Zumiez Inc. (ZUMZ) Earnings

Management highlights

Overall Operational Performance: • First quarter fiscal 2026 delivered 4% comparable sales growth, marking the eighth consecutive quarter of positive comparable sales growth, in line with management expectations despite increasing consumer pressure in the latter half of the quarter. • Consolidated gross profit increased to $61.3 million from $55.3 million YoY, with gross margin expanding 170 basis points to 31.7% of sales, driven by product margin gains, occupancy cost leverage, lower web shipping costs, and reduced inventory shrinkage. • Operating loss narrowed to $15.2 million (7.9% of sales) from $19.9 million (10.8% of sales) YoY, representing a 290 basis point improvement in operating margin; net loss was $13.3 million, or $0.82 per share, compared to a $14.3 million net loss ($0.79 per share) in the prior year period. • The company ended the quarter with $124.2 million in cash and marketable securities (up from $101 million YoY), no outstanding debt, and a full $25 million unused credit facility; inventory was $153.2 million, up 2.2% YoY, or 0.7% on a constant currency basis, which management views as a healthy, high-quality position. Strategic Priorities: 1. Drive revenue growth through consumer-focused initiatives • Continued product mix refresh with new and emerging brands: 150+ new brands introduced in fiscal 2025 have maintained strong momentum into 2026, contributing an increasing share of sales. • Private label penetration hit a company record 34% of first quarter sales, delivering both strong customer appeal and margin expansion, with the business providing critical operating flexibility. • Ongoing investment in personalized customer experience across physical and digital channels, supported by staff development and technology upgrades, is strengthening long-term customer relationships. 2. Maintain rigorous profitability optimization across all regions • In North America, premium pricing strategies are supporting concurrent margin expansion and market share growth, with operational improvements ensuring sales growth outpaces expense growth. • In Europe, ongoing implementation of the full-price selling model and product assortment overhaul has delivered two consecutive quarters of margin and bottom-line improvement, with positive comparable sales returning after multiple quarters of declines. Management notes market conditions remain challenging but the disciplined strategic approach is already proving effective. 3. Leverage strong financial foundation to navigate volatility and fund strategic expansion • The company's strong cash position enables continued investment in long-term growth objectives while returning value to shareholders via an active share repurchase program. • $6.2 million in shares were repurchased in the first quarter under the board-approved $40 million program, with the total share count down 11% YoY, which will benefit full-year EPS.

Guidance

• Second quarter fiscal 2026 (ending August 1, 2026): Total net sales are projected between $210 million and $250 million, representing year-over-year growth of -2% to +0.5%, with comparable sales expected to track the same overall trend. Product margin is expected to be flat to slightly down from the prior year second quarter. Operating income is projected between -1.5% of sales and break-even, with EPS expected to range from a $0.23 loss to a $0.08 gain, compared to a $0.06 loss in the prior year second quarter. Management expects North America comparable sales to improve from the weak May trend to roughly flat for the full quarter, while Europe will post a positive comparable (decelerated slightly from May's 7.2% gain). • Full year fiscal 2026: Management withdrew specific full-year earnings guidance amid increased consumer pressure, but reaffirmed directional guidance: total sales are still expected to grow year-over-year (inclusive of a $12 million headwind from closed stores), with the back half of the year now projected to be slightly lower than prior original expectations. Product margin is still expected to grow year-over-year, driven by North American improvements and disciplined full-price selling in Europe, with private label (over 30% of sales) continuing to drive margin expansion. Operating margin is still projected to grow 50 to 100 basis points year-over-year, matching prior guidance, assuming no major further deterioration in consumer conditions. The full-year effective tax rate is expected to be between 40% and 45%, compared to 44.4% in fiscal 2025. • Capital and store plans: Five new U.S. stores are planned to open in fiscal 2026, with 26 total stores planned for closure (20 in North America, 6 international). Capital expenditures are projected between $14 million and $16 million, up from $11 million in the prior year. Depreciation and amortization (excluding non-cash lease expense) is expected to be ~$19.1 million, down from $21.3 million in fiscal 2025. The projected diluted share count for the full year is ~16.9 million, excluding any additional share repurchases after May 2, 2026.

