Zumiez Inc. Aktie

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.

Good afternoon, ladies and gentlemen, and welcome to Zumiez Inc. Fourth Quarter Fiscal 2025 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 would like to turn the call over to Rick Brooks, Chief Executive Officer. You may begin.

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 fourth quarter performance and the successful holiday season we just completed before reflecting on our strong full year 2025 results and discussing our strategic priorities. Chris will then take you through the financials and our outlook for fiscal 2026. After that, we'll open the call to your questions.

We're pleased with our fourth quarter results, which capped off a second consecutive year of important progress for Zumiez. Q4 results were highlighted by robust full price selling in North America during the important holiday season, which fueled mid-single-digit comparable sales growth in the region and meaningful gross margin expansion.

In addition, the work we've done focused on assortment and full price selling in our European business drove 660 basis points of year-over-year product margin improvement. This, coupled with disciplined expense management, resulted in 380 basis points of operating margin growth despite sales being down high single digits year-over-year in local currency for the quarter.

Our performance in both regions reflect the continued effectiveness of our full price selling and cost saving strategies even as we faced regional headwinds.

From a category perspective, men's led our positive comparable sales growth during the holiday period, followed by women's, accessories and hardgoods. This broad-based strength across multiple categories validates our merchandising approach and the investments we've made in product newness and private label expansion throughout the year.

Reflecting on fiscal 2025, we took important steps towards returning to historical levels of sales and earnings. Our merchandising assortments and customer experience initiatives generated positive content every quarter, means from low single digits to high single digits and a 4.3% comparable sales gain for the year on top of a 4% increase in 2024. Our North American businesses demonstrated consistent momentum, registering 8 consecutive quarters of comparable sales growth.

Our strategic shift in Europe, implemented just 1 year ago, gained momentum as we moved through the year. This consists of bringing newness, strong inventory management, full price selling and expense management that we believe will drive the business to better results in the near term. The combined impact of our initiatives helped to improve full year earnings per share to $0.78 from a loss of $0.09 last year. These results validate the strategic initiatives we've been executing and position us well for continued success in 2026.

As we look ahead, we remain focused on the same 3 strategic priorities that have driven our success throughout 2025. First, driving revenue growth through consumer-focused strategic initiatives. Our commitment to refreshing our product mix with innovative distinctive offerings has proven to be a cornerstone of our success.

In 2025, we launched over 150 new and emerging brands across our banners, and this newness continues to generate exceptional customer response. Private label penetration reached its highest level in company history in 2025 at approximately 30% of sales, up from 12% 5 years ago. 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 investments in delivering exceptional customer experiences across both physical and digital touch points continue to yield strong results. Enhanced staff development programs and technological capabilities we've implemented allow us to engage with customers where they want, when they want and in more personalized ways, strengthening the relations we have that have long served as another cornerstone 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, while the operational improvements we've executed throughout 2025 are keeping sales growth well ahead of our expense growth. Our continued focus in this area has established a more efficient and profitable framework that positions the business for a strong flow-through on incremental sales to fuel operating margin gains.

Regarding our international operations, while Europe continues to face challenging market conditions, our disciplined approach to new assortments, full price selling and expense management is starting to show results. The significant product margin improvements we achieved in the fourth quarter and full year demonstrate the effectiveness of our strategy, and we remain committed to our long-term vision for the countries in which we operate. We 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 by funding strategic expansion. Our financial position remains exceptionally strong, providing us with the flexibility to continue investing in our strategic objectives while delivering value to shareholders. This financial stability enables us to navigate ongoing uncertainties in the macro environment by simultaneously positioning the company for long-term growth and continued market share gains.

Despite operating environment characterized by economic volatility and evolving global dynamics, I'm increasingly confident in our ability to generate value for all of our stakeholders. The fundamental strategies that have powered our performance throughout 2025 continue to demonstrate their relevance and our team's proven adaptability and execution capabilities fuel my optimism about our trajectory into fiscal 2026.

Our direction remains clear and consistent: maintain our dedication to delivering distinctive fashion-forward merchandise through the customer 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 momentum.

