis, so we had a great year a year ago, weather-wise, tougher one this year. And so the heart of your question's whether or not that, all is going to flow through in pent-up demand, as we move into better weather here in the rest of the spring season. And it probably a little bit will, but I'll tell you, I don't believe it's a -- we capture all of it. When you go through a whole season as far as we're in deep into the spring season at this point, you'll get some back, but you know, our experience is typically, you don't get all of it back, in terms of what you have for that season. I think some of those dollars are lost in the process, so. And we certainly consider that in terms of how we think about Q2 in our thinking. So we -- internally, our experience says, you don't assume you're going to get all that dollars flowing back here, we'll get some, but not all. Your question -- your second part of your question, related to do we think we're going to see a shift later and later in the back-to-school, around the peak back-to-school weeks. And it's a good question, Jeff, and I think you've heard us say for years now that, that's been a trend that we've been seeing. And so again, our assumption is there is that's a trend we will continue to see, and so potentially, that may mitigate some of the -- or move some of the line back into Q3 relative that last week, but that week we're talking about, that first week of August isn't that big a week in the scheme of the back-to-school's week, at least for our mix of stores. So the answer to your question is generally yes, I think, if we -- if trends hold the way it had been for the last, many number of years now, we'll continue to see volume concentrate around the peak weeks of back-to-school. But it happens to be that, that first week of August is one of the smallest of the peaks in the back-to-school window.

Okay. That's really helpful. And then also, anything you can share about the recent trends with Blue Tomato's business?

And again, I don't want to over-focus on Blue Tomato, it's still a relatively, so we're clear, it's a relatively small part of our business. But as I did say in my comments, we comped up 8-plus percent.

Total sales were up 8.5%, comp was 5%.

On Blue Tomato?

On Blue Tomato.

Right. Over the prior year. the total sales gain. And as tough as it is in Europe at this point, I mean, this is, again, as I said in our comments, it reflects the quality of the operator, I think, that we have partnered with here. We continue to believe these guys are the best to operate in an action sports marketplace in Europe. So and despite -- of a shrinking market, they continue to grow sales, and I think that's going to be the nature of the game in Europe for a while. So we're pleased with how we're doing there, Jeff, and I, again, I want to put it all in perspective, it's a very small part of our overall business. And to put more perspective around it, I mean, this is a long-term play for us, right? We're talking about a 5-year window to really see Blue Tomato continue to grow enough to be a meaningful part of our business.

Your next question comes from the line of Edward Yruma from KeyBanc.

Congrats on some of the success as you guys are now posting in footwear, and I'm sorry if I missed this, but I know that starting kind of at the end of third quarter, you began some testing, enabled some of your merchants to take more risk within footwear. I guess at this stage, do you call a turn within that part of your business, and I guess, how much can you do to kind of circumvent some of the athletic footwear trends that maybe have run against you for some time?

Sure, Ed. Again, I think our thinking on this is, and we're always -- so I'm clear, within our business, we are always taking calculated risk. We encourage our merchants to experiment and play all the time, so. There's really nothing new from that perspective. More, I think what we've achieved in footwear is getting the right mix of product amongst our branded suppliers. And so that's one of the key reasons of why I could comment so competently in the fall window and in November, like you say, we're doing things, there's things we've identified, we believe we can execute against them that will make a difference. And so we did. And we knew could do those things and it's had the result that we would have hoped it have on our business. So we're encouraged by that, and it's really again, a repositioning of the mix between brands and styles. And again, for us, so I'm clear about that, on a micro sorted basis, right? So our teams are very focused on getting the right products to the right location, the right mix. So it's always a little bit more complicated than I might say with a quick comment. So and again, that's part of the reason I want to reflect the good work our team has done there. So we're ready to call a turn. I mean, we are relative I believe for our guidance in Q2, and we'll talk more as we get into Q3 about how we'll see how well we can do as we continue to drive that forward. But for now, we're pleased with the result.

Got it. And it seems like some of the larger, more mature action sports brands are broadening the distribution. Seeing some of it up here, and even moderate department stores. I guess, how does that change your appetite for some of these big, well-established action sports brands?

Well, and I guess I'd challenge you to find much product in our store that is from those large, well-established actions sports brands. In most cases, we move beyond them pretty significantly. So you won't find a very big presentation, if any, at all.

