Zumiez Inc. (ZUMZ) Q1 2026 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and welcome to the Zumiez, Inc. First Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions] Before we begin, I'd like to remind everyone of the company's safe harbor language. Today's conference call includes comments concerning Zumiez Inc.'s business outlook and contains forward-looking statements. These forward-looking statements and all other statements that may be made on this call are not based on historical facts, are subject to risks and uncertainties. Actual results may differ materially. Additional information concerning a number of factors that could cause actual results to differ materially from the information that will be discussed is available in Zumiez's filings with the SEC. At this time, I'll turn the call over to Rick Brooks, Chief Executive Officer. Mr. Brooks?

Hello, and thank you, everyone, for joining us on today's call. With me today is Chris Work, our Chief Financial Officer. I'll begin with remarks about our first quarter performance and the operating environment we're navigating before discussing our strategic priorities for the remainder of fiscal 2026. Chris will then take you through the financials and our outlook for the second quarter. After that, we'll open the call to your questions. We continue to make important progress towards sustained profitable growth. First quarter comparable sales increased 4%, marking our eighth consecutive quarter of positive comparable sales growth. This performance was driven by ongoing strength in our North American business, which posted a 4.4% comparable sales gain, coupled with 5.5% comparable sales gains in Europe as the strategic work we began last year continues to gain traction. Our first quarter results were largely in line with our expectations even as the operating environment became more dynamic as the quarter progressed, and we observed increasing pressure on consumers during the latter part of the quarter. Despite these headwinds, our merchandise assortments and customer experience initiatives continue to resonate with our core customer base, demonstrating the resilience of our business model and the strength of our strategic positioning. What's particularly encouraging is the progress we're making in Europe. While still in the early innings, the work we're doing to replicate our full-price selling model in the region is gaining traction, contributing to year-over-year improvements in both sales and margins as well as meaningful bottom line improvements for the last 2 quarters. This validates our disciplined approach to new assortments, full-price selling and expense management that we implemented just over a year ago. From a category perspective, our first quarter performance was broad-based. Men's led our positive comparable sales growth, followed by hardgoods, women's and accessories. This diversified strength across multiple categories reinforces the effectiveness of our merchandising approach and the investments we've made in product newness and private label expansion. As we look ahead to the remainder of the year, we remain focused on the same 3 strategic priorities that have driven our success. First, driving revenue growth through consumer-focused strategic initiatives. Our commitment to refreshing our product mix with innovative, distinctive offerings continues to be a cornerstone of our success. The momentum from introducing over 150 new and emerging brands in fiscal 2025 has carried forward into 2026, and this newness continues to generate strong customer response and represents an increasingly important component of our sales mix. Private label performance remains a standout success story. At 34% of sales in the first quarter, we've maintained the highest penetration levels in company history. This sustained expansion demonstrates our organization's ability to identify emerging trends and create compelling products that resonate with our customers while simultaneously enhancing our margin profile. Our private label business provides us with important flexibility while delivering the distinctive products our customers expect. Our investment in delivering exceptional customer service experiences across both physical and digital touch points continues to yield results. The enhanced staff development programs and technological capabilities we've implemented allow us to engage with customers in increasingly personalized ways, strengthening our relationships that have long served as the foundation of our success. Second, sustaining our rigorous commitment to profitability optimization across our geographic footprint. Within North America, our premium pricing strategies continue to support both margin expansion and market share growth. The operational improvements we've executed are keeping sales growth ahead of expense growth, establishing a more efficient and profitable framework that positions the business for strong flow-through on incremental sales. In Europe, we're encouraged by continued progress. The significant product margin improvements we've achieved in the fourth quarter of fiscal 2025 have continued into 2026, and we're seeing positive comparable sales for the first time in several quarters. While market conditions remain challenging, our disciplined approach is demonstrating results. We remain committed to our long-term vision for the countries in which we operate and continue to see tremendous value in our ability to identify trends locally in each market before they expand internationally. Third, capitalize on our solid financial foundation to manage volatility while funding strategic expansion. Our financial position remains exceptionally strong. We ended the first quarter with cash and marketable securities of $124 million, up from $101 million a year ago. This financial flexibility enables us to continue investing in our strategic objectives while delivering value to shareholders through our share repurchase program. We're encouraged with our start to fiscal 2026 and look forward to further deploying our strong cash generation to drive growth and enhance shareholder value. Despite operating in an environment characterized by evolving economic pressures, I am confident in our ability to generate value for all our stakeholders. The fundamental strategies that have powered our performance through fiscal 2025 and into 2026 continue to demonstrate their relevance. Our team's proven adaptability and execution capabilities, combined with our strong financial foundation, fuel my optimism about weathering any near-term headwinds and capitalizing on our opportunities, especially during the key back-to-school and holiday season, when the consumer has a reason to come out and shop. Our direction remains clear: maintain our dedication to delivering distinctive, fashion-forward merchandise through the customer and connection strategies that have driven our growth while preserving the operational discipline that has strengthened our financial performance. We've demonstrated our resilience and ability to execute through various market cycles, and I'm confident we're strategically positioned to continue building on this track record. Before turning things over to Chris, I want to express my appreciation to our entire organization for their continued commitment and exceptional execution. Your dedication to our values and our customers remains the foundation for all our achievements and positions us well for continued success throughout fiscal 2026. With that, let me hand things over to Chris for our financial review.

