An interesting theme emerged during the Zumiez second quarter earnings conference call yesterday.
CEO Rick Brooks said price cuts by competitors at the mall drove down apparel comps at Zumiez in the second quarter.
He said the action sports brands that are heavily distributed in the malls are the ones that are struggling the most at Zumiez. They are also the brands being sold at the lowest prices as Zumiez follows the mall competition and cuts prices on brands that are on sale elsewhere.
Rick did say the brands that don’t have a large distribution at the mall are doing well at Zumiez and are selling at full price. He added that Zumiez is working closely with those more underdistributed brands to help build their business and keep their price integrity. He said Zumiez is shifting more product to brands that are working for Zumiez.
Overall, Rick, who’s been at Zumiez 15 years, said it’s “the most difficult retail climate I’ve ever seen.”
The company is pessimistic about the second half of the year and downgraded its profit forecast. Zumiez now expects to earn 80 cents to 82 cents per share for the year, down from the previous forecast of 90 cents to 93 cents.
However, Rick believes that Zumiez is better positioned in the long term as peers become more homogeneous and more private-label and price-point focused.
Other information:
EPS: 9 cents per share, exceeding guidance thanks to cost controls and managing inventory.
Net income: Fell 12.9 percent to $2.7 million
Total sales: Up 12.5 percent to $92.3 million
Q2 comp sales: Down 1.7 percent.
Strong categories: Skate hardgoods, footwear and accessories.
Weak categories: Apparel
Weak regions: California, Arizona, Florida and Nevada
Strong regions: Texas, Illinois, Wisconsin
Snow hardgoods strategy: A two pronged approach – highend technical boards and lower priced, more basic boards on the other end.
Forward view: Comps are expected to be down mid-single digits in the third quarter and improve to negative low-single digits in fourth quarter.
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