Zumiez Inc Q2 FY2026 earnings call

• U.S. Business Challenges: The U.S. market is experiencing significant deceleration, with footwear accounting for 70% of the total U.S. sales decline. Legacy lifestyle athletic silhouettes are struggling against shifting consumer trends toward non-athletic styles.
• International Resilience: International entities provided positive sales growth and diversification, acting as a buffer against domestic weakness. Private label growth and premium pricing strategies are enhancing margin profiles in these markets.
• Merchandise Strategy: Management is actively refining merchandise assortments to align with evolving apparel trends. Efforts include collaborating with brand partners and private labels to introduce newness and uniqueness, particularly in footwear.
• Customer Experience & Data: Investments are being made in employee training to capture every sale and leveraging data initiatives to improve marketing relevance and operational efficiency.
• Financial Discipline: The company maintains a strong financial foundation with no debt and a $25 million unused credit facility. Share repurchases continue ($23.2 million in Q2), supported by robust cash flow from operations despite lower sales.

North American Net Sales: $173.9 million (down 3.4% year-over-year; down 3.3% excluding foreign currency translation). This segment represents approximately 83.2% of total net sales and experienced a comparable sales decline of 2.9%, driven primarily by softness in footwear and a decrease in transactions. Other International Net Sales (Europe and Australia): $35.1 million (up 2.5% year-over-year; up 0.8% excluding foreign currency translation). This segment represents approximately 16.8% of total net sales and achieved positive comparable sales growth of 2.1%. Accessories was the only positive comping category globally, while footwear remained the largest negative contributor.

• Third Quarter Sales Guidance: Total sales expected between $222 million and $226 million, representing a 5.5% to 7% decline year-over-year. Comparable sales are projected to be between -5% and -6.5%.
• Margin Outlook: Product margin expected to decrease by 20 to 40 basis points due to U.S. business decline and higher penetration of lower-margin international sales. Consolidated operating income is expected to be 1% to 1.7% of sales.
• Earnings Per Share: Anticipated EPS for Q3 is between $0 and $0.10, compared to $0.55 in the prior year.
• Full Year 2026 Context: Management refrained from providing specific full-year earnings guidance but indicated sales will likely be down low single digits (including $12 million impact from closed stores). Operating margin is expected to be slightly down compared to previous expectations of 50-100 bps growth. Effective tax rate is projected at roughly 55%.
• Store Plan: Planning to open five new stores and close approximately 16 stores (10 in North America, 6 internationally) during fiscal 2026.

• Consumer Demand Volatility: Significant risk from slowing consumer spending and rapid shifts in trend cycles, particularly in the U.S. market where demand has dropped sharply after two years of strong growth.
• Inventory and Margin Pressure: While inventory levels are managed, clearing out legacy footwear inventory is impacting margins through promotional activity. There is a risk that current promotional pressures may not fully stabilize without further adjustments.
• Execution Risk: The need to successfully pivot product assortments and identify new trend brands in footwear is critical. Failure to adapt quickly could prolong the downturn in the U.S. business.
• Foreign Currency Fluctuations: Changes in foreign currency translation can impact reported sales figures, although organic international growth remains positive.

Q: Mitch asked about the specific challenges in the footwear category, noting industry-wide weakness in legacy silhouettes and a shift away from athletic wear. He inquired how Zoomies plans to pivot its assortment and whether promotional pressure is impacting margins.

A: Rick Brooks confirmed that lifestyle athletic footwear is struggling as it does not align with current trends favoring non-athletic styles. The company is working with partners to drive uniqueness in its footwear mix rather than competing on price with major brands. Regarding promotions, Brooks noted that while they have not been as aggressive as competitors, they are clearing some inventory which is currently pressuring margins, though they believe their inventory position is manageable.

Q: Mitch questioned why the third quarter guidance range (-5% to -6.5% comp) is worse than the year-to-date trends through Labor Day (-3.5% comp). He asked if this reflects seasonal patterns where sales slow post-back-to-school or if management is adding conservatism due to uncertainty.

A: Chris Work explained that historical patterns show stronger performance during back-to-school periods followed by slower shopping later in the quarter. However, given the unpredictability of recent trend shifts and the difficulty in forecasting accurately after the Q2 miss, management baked in additional conservatism. They expect the second half of the quarter to perform worse than the first half, consistent with both seasonal norms and prudent planning for volatility.

Q: Mitch inquired about the long-term outlook for the footwear niche, asking if the company sees a bottom to this cycle soon and how they plan to differentiate themselves from larger brands trending down.

A: Rick Brooks stated that he believes the company will find the bottom of this cycle as the anniversary of large negative comps passes in Q4. The strategy moving forward is to focus on product uniqueness and identifying the next emerging trend brand that resonates with consumers. Unlike larger brands that may struggle with legacy lines, Zoomies aims to leverage agility and partner relationships to capture new opportunities in the footwear space.