Thanks, Rick, and good afternoon, everyone. I'm going to start with a review of our first quarter fiscal 2026 results. I'll then provide an update on our May sales trends before providing our outlook for the second quarter. Net sales for the first quarter of fiscal 2026 increased 4.9% to $193.3 million compared with $184.3 million in the first quarter of fiscal 2025. Comparable sales were up 4% for the third quarter with a solid mid-single-digit growth in both North America and Europe even as consumer pressure intensified during the quarter. For the first quarter, North America net sales were $155.6 million, an increase of 3.9% from fiscal 2025. Other international net sales, which consists of Europe and Australia, were $37.8 million, up 9.1% from last year. Excluding the impact of foreign currency translation, North America net sales increased 3.7%, and other international net sales were down 0.1% year-over-year. Comparable sales for North America were up 4.4%, marking the ninth consecutive quarter of comparable sales growth in this region. Other international comparable sales increased 2.2% in the first quarter, representing a significant improvement from recent quarters and reflecting the traction we're gaining with our strategic initiatives in Europe. From a category perspective, men's was our largest positive comping category, followed by hardgoods, women's and accessories. Footwear was our only negative comping category. The consolidated increase in comparable sales was driven by an increase in dollars per transaction, partially offset by a decrease in transactions. Dollars per transaction were up for the quarter, driven by an increase in average unit retail and an increase in units per transaction. First quarter gross profit increased to $61.3 million compared to $55.3 million in the first quarter of last year. Gross margin was 31.7% of sales for the quarter compared with 30% in the first quarter of fiscal 2025. The 170 basis point increase in gross margin was primarily driven by a 70 basis points increase in product margin, 50 basis points of leverage in store occupancy costs, 30 basis points of benefit in web shipping costs and 20 basis points of benefit from decreased inventory shrinkage. SG&A expense in the first quarter of fiscal 2026 was $76.5 million or 39.6% of net sales compared with $75.2 million or 40.8% of net sales in fiscal 2025. The 120 basis point improvement in SG&A as a percentage of net sales was driven by 150 basis points related to a onetime $2.9 million litigation settlement that occurred in the first quarter of fiscal 2025, 50 basis points of efficiency in store wages, 40 basis points in non-wage store operating cost leverage, partially offset by 70 basis points detriment from vendor credits received in the first quarter of 2025, 20 basis points increase in non-store wages and 20 basis points of increase in other corporate costs. Operating loss in the first quarter was $15.2 million or 7.9% of net sales compared to prior year operating loss of $19.9 million or 10.8% of net sales. This represents a 290 basis point improvement in operating margin. Net loss for the first quarter was $13.3 million or $0.82 per share. In the year-ago period, we reported a net loss of $14.3 million or $0.79 per share. As a reminder, the prior year first quarter included the $2.9 million legal settlement which negatively impacted earnings per share by approximately $0.13, as well as $3.4 million favorable charges to the foreign exchange valuation and interest income items that did not repeat in the first quarter of 2026. Our effective tax rate for the current quarter was 8.2% versus 9.1% a year ago. Lastly, due to our repurchase activity over the past 12 months, our share count is down approximately 11% since the first quarter last year, which will positively benefit full year EPS, but is a headwind in quarters where we record a loss. Turning to the balance sheet. The business ended the quarter in a strong financial position. We had cash and current marketable securities of $124.2 million as of May 2, 2026, up from $101 million as of May 3, 2025. The increase in cash and current marketable securities from the first quarter of last year was primarily driven by $47.5 million in cash flow from operations and the release of $3 million in restricted cash, partially offset by $19 million in share repurchases and $10.5 million of capital expenditures. As of May 2, 2026, we have no debt on the balance sheet, and we continue to maintain our full $25 million unused credit facility. During the first quarter, we repurchased 0.3 million shares at a total cost of $6.2 million under the authorization approved by the Board of Directors on March 11, 2026. We ended the quarter with $153.2 million in inventory, up 2.2% compared with $149.9 million last year. On a constant currency basis, our inventory levels were up 0.7% from last year. We feel good about our current inventory position and the quality of our inventory on hand. Now to our May sales results. Net sales for the 4-week period ended May 30, 2026, increased 0.1% compared to the 4-week period ended May 31, 2025. Comparable sales for the period decreased 0.1% for the comparable period in the prior year. From a regional perspective, North America net sales for the 4 weeks ended May 30, 2026, decreased 1.9% compared to the 4-week period ended May 31, 2025, while our other international business increased 