Your next question comes from the line of Devin Prater from D. A. Davidson. Devin Prater - D.A. Davidson & Co., Research Division: This is the Devin on for Andrew Burns. Just one quick question for you. So we've been hearing all about the mall operators, maybe gaining the upper hand as economic conditions slowly improve and retail space is limited. So are you guys finding it any harder to secure locations at reasonable rent rates to execute your U.S. growth strategy?

All right, thank you for the question, Devon. So, we -- I've read that out there, just as you have, and seen that, and those articles typically tend to appear right before an IPSE convention, which is completed, as you know, over the last few days, the big convention in Las Vegas. I can tell you, we don't think of it like that. And what we do and we work on -- we have a big list of target locations, right, that we would like to add into our network, and we're working against that list all the time. And each deal has to stand on its own. And we know what economics have to be, our mall partners know what those economics need to be for us to make our locations work. So for us, it's -- we get down to more the micro level of -- we simply won't do deals if they don't work. And they have to work, and we have to get the returns on the -- on our economic metrics for the locations, and we have to be patient enough not to take deals that are in bad locations, and I think we again, we have a good track record that we do a pretty good job on that front, and against both the metrics, as well as good locations in malls. So while there may be macro issues, I'm not sure there are, at this point, but there may be, that's not the way we think about it. And we simply have to do deals that fit our metrics or we won't do deals.

Your next question comes from the line of Christian Buss from Credit Suisse.

This is actually Darla Shay on for Christian. Speaking to the store growth opportunity, of the 40 or so new stores over the past 12 months, how are the new stores ramping in veteran new market versus your existing? Are there any meaningful differences and some learnings that you can apply, maybe from the new markets to some of your more mature stores?

Yes, thanks for the question. We have a series of metrics we set out for all of our new stores, and while the 2012 stores are still very early on in their growth process, and many of them coming up on their first anniversary, they are -- our 2012 population is meeting those metrics. So we're happy with how the 2012 population looks. We continue to learn from our new stores, in new markets, as well as -- we've opened 2 street locations. So we continue to monitor those, and learn from those, and take those results back to the business.

And your next question comes from the line of Stephanie Wissink from Piper Jaffray.

It's actually Maria Vizuete for Stephanie Wissink. I've got a quick question, just as you think about the women's business currently, and where, maybe if you can talk about where you're seeing that growing to over time as a percentage of total mix?

I'm sure, Maria, I think you're well aware that our women's, again, so we're clear, this is women's apparel, and when we talk about this, our mix structure here and last year it was approximately...

11%.

11% of our sales. I think it's bottom in this cycle had been around 10%.

10%.

So and historically, it's been as high as 15%. So our goal is to get it as high as we can get it, and not as a mix, but we're hoping that, right? We're trying to move everything up at the same time. Now women's is clearly growing faster than other parts of our business right now, so it's gaining share within that mix. Of course our goal is to lift everything, which makes mix share a little bit tough to measure in that sense. But we clearly would love to get it back to the 50% range over some period of time, and we're not limited by that at all. Again, our consumer would tell us how high it will go and how fast it will go there. And our merchants are working hard to make sure we're delivering just really great product that is relevant for our consumer to purchase.

And your next question comes from line of Paul Alexander of Bank of America Merrill Lynch.

Fully appreciating that Blue Tomato is a long-term growth vehicle, could you just maybe expand a little bit on what we might see, stage by stage there? Because it is a compelling, as you said in the past, compelling action sports market. What might we see in terms of acceleration over time? What might you change about the stores that are there? Or about their assortment or anything like that?