Before turning things over to Chris, I want to express my appreciation to our entire organization for their continued commitment and exceptional execution throughout 2025. Their dedication to our values and our customers remains the foundation for all of our achievements and positions us well for continued success in the year ahead.

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 fourth quarter and full year 2025 results. I'll then provide an update on our first quarter to date sales trends before providing some perspective on the full year.

Net sales for the fourth quarter of 2025 increased 4.4% to $291.3 million compared with $279.2 million in the fourth quarter of 2024. Comparable sales were up 2.2% for the quarter.

As Rick mentioned, the primary driver was our North America business, which showed outsized strength even as macroeconomic uncertainties spurred by global trade policy continues. For the fourth quarter, North America net sales were $224.4 million, an increase of 4.8% from 2024. Other international net sales, which consists of Europe and Australia, were $66.9 million, up 3% from last year.

Excluding the impact of foreign currency translation, North America net sales increased 4.6% and other international net sales decreased 7.1% year-over-year. Comparable sales for North America were up 5.5%, marking the eighth consecutive quarter of comparable sales growth in this region. Other international comparable sales declined 7.5% in the fourth quarter.

From a category perspective, men's was our largest positive comping category, followed by women's, accessories 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 quarter, driven by an increase in average unit retail and an increase in units per transaction.

Fourth quarter gross profit was $111.4 million compared to $101 million in the fourth quarter of last year. Gross margin was 38.2% of sales for the quarter compared with 36.2% in the fourth quarter of 2024. The 200 basis point increase in gross margin was primarily driven by 180 basis points of improvement in product margin and 50 basis points of leverage in store occupancy costs on higher sales and the closure of underperforming stores. These benefits were partially offset by 20 basis points related to increased incentive costs on improved results.

SG&A expense in the fourth quarter of 2025 was $86.4 million or 29.6% of net sales compared to $80.9 million or 29% of net sales in 2024. The 60 basis point improvement in SG&A expenses as a percentage of net sales was driven by 100 basis points of increased incentive costs on improved results and 20 basis points related to corporate wage costs. These cost increases were partially offset by 50 basis points of leverage in store wages related to increased sales and hours management and 20 basis points of leverage in other store operating costs.

Operating income in the fourth quarter was $25 million or 8.6% of net sales compared to prior year operating income of $20.1 million or 7.2% of net sales. Net income for the fourth quarter was $19.6 million or $1.16 per share. In the year ago period, we reported net income of $14.8 million or $0.78 per share. Our effective tax rate for the current quarter was 26.3% versus 26.1% a year ago.

Looking at our full year results, net sales for fiscal 2025 were $929.1 million, an increase of 4.5% from $889.2 million for 2024. Comparable sales for the full year were up 4.3%. The consolidated increase in comparable sales was driven by an increase in dollars per transaction, partially offset by a decrease in transaction. Dollars per transaction were up for the quarter, driven by an increase in average unit retail and an increase in units per transaction.

From a category perspective, for the full year, women's was our largest positive comping category, followed by men's, hardgoods and accessories. Footwear was our only negative comping category.

From a regional perspective, North America net sales were $757 million, an increase of 5.1% from 2024. Other international net sales were $172 million, up 1.7% from last year. Excluding the impact of foreign currency translation, North America net sales increased 5.2% and other international net sales decreased 4.2% compared to 2024. Comparable sales for North America were up 6.7% and comparable sales for international were down 5.4% for the full year.

2025 gross margin was 35.8% of sales compared to 34.1% in 2024. The 170 basis point increase was primarily driven by 90 basis points of product -- of improvement in product margin and 70 basis points of leverage in store occupancy costs on higher sales and the closure of underperforming stores.

SG&A expense was $315.5 million or 34% of net sales for fiscal 2025 compared with $301.1 million or 33.9% of net sales in 2024. The 10 basis point increase as a percentage of net sales was driven by 50 basis points of increased incentive costs on improved results and 40 basis points related to wage-and-hour litigation settlements in California. These benefits were partially offset by 60 basis points of leverage in non-wage store operating costs and 30 basis points of leverage in store wages on increased sales and hours management.