10.7%. Excluding the impact of foreign currency translation, North America net sales for the period decreased 2% from the prior year, while other international net sales increased 5.3% compared to 2025. Comparable sales for North America decreased 1.5% during the period, while comparable sales for our other international business increased 7.2%. From a category perspective, quarter-to-date, men's was our largest positive comping category, followed by accessories, women's and hardgoods. Footwear was our only negative comping category. The consolidated increase in comparable sales was driven by an increase in dollars per transaction, partially offset by a decrease in transactions. Dollars per transaction were up for the period, driven by an increase in units per transaction, partially offset by a decrease in average unit retail. With respect to our outlook for the second quarter of fiscal 2026, I want to remind everyone that formulating our guidance involves some inherent uncertainty and complexity in estimated sales, product margin and earnings growth given the variety of internal and external factors that impact our performance. This is particularly true in the current environment, where we're seeing increased pressure on consumer discretionary spending. While our business continued to perform well in Q1, we are taking a measured approach to our outlook given the evolving macroeconomic pressures we observed building as the first quarter progressed and continuing into May. We believe it's prudent to look forward with an appropriate level of conservatism given these consumer headwinds. We are anticipating total sales to be between $210 million and $215 million for the 13 weeks ended August 1, 2026, representing growth of negative 2% to positive 0.5% compared to the prior year. Comparable sales for the same time period are expected to be consistent with the overall sales trend. For the second quarter, we are expecting product margin to be down slightly to up slightly from the second quarter of last year. Consolidated operating income for the second quarter is expected to be between negative 1.5% of sales and breakeven. We anticipate earnings per share will be between a loss of $0.23 and $0.08 compared to a loss of $0.06 in the prior year. Regarding our full year fiscal 2026 outlook, as we discussed in our fourth quarter fiscal 2025 earnings call, we remain confident in our strategy and execution. However, with the increased consumer pressures we're observing, we believe appropriate caution is warranted. We will refrain from providing specific full year earnings guidance at this time, but we'll provide some context around how we see the business trending throughout the year. With the momentum we built over 8 consecutive quarters of positive comparable sales, we believe we can grow total sales for the year, inclusive of the negative impact of closed stores worth approximately $12 million in sales. This directional guidance is inclusive of our softer start to the second quarter, the difficult macro environment and an assumption the back half of the year is down slightly from our original expectations. We believe we will continue to grow product margin year-over-year in fiscal 2026 through steady improvements in North America and continued pricing discipline and full-price selling in our international entities. Our private label business, now at over 30% of sales, will continue to be an important driver of margin expansion. In addition to product margin growth, we believe further leverage exists that will drive modest gross margin expansion for the year. With anticipated sales growth, we expect to generate some leverage of our SG&A costs, further contributing to operating margin expansion. Through this, we'll be dependent on the pace of sales growth throughout the year. With the previously mentioned assumptions and barring significant deterioration in the consumer environment, we continue to anticipate operating margin growth in the 50 to 100 basis point range in fiscal 2026, as we outlined on our fourth quarter call. While effective tax rates will fluctuate by quarter, we anticipate that our full year effective tax rate will be roughly 40% to 45% in fiscal 2026 compared to an effective tax rate of 44.4% in fiscal 2025. We are planning to open 5 new stores in fiscal 2026, all within the U.S. We plan to close approximately 26 stores during fiscal 2026, including 20 in North America and 6 internationally. We expect our capital expenditures for fiscal 2026 to be between $14 million and $16 million compared to $11 million in the prior year. We expect that depreciation and amortization, excluding noncash lease expense, will be approximately $19.1 million, down from $21.3 million in fiscal 2025. We are currently projecting our diluted share count for the full year to be approximately 16.9 million shares. The share count does not include the impact of any potential share repurchases after May 2, 2026, under the $40 million repurchase program approved by the Board on March 11, 2026. We will continue to monitor the consumer environment closely and provide updates as we progress through the year. Our strong financial position and proven ability to execute give us confidence in our ability to navigate the current environment while continuing to invest in our long-term strategic priorities. With that, operator, we would like to open the call for your questions.