Sure, Paul. There's and again, we're not going to open our playbook here on what we're doing, necessarily. But, and I'll start by saying that and again, we have 6 stores in Europe currently, Blue Tomato off stores, and we said we're going to add 6 this year. So that's 100% growth rate. I mean, that's pretty huge. And you know that we've always been one of those companies that likes to make sure we're managing the growth so that it's quality growth. And so you're going to see us be, just in general, very cautious about making sure that we're going to grow the business in a smart way. And I will tell you that [indiscernible] and his team and our team here, we're all believers in the omni-channel model, and that's the reason, I think, as you know, [indiscernible] has a very strong e-commerce business, working in -- across the eurozone. And so we want that to continue to grow. So I'm hoping that as we talk about what we do here, you're going to see our -- his e-commerce business continue to grow and flourish. It's again, they really know that business very, very well. But again, because we both share the omni-channel vision, you're going to see [indiscernible] and his team open more stores. But again, were going to do it in a way that we can -- that we want to maintain the quality of the operations. So the goals will be about opening stores to support, not just the local markets, but the idea of omni-channel retail in Europe. So as you think about how we're going to do that, again, I make sure that you're putting in parameters the idea that we're really trying to build the omni-channel platform in Europe, we have a well-established e-commerce base to do that. And now we need to do the physical part, which is build out key markets with physical stores to show, first, that we can do it, we can really operate all these stores we intend to build. We can do to it the smart way with good quality, and that we can add the omni-channel components to it. So those would be the things I would, and that's why we say you have to have a long-term view on this, we're not going to grow the business so fast that it's a detriment to the quality of the operations. So that's going to be the balancing point, that we're going to have to balance here over the next couple of years in the next 5-plus years. It's the right level of growth that the team there in Europe can handle, but is pushing -- pushing forward so we can build that omni-channel market.

Great. And what's -- what are the major differences about opening in Europe versus opening in the U.S. that you're staying aware of, and that we should be thinking about?

Sure. There are -- there will be -- again, we have a real advantage here, in that the Blue Tomato team has such a strong e-commerce business across the eurozone, because we clearly have a map for our key markets and their importance to the business, and how we're doing it. One of the key things, from an operating perspective is going to be, again, you have to evaluate on a market by market basis, what is the right way to build stores, and in some markets, they're going to be predominantly street-based locations. We will be on high streets. In other markets, we'll be a mix that maybe more mall-based. So those are things that we are experimenting with, including even with the 6 stores this year, to make sure we understand how the metrics work, and you understand our ability to operate in each of those environments. But that will depend on a literally, a country-by-country basis, what the right mix is. Now also, as again, [indiscernible] team is, has a -- in the e-commerce operation, they have a very strong customer service department that serves multiple languages and all the technology to support that. As we build out the physical world, those would be -- some of the continuing challenges we have to think about too will be operating in countries that the primary language isn't German, and how we think about international and the point of sale or internationalizing the point-of-sale functions there in Europe, as well as there'll be legal structure issues, marketing issues that will all be resolved on a country-by-country basis. So it is definitely a more complex growth environment from most aspects. But also, it can be done, and that gets back to the idea of doing it with good quality, right? And making sure again, that we're doing it at the right speed, and we can execute at a high level.

Your next question comes from the line of Betty Chen from Wedbush Securities.

Just kind of to follow up on the earlier question, Rick. It sounds like certainly you're being very cautious, the team is being very thorough in evaluating the store opportunity there. So I don't know if we're too early to talk about this, but could you share with us any initial thoughts on what is the eventual store opportunity that you could see in the eurozone? And then, kind of related to that, as we think about the company longer-term, when you've got a mix of Blue Tomato stores, Canadian stores and then U.S. domestic, maybe for Chris, how should we think about the 4-wall contribution, maybe, just to tell us if you could, is it the U.S. as high as Canada, Europe et cetera, or are they fairly similar?

Okay. Thank you, Betty. We're not prepared to talk about the total European opportunity at this point, other than to say it's significant, and we're talking about hundreds of stores, not below, not in the double-digit number, but in the triple digit number, the store opportunity in Europe. And we don't want to get too far ahead of ourselves. Again, because we're, you worked with us for a long time, you know that we like to show results. As we're able to show results over the next year and 2 years, as to what we can actually do, we can actually tell -- talk to you about the metrics in, relative to what are the 4-wall contributions, how we're thinking about them, I mean, then we'll really firm up the numbers about, I think, it'd firm up how big the opportunity is. But it's got to be based upon our ability to execute successfully. So we like to demonstrate that in there. But we know the potential is huge, right, in Europe, and also, we need to see -- part of our opportunity there is about a share consolidation plan. I mean, Europe is a very tough market now. And again, that's the advantage of partnering with a team as strong as the Blue Tomato team, is they're really great, and not just in terms of operator, but they're a great cultural fit with the way we think and the way we act. So we're encourage about the base in the platform we have, and then we're going to go as fast as we can go, Betty, as long as we don't do it in a way that reduces the quality of the operations. So and then I'll let Chris talk a little bit about how we think about 4-wall contributions and again that's going to -- I can tell the headlines will be -- it's going to depend on the market. And how we think about it and that it's not going to speed it out the 4-wall contribution percent, it's going to be about the contribution dollars. So Chris?