Fiscal 2025 operating income was $17 million or 1.8% of net sales compared to operating income of $2 million or 0.2% of net sales in the prior year. Net income in fiscal 2025 was $13.4 million or $0.78 per share compared to a net loss of $1.7 million or $0.09 per share in the prior year. Fiscal 2025 was negatively impacted by approximately $0.15 per diluted share related to a wage-and-hour litigation settlement in California.

Turning to the balance sheet. The business ended the year in a strong financial position. We had cash and current marketable securities of $160.6 million as of January 31, 2026, up from $147.6 million as of February 1, 2025. The increase in cash and current marketable securities over the last year was primarily driven by cash flow from operations of $53.5 million, a $2.9 million benefit from foreign currency fluctuation and our release of $2.7 million in restricted cash, partially offset by common stock repurchases of $38.3 million and capital expenditures of $11.1 million.

As of January 31, 2026, we have no debt on the balance sheet and continue to maintain our full unused credit facility. The company repurchased 2.7 million shares during fiscal 2025 at an average cost of $14.18 per share and a total cost of $38.3 million. On March 11, 2026, the Board of Directors approved the repurchase of up to an aggregate of $40 million of common stock. The repurchase program is expected to continue through January 29, 2028, unless the time period is extended or shortened by the Board of Directors. This repurchase program supersedes the prior authorized approval approved by the Board of Directors on June 4, 2025, that was set to expire on June 30, 2026.

We ended the year with $147 million in inventory compared to $146.6 million last year, a growth of 0.2% year-over-year. On a constant currency basis, our inventory levels were down 3.8% from last year. We feel good about our current inventory position.

Now to our first quarter to date results. Total sales for the 4-week fiscal period ended February 28, 2026, increased 9.8% compared to the 4-week fiscal period ended March 1, 2025. Comparable sales over the same period increased 7.5%.

From a regional perspective, North America net sales for the 4-week period ended February 28, 2026, increased 5.6% over the 4-week period ended March 1, 2025, while our other international business increased 27.6%. Excluding the impact of foreign currency translation, North America net sales increased 5.3% and other international net sales increased 12% compared with 2025.

Comparable sales for our North America business increased 6% for the 4-week period ended February 28, 2026, compared to the same week in the prior year, while comparable sales in our other international business increased 13.2%.

From a category perspective, quarter-to-date, hardgoods is our largest positive comping category, followed by men's, 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.

With respect to our outlook for the first quarter of fiscal 2026, I want to remind everyone that formulating our guidance involves some inherent uncertainty and complexity in estimating sales, product margin and earnings growth, given the variety of internal and external factors that impact our performance.

Our comparable sales results in early fiscal 2026 have maintained positive momentum, and we are cautiously optimistic that we'll continue to deliver top and bottom line improvements in the first quarter, assuming no significant economic impact on the business from the current global conflicts or tariff changes.

For the first quarter, we are anticipating total sales to be between $189 million and $193 million for the 13 weeks ending May 2, 2026, representing growth of 3% to 5%. Comparable sales for the same time period are expected to be between 2% and 4%.

Consolidated operating loss for the first quarter is expected to be between negative $15.6 million and negative $17.8 million compared to a loss of $19.9 million in the prior year. Included in this reduction of our operating loss is continued product margin expansion in North America and Europe as well as a benefit related to a $2.9 million onetime wage-and-hour litigation settlement incurred in the first quarter of 2025. This is an improvement of between 140 to 270 basis points as a percentage of sales. We expect this improvement to be driven by 130 to 200 basis points of gross margin expansion and 10 to 70 basis points of SG&A leverage.

Before providing our first quarter EPS guidance, I'd like to point out that our loss per share comparison to the prior year is negatively impacted by favorable foreign exchange valuation and interest income items in the first quarter of 2025 that did not repeat in the first quarter of 2026. Also, due to share buybacks in fiscal 2025, we have reduced our basic shares outstanding by approximately 10%, negatively impacting our loss per share guidance by an additional $0.07 per share. With that, we anticipate that our loss per share will be between negative $0.77 and negative $0.87 compared to a loss of negative $0.79 in the prior year.