[Operator Instructions] Our first question comes from the line of Mitch Kummetz from Seaport.

I guess to start on the 2Q guide, Chris, I think you said that same-store sales is basically in line with your projected sales growth. Is there any way you can maybe kind of parse that out between North America and other international? What kind of underlying comps are you expecting for those regions in the quarter?

Sure. And I'll just kind of back up a little bit and talk about the overall guide and then make sure I cover that, Mitch. I mean, obviously, as we've laid out today, this is below, I think, what the expectations were out there and our own expectations. Obviously, as we look at Q2 for the last couple of years, I will tell you, it's been a really challenging quarter for us to guide. As we look back on 2024 and 2025, we have just seen the slow start to Q2 highlighted by pretty strong closes and then really phenomenal back-to-school. I mean if we look back to 2024, May was down 0.2%, June was up 2.4%, July was up 7.6%. We ended up right around 3.6% comp for the quarter, and then we were up 12.3% in August. If I look at last year, we started May at 1.4%, June was 1.5%, July was 4.3%. We had 2.5% for the quarter, and then we were up 11.4% in back-to-school. So as we approach this guide and our Q2, I mean, we took our normal approach of kind of looking at the trend lines of the business and trying to think about some forward-looking estimates, obviously, based on how the categories are performing, which we're pretty happy with. Really, all categories up, except for footwear. We thought through kind of the newness that we're bringing to the market, and then the comparable metrics from the prior year. So that kind of put us at the guide you laid out, which is sales growth of negative 2% to 0.5%. We believe the comp growth is going to play right around in that same spot. The reason that is, is because we are assuming a total comp growth of 0.5%. Our closed stores are worth about 0.5% in the quarter, and then FX is a positive 0.5%. So you end up in kind of this unique spot with the way that the foreign exchange rate is working that they're in very similar positions. Now what that means by entity, we do believe that the North America run rate will improve from what we disclosed in May and be roughly flat the rest of the way. And then Europe will -- while decelerating a little bit from May, would still be a positive comparable sale as we think about what June and July could be. Now obviously, our goal is to beat our guidance. We've run 8 positive quarters of comps now across our consolidated business. We've run 9 positive quarters of comp across our North America business. As Rick laid out in his commentary, we really believe in kind of the progress we're making in Europe. That said, we know our consumer is pushed right now in regards to discretionary income, and things are just tighter, right? And as a full-price retailer, this does put probably more pressure on our business. So again, to kind of your question, we are assuming that U.S. gets better than the May run rate. We think Europe will still be a positive comp, and that kind of gets us to that 0.5% we laid out in the guide.