Yes, that's correct. So as we think about both Canada and Europe from a global perspective, and as Rick mentioned, it'll be different within different pieces of those markets. We would expect those to be higher contributors on the top line, with a more -- with a higher cost structure, so that the overall, 4-wall contribution on the bottom would be a little bit less than you would expect from where we are today, but the dollars would be more or comparable. I'll preface that with also saying, in this omni-channel world, you also have to look at these 2 playing together, that the web will be helped by the stores, and the stores will, of course, be helped by the web. So it's hard to totally look at just the 4 wall contribution, because there's integration between those 2 channels. And that's how we're looking at it, as we move forward.

That's really helpful. And then If I could have a follow up with Rick, again, in terms of I think one of the key areas again, is investing in talent. Clearly, I know you've listed a number of strategies, but are they really key areas where you really like to further strengthen the team and that you can share with us?

I would tell you, Betty, that I think the leadership roles, at the executive level are set. And we feel comfortable to [indiscernible] there. But there'll be a number of key technical needs that we are going to have within the organization, and this really relates to our ability to execute in the omni-channel world. And the U.S. right now is leading the way in the idea of omni-channel retail. And I have to tell you, I'm very pleased with where we're at, in this effort. I think we're moving towards being one of the leaders here in the U.S. and I know we don't always share all the things we're doing, but we're doing a lot. And a lot of what we're doing is we're seeing very strong results from. But to execute in this, you really have to view it -- you can't view it as web commerce and POS commerce and you need to view it as commerce. And to do that, and make that come alive, we need, we need a number of tactical resources, and you should think about those are the kinds of areas I think, that'll be key growth areas for us, will be our ability to support this from a technological point of view, and then from a -- particularly from potentially a marketing point of view as it relates to direct marketing tactics, and more personalized messaging for our consumer base. And of course, as you know, that's one of the reasons, that the loyalty program becomes such an important foundational piece, because we need to -- in exchange for learning more about our customers we're rewarding them for sharing more of their information, so that we can, over the long term, be more relevant in how we communicate with those customers. So it's going to not really, I don't perceive it as much at the executive level, in terms of the talent needs we talked about. It's more about talent needs throughout the organization, to execute it in all these initiatives and again, we have a lot of a lot of ambitious goals, so it's how we're going to execute all these initiatives across the organization, and again, when I say across the organization, I mean both here in our North American team, as well as in our European team.

Your next question comes from the line of Jennifer Black from Jennifer Black & Associates.

Hi, this is actually Carla White for Jennifer Black. I just wanted to ask about your, I know you talked about your strategy in 500 to 600 stores, and I wanted to find out about what you were thinking as far as the outlet business and how that performed in the quarter?

All right, Carla, thanks for the question. And again, to be clear, we're talking about 600 or 700 potential stores in the United States and then, Canada and Europe would be additional, on top of that. And again, I'd like to add what -- to what Chris said in his earlier comment about, as we think about this, that you have to think about it as stores in our e-commerce operations, integrated selling platforms, and so when we talk that out of stores, we are talking about also, implicitly adding volume online, too. So we're clear in this. Chris had to go, they always go both directions. Now as it relates to specifically to outlet business, we -- our target list of stores and when we talked about the 600 to 700 number, includes outlets. So outlets is not in addition to those -- to that target group of stores. It is inclusive of outlet, or outlook program. And we have a very significant outlet business today, and to sum it up quickly, it would be, as kind of as Chris described earlier, in many cases, higher average sales results in our outlets, slightly lower margins, but more gross margin, more contribution dollars from the outlets. So there is has been the example of, in the U.S. something we've done that would be reflective of how other, potentially, other countries like Canada may have the higher risk because of a high productivity centers, how we expect those centers would work there, in Canada would be more analogous to our outlet business here in the U.S. on average.

Ladies and gentlemen, this will conclude our question-and-answer session for today's conference. I would now like to turn the conference back over to Rick Brooks for closing remarks.

Thank you, Phil, I appreciate that. And again, we just appreciate everyone's interest in Zumiez, and we look forward to talking with you in August for our second quarter results. Thanks, everybody.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation, and you may now disconnect. Have a great day.