As we consider the outlook for the full fiscal year 2026, with 7 consecutive quarters of positive comparable sales behind us and momentum into the new year, we are confident in our strategy and execution. However, caution is warranted, given the ongoing volatility in the macro environment. We will refrain from giving specific annual guidance, but we will provide some context around how we see the business trending throughout the year.

Top line strength continues in North America, and we have lapped a promotional period in our European business last year that, along with a difficult snow season, contributed to the fourth quarter sales decline in the region. Both North America and Europe are trending positive in the first quarter to date. With relative stability in the macro environment, we believe we can grow total sales in the low single digits for the year, inclusive of the negative impact of closed stores worth approximately $12 million in sales.

From a product margin perspective, 2025 was at a high point, excluding the stimulus-driven 2021 results. We believe that we will continue to grow product margin year-over-year in 2026 through steady improvements in North America and continued pricing discipline in our international entities. We believe that our private label business will continue to grow, helping drive the overall results, including potential tariff benefits, should the current situation hold throughout the year.

In addition to product margin growth, we believe further leverage exists in our occupancy costs and other components that will drive gross margin expansion. With sales growth discussed, we would anticipate leverage of our SG&A costs, further contributing to operating margin expansion. With the previously mentioned assumptions, we anticipate operating margin growth in the 50 to 100 basis point range in fiscal 2026. While effective tax rates will fluctuate by quarter, we anticipate that our full year effective tax rate will be roughly 35% to 40% in fiscal '26 compared to an effective tax rate of 44.4% in 2025.

We are planning to open 5 new stores in 2026, all within the U.S. This compares to 6 total stores opened in 2025 and 7 stores in 2024. We plan to close approximately 25 stores during fiscal 2026, including 20 in North America and 5 internationally, and we closed 17 stores during fiscal 2025.

We expect our capital expenditures for 2026 to be between $14 million and $16 million compared to $11.1 million in fiscal 2025 and $15 million in 2024. We expect that depreciation and amortization, excluding noncash lease expense, will be approximately $18.9 million, down from $21.3 million in 2025. And we are currently projecting our diluted share count for the full year to be approximately 17.1 million shares. This share count does not include the impact of any future share repurchases, including those under the repurchase agreement announced today.

And with that, operator, we'd like to open the call up for questions.

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

Let me begin with Europe. I just want to better understand what's going on there. In the fourth quarter, other international was -- I think it was a negative 7.5% comp. And I know that you guys shifted your focus to more full price selling in the quarter. And now I think, Chris, you said you're running up 13.2% quarter-to-date for other international.

So did something change in terms of the full price selling focus? Or was it just not -- were you not lapping that issue in, like, quarter-to-date? Help me understand why we're seeing such a big swing in the comp performance from fourth quarter to Q1 to date in other international. I assume it's Europe that's driving that.

Yes. Thanks, Mitch. And you are right in your assumption. This is Europe that's driving it. I think as you know, Mitch, following as closely as you have, I mean, we started this kind of change in strategy in late 2024, really trying to kind of reimagine what was happening in Europe as we were growing at quite a clip, but not getting to where we wanted to be from a profitability and cash flow perspective.

So our determination at that time was really to slow growth and focus on growing the core business and driving to profitability and cash flow. As you know, things don't move as quickly as you like sometimes, but the team put a plan together. It included some change of people within the entity, and that took some time to kind of gain traction. So as we moved across 2025, we saw that business shrink from about $135 million to just under EUR 135 million, I should say.

This included, across 2025, product margin growth of 250 basis points with Q4 up 660 basis points. I think a big win for us as we really reimagine the product portfolio and how we are buying inventory. Even though sales were down pretty meaningfully in Q4, high single digits, we still saw $1.8 million of operating profit growth on the back of really strong full price selling and expense control. And this is really despite a pretty soft winter overall for Q4. So -- also really focused on inventory management, more relevant product. And I think it put us in a spot to start 2026 just in a way better position than we were a year earlier.

As you mentioned, we have just under 90 stores now operating in 9 countries. 2026 is off to a really strong start. The 13.2% international comp is really all driven by Europe. We're not immune to the macro forces here, but we are just really laser-focused on operating profit and cash flow. And that includes really trying to drive a high concentration of sales out of our existing units and online, where possible, rationalizing the business to its really most core tasks around just how do we bring great product into the business and serve the customer, improving product margin, managing and reducing expenses where possible and just laser-focused on inventory levels.