That's very helpful. And just to be clear, the expected improvement in the U.S. really hinges on back-to-school, I assume? And can you say what percent of the quarter is back-to-school? I assume you're kind of thinking in the last 2 weeks of July, but what is that as a percentage of the quarter?

Yes. I mean, we have 75% of the way to go. And as we think about kind of the sales and the mix, those last couple of weeks, it's going to keep building all the way through. So as we think about the quarter itself for the U.S. business, 40% of the quarter is in the last 4 weeks of the period, which is pretty substantial when you think about the fact that June is a 5-week month and is only 34% of the period. So we've got a lot of volume there at the end. And like a lot of retailers, we won't really know how the quarter ends up until we get to the end of July.

Okay. And then I think in -- I can't remember if it was your prepared remarks or Rick's, but there was a comment that -- I think it was yours, Chris -- that you now are assuming that the back half is worse than your prior expectations. Can you just elaborate on that? And can you kind of say how much worse? Because I think previously on the year, you were saying that sales will be up low single digits and you're still expecting positive sales growth for the year. It seems like there's a pretty fine line between those two assumptions?

Yes. Yes, I think that your call out from the script is appropriate and kind of how we're thinking through things. When we put the full year thoughts, obviously, not total guidance here together in March, what we talked about was sales growth in the low single-digit range. And that was inclusive of the closures that had out there, which we've identified of about $12 million. And in all transparency, that would have put us right about at that 3% level. Obviously, this quarter guide is below where our expectations are. And in reformulating our thoughts and seeing some of the softness we saw in Q1 and to start this quarter, if we kind of keep that same trajectory, we took some dollars out of the back half as well, but still ended up with a sales gain. And I think that's the important piece we're driving to. I think what's unique about our business here, especially as we look at the last 2 years of our recovery, is kind of what I laid out in your previous question of we've done okay in these off cycles. We've done really well in back-to-school and done pretty well in holidays. So this business has really shown it's about the peak, the last couple of years. So we took a little bit of sales out to kind of give that kind of full year direction. We wanted to make sure we were generally clear that based on how we're thinking about things and the newness we're bringing to the business, we still believe in a sales gain for the year, but probably a little softer than what we had in March.

Actually, let me ask one last one. As far as the Middle East conflict is concerned and the related inflationary pressures, are you seeing a bigger impact on the consumer in the U.S. or in Europe? I mean, your -- just from a top line standpoint, your European numbers seem to be better, but it would seem like maybe that consumer was more pressured, but what are your thoughts there?

Yes. It's a really good call out, and it's one, obviously, we're spending a lot of thinking too, because if you look at the more macro data, the European customer definitely seems more challenged, right? And that would be our assumption as well, Mitch. I think what's hard with retail and obviously, this given point in time would add to this, is there's not always one variable that you're managing. And if you think about what we talked about in March and what we've been talking about for Europe, we've got a lot of different things going on in Europe in regards to how we're managing that business, how we're thinking about product, how we're moving to full-price selling, how we've really brought new product into that business, how we're managing inventory. The teams are just doing a much stronger job. And I think you've seen that result here now in Q4 of last year and into the first quarter of this year. So we would agree with your assessment. The consumer is looking from a macro data, more pressured in Europe than here in North America. And our European results are better. So I think that that's how we're seeing it, too. I think it's probably a combination of some of the other things we're doing in Europe that are hopefully kind of bucking that trend. Even though the consumer might be more pressured there, we're performing better in Europe. I think on the North America side, our business really slowed when we started to see this conflict escalate. And so we definitely feel like there's some correlation there. We do know that we're higher priced and have some discretionary elements to what we're doing. So we'll see what that means as we get to the more peak season that people have more reason to go out and buy. And we think we've got a pretty good offering right now on what's been driving the business and the newness that we're bringing.

And our next question comes from the line of Jeff Van Sinderen from B. Riley Securities.

Let me ask you, just thinking about your inventory for a minute. How have you planned inventory for back-to-school given kind of the recent slowness or within the context of the recent slower sales trend? I mean, is it a situation where you can cancel some orders? Will you just discount more? Or did you plan with more open to buy or at once that's more flexible?