Segment performance

By geographic segment: 1) North America: First quarter net sales were $155.6 million, an increase of 3.9% year-over-year, accounting for 80.5% of total first quarter net sales. Excluding foreign currency translation, net sales increased 3.7% YoY. Comparable sales grew 4.4% YoY, marking the ninth consecutive quarter of positive comparable sales growth in this region. 2) Other International (Europe and Australia): First quarter net sales were $37.8 million, an increase of 9.1% YoY, accounting for 19.5% of total first quarter net sales. Excluding foreign currency translation, net sales were down 0.1% YoY. Comparable sales increased 2.2% YoY, a significant improvement from recent quarters, driven by strategic traction in Europe. By product category: Men's was the largest positive comparable category, followed by hard goods, women's, and accessories. Footwear was the only negative comping category. In the four-week May period ending May 30 2026, this category dynamic remained consistent, with men's still leading positive comps and footwear remaining negative.

Risks & headwinds

• Increasing macroeconomic pressure on consumer discretionary spending intensified through the first quarter and into the start of the second quarter, creating uncertainty around near-term sales performance, particularly for the company's full-price discretionary retail model. • Geopolitical instability from the Middle East conflict is correlated with a recent slowdown in North American sales, adding further volatility to near-term consumer demand trends. • While European consumer demand faces greater macroeconomic pressure than North America, recent strong performance has been driven by internal strategic changes, and it remains uncertain whether this momentum will offset continued macro headwinds. • Q2 has historically been a difficult quarter to forecast, with performance heavily concentrated in the final weeks of the period around the back-to-school shopping season, creating uncertainty around whether the quarter will meet guidance. • While inventory is currently at healthy levels, slower-than-expected sales could create excess inventory that requires discounting, pressuring margins.

Analyst Q&A

• Q: Analyst asks management to break down second quarter comparable sales expectations by region, and clarify how much of Q2 sales are tied to the back-to-school season which occurs at the end of the quarter. /

  A: Management states the overall Q2 comparable sales guidance range of -2% to +0.5% aligns with total sales guidance, with net positive impacts from closed store bases and foreign exchange offsetting each other. North America comps are expected to improve from May's -1.5% decline to roughly flat for the full quarter, while Europe will remain positive albeit decelerated from May's strong 7.2% gain. 40% of Q2 U.S. sales occur in the final four weeks of the quarter, so the final outcome of the quarter will not be clear until late July, and management's goal is to beat the conservative guidance range.

• Q: Analyst asks for clarification on the downward revision to back-half full year expectations, noting management still expects full year positive sales growth after previously guiding low single-digit growth. /

  A: Management confirms that back-half expectations have been trimmed modestly from the March outlook, following softer-than-expected sales to end Q1 and start Q2. The company still expects full year positive sales growth inclusive of the $12 million headwind from closed stores, which is a modest slowdown from the prior ~3% growth target set in March. The company has a strong track record of overperforming during peak selling seasons (back-to-school and holiday) over the past two years, supporting the expectation of full year sales gains.

• Q: Analyst asks whether the Middle East conflict and related inflation has had a larger impact on U.S. or European consumers, given recent stronger European sales results. /

  A: Management agrees that macro data indicates European consumers are currently more pressured than North American consumers, which aligns with analyst expectations. The stronger recent European performance is driven by internal strategic changes (the shift to full-price selling, new product assortment, and improved inventory management) implemented over the past year, which has offset macro headwinds in the region. The North American business clearly slowed when the Middle East conflict escalated, and management notes that as a full-price discretionary retailer, the business is more exposed to tightening consumer budgets.

• Q: Analyst asks how inventory is planned for back-to-school amid recent slower sales, and what flexibility the company has to adjust if demand underperforms. /

  A: Management states that the current inventory position is healthy, particularly in the U.S., with built-in flexibility in the inventory planning process. Many back-to-school categories are quick-turn, allowing the company to adjust orders based on real-time demand trends, and the company has strong collaborative relationships with vendor partners to accommodate changes. Management is confident the business can adjust effectively to either upside or downside demand scenarios, consistent with past performance, including the slow start and strong finish to Q2 last year.

• Q: Analyst asks where private label penetration can go from the current 34% Q1 level, and what the long-term target is. /

  A: Management says private label penetration will grow based on consumer demand, not a fixed internal target. There are brand-heavy categories where private label will not gain meaningful share, but recent growth reflects the product's strong appeal: private label now has its own brand equity and effectively captures fast-changing trends that many emerging third-party brands do not prioritize. A rebound in the currently underperforming footwear category could lower penetration modestly due to category mix shift, but that would not reflect an outright decline in private label sales. Private label also works complementary to the company's third-party brand portfolio, rather than competing with it.