So I think all of that has really led to what we see now is really 4 months in a row of much better results, but we have a long way to go. So we're encouraged by what we've seen over the last 4 months. But like I said, there's still a lot of work to be done. And hopefully, we've laid a good framework for that to be done in 2026.

I think at the end of the day, we continue to believe that this international growth is a positive thing for us, and it really is our best way to serve our customers, which exists all around the world and our brands, and how we bring brands around the world. And then just as importantly, how we identify trends because trends do emerge locally and grow globally. And if we are in more locations, it allows us to see those trends and help them move around the world.

So we're definitely encouraged with the last 4 months, in February for sure, and we're hoping to build some continued momentum into 2026.

And then as far as the comp guide for the quarter, I think you said a 2% to 4% comp. Quarter-to-date, you're running plus 7.5%. I know February is a fairly small month. But why are you anticipating worse comp performance over the balance of the quarter? And then, maybe as you address that question, can you also maybe speak to what you're seeing in terms of like tax refunds so far? And then, how are you thinking about higher gas prices potentially impacting your consumers?

Yes. All good questions. Let me start with kind of the guide, but I think these are going to sort of blend together. Obviously, we had a great February really across the business. International, we just spoke about. But North America was very strong, too, up 6% comp across the 4 weeks of February.

I'll tell you, as we started to see the global conflict unfold, we did see some softness in week 5 and have kind of guided the business into what we saw as a slowdown from where we were in February. And so, while still positive, we just saw some softness in the business, and that's how we plan the quarter to come out.

Now whether that's tied to rising fuel prices and a little bit of uncertainty in the macro environment, I think that's to be determined, and we just need more time to figure it out. But in relation to putting the guide together and how we saw our comp guide, this is really about kind of looking at what's our current run rate sort of post-February and drawing that out across the rest of the quarter.

Our next question comes from the line of Richard Magnusen with B. Riley.

So first off, it looks like your private label penetration was strong in Q4 at around 30%. But during the holiday season, did you notice any change in certain categories regarding the performance of private label versus the branded products? Or was it pretty much the same trends in different categories that you saw throughout the year?

I'll start, Richard, and then Chris can add in, but -- to give you some context, but I don't think we saw any major changes. There are certain categories that are really, really, really dominated by our private label or own brands. And so sometimes it's hard to compare the branded portfolio versus our private label brands. And so I think each of them are targeting a different segment of our business. And so I don't think I would call out any significant trend direction changes from a private label [ predictive ] that I can think of in terms of the category performance for the brands that they performed well.

But we also had some new brands that have performed really well, too, on the branded side. So I think it's a combination of both. And the new brands tend to be more focused on the T-shirts and fleece and hats in the more screenable portion of the business. So I think the private label is more dominated by the [indiscernible] departments within the business. So they're kind of a bit separated in that sense, but both, I think, have done well, contributed positively in Q4.

Okay. And then my last -- second question is that Easter looks like just over 3 weeks away. Can you -- what can you tell us about your expectations of timing regarding your spring assortment and any observed consumer preferences and the impact of recent weather in different parts of the U.S. and the cadence of promo around Easter weekend?

Sure. I'll kind of take a crack at it as this kind of falls into our planning arena and let Rick talk. Obviously, Easter has pulled up. So we are -- have started our -- putting our product out in a way that will take advantage of that, obviously, and planning the business to have a little higher bump in the middle part of the quarter versus a little bit later in the quarter. So we're certainly planning on that.

Richard, from a promotional perspective, this is just not really our game. We try to stay really full price and full margin. I think you see that within our product margin results here across 2025 and really the last few years as we've really been able to grow product margin, and that's not just our private label business, that's our branded business as well, really working with our partners to refine this.

So I don't see anything specific there. We do have a variety of, what I would call, sort of spring season initiatives that, as you would imagine, would play into the gift giving that happens around Easter, but also just into what you would expect from a seasonal floor set.