I mean, first, let's start by saying I think we feel pretty good about our inventory position now. So that's the starting point is I think we're in a pretty strong position in -- and again, I think even more so in the U.S., right, is where I'm at because we've been chasing some of the growth in Europe and really investing in some of the areas that we've already built up in the U.S. So I think we're starting in a really good position. And we always plan some flexibility into our business relative to the inventory planning, Jeff. And that is clearly true as we head towards the back-to-school season and because we have a lot of categories that we can -- that are relatively quick turn categories. So we do have flexibility. We have great partners, too, that are willing to work with us as business trends shape up. So I think we always feel that however we come through back-to-school, we also have the ability to make adjustments looking forward relative to heading into the peak of holiday. So I don't anticipate any different or different feelings. We obviously, as Chris said, started pretty slowly in Q2 a year ago and built, and we're able to deliver on a really good back-to-school. So I feel comfortable. We're using the same basic principles of management of our inventory processes. And I think we'll be able to manage it on -- the upside as well as the downside pretty effectively.

Okay. Good to hear. And then I think you said the private label was at 34% in Q1. Just wondering where do you go from here with private label penetration?

Yes. I think, Jeff, what we'd say with private label is we're going to go where the consumer wants us to go. Obviously, there are certain parts of our mix that private label just doesn't play as deeply in. So it's not something where we look at private label taking over the entire business by any means. But I think what you're seeing in the current private label trends and the growth we've seen there is really a testament to our teams in capturing trend, right, and really kind of having their pulse out there to where the customer wants to go and maybe taking private label to like even a different approach than where we've been in historical peaks where it was maybe just more off-brand cycles and people cared more about colors to the point of -- I think our private label has some brand appeal, and people are recognizing what we're doing. And now it still is about fitting really well with your branded partners, too. I mean, the brands that we operate really carry a lot of equity, so we can work together with them on how we manage our private label portfolio. But we're really happy with where it's at and how it's working. And I think our teams deserve a lot of credit to bring in a pretty compelling product into the market.

I'd just add to Chris' comments, Jeff, that I think over the last 5 years, what we really saw was that we would need to own the cut and sew categories in a bigger way because of the speed of brand cycles. And a lot of the younger brands never -- cycles move so fast, their focus isn't really on the cut and sew categories. So it has really, I think, required that our teams have had to step in and own more of the trend product in the cut and sew categories. And as Chris said, that means some categories that are really brand-driven, we're not very active in. And I would expect that we're going to see footwear at some point here rebound. And when we do, we may see private label perhaps that's going to impact the penetration from a sales perspective on our business. But it doesn't mean that -- I'm not sure that means that private label sales are going to decline. It may just be a mix shift when footwear bounces back.

Okay. And then if we could turn to real estate for a minute. Just wondering, do you think that the net closure trend will continue into 2027? I'm not asking you to give guidance for '27 specifically, but just wondering kind of where -- I guess, what your thought process is around what's the right number of stores? Are you still a net closer going forward?

Yes. And I think in any time we're talking through closures, we just have to separate from kind of the North America versus the international market. I think what you're going to see is 2 different cycles. On the North America side, I mean, this is really about just kind of refining the portfolio and looking at some of the lower-performing stores and moving past, how they're working. And so I think we've seen kind of -- we believe we've kind of gotten to the peak of closures, and we'll start to see -- we'll still have closures in '27 and beyond, but not at the levels that we've had more recently. And I think on the international side, this is really a function of trying to make these entities profitable. And as we've kind of laid out in our European remarks in the past, we are pushing really hard to get new product and drive through the existing units and comp and make all these markets we've moved into work. But to the extent they don't, we will have to retract some. And we have some markets that are definitely tougher than others. So our intention is to continue to grow there and maximize what we have. But if things are not able to turn in some markets, you'll see us close a few more internationally.

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Rick Brooks for any further remarks.

Thank you. And I just want to thank everyone for your continued interest in Zumiez and your questions today. And we are going to look forward to talking to you when we release the Q2 results later this year. So thank you, everybody. We really appreciate your interest, and we'll talk soon.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.