So I'm not going to go into those in detail either. That's kind of part of our product and secret sauce, but we're always trying to bring new in. I think that's what the customer wants. That's what we're really happy we've been able to provide within private label. And it kind of add on to your last question, too, of what we're going to do in our branded portfolio.

I mean our branded -- our top 20 brands really continue to gain traction this year as a percent of the total business, which we view as a good thing. I mean we go through these cycles where our biggest brands will kind of ebb and flow. And sometimes they disaggregate and we bring on a lot of new brands and other times they aggregate and hopefully, that leads to really strong results as they grow in breadth and depth, right?

So I think all those things are playing into the business. You see it really across all of our categories, whether we're talking about Q4 or whether we're talking about February, we're up with the exception of footwear. Footwear continues to be the one area of challenge for us, but that's our model. So we're really excited to be running a total comp and obviously running a big portion of the business positive.

[Operator Instructions] Our next question comes from the line of Marcus Belanger with William Blair.

I'm on for Dylan Carden. I just wanted to ask a follow-up to an earlier question about international. Obviously, you've seen a lot of volatility in that area. Can you tell me what you guys are doing to stabilize the area and have greater visibility into future growth? And then I have a follow-up.

Yes. I'll just -- I'll kind of add on to my earlier comment and let Rick jump in if he has anything to add. I mean I think, like all of our business, it really does start with product. So as we thought about reimagining the business at the end of '24, part of it was slowing growth just to make sure the focus was really laser-focused. But it was about looking at products and saying, how do we see trends, see where that customer is at, see who that customer is and bring it to them in a way that they will adapt to and they'll be excited about. And of course, we can sell it at full price.

So this was really about rethinking that, really starting to look at our assortments and who we are carrying and how we are carrying them and what they were saying to the customer and starting to push that into the business in a different way than we've been doing.

Obviously, as you can imagine, that takes time when you buy seasons ahead of time. So for us, we knew in the turnover at the end of late 2024 that it would be sort of a back-to-school holiday time period where we start to see this take shape. And we were pretty encouraged by some of the early areas we reimagined in that and what those meant going into Q4 and then some of those same items that we were dropping even late into Q4 that we're driving into the 2026.

So it's really about product. I mean there's a huge part of execution beyond that of your store environment and the people in stores and how they bring the product to life. We continue to invest in that. We continue to invest in our teams there, just like we do here in North America. I mean this is really about driving a human-to-human relationship, right, of how you connect with your customer and how you talk with them.

And so that's been part of what we've driven as well. And we think when you have the right product and you can bring it to them in a way that you really connect with them, I think that drives a different experience and hopefully one that brings that customer back again and again.

I'd just add that -- again, just for context, I think we have looked deeply at every other -- every area of our business in Europe. And as Chris said earlier, that we made some personnel changes in terms of some of the leadership in Europe and now we're leading particularly in some really key areas. And we're just leaving no stone unturned as we revisit every aspect of what we're doing.

And again, I'm really encouraged, as Chris has laid out, with the Q4 performance. I'd just highlight again that, that was against a very -- one of our worst snow years ever in Europe, and we have a very dominant position in the snow retailing business in Europe. So despite the difficult snow year, we still were able to improve the bottom line results by a pretty good amount.

So we're really encouraged. I think we're heading in the right way. But as Chris said, we have a long ways to go and a lot of work to do and more work to come. And we're very, very focused on making sure that we are continuing to improve the assortments, bring newness into the business, make sure that we're really delivering great experience for customers and commercializing our offering as we think about delivering to customers across all channels.

For stores, where are you guys in terms of how many more years maybe do you guys think about closing stores? And then, for the new stores that you are opening for this year, it looks like you're going to open up 5, how are -- over the last couple of years, how have those new stores been performing? Are they at a higher -- mature? Do you think that they're going to hit a higher sales per store maturity curve than your other stores? Just any comments on basic productivity for the first year or 2 years for your new stores?

Yes, sure. And let me -- I'll talk about new stores real quickly and then we can talk about closures. I think this is really -- I would say, post-pandemic, you've seen our store openings slow from historical levels, which we kind of knew was going to be part of it, obviously, with North America more built out and international being our area of further growth over the last few years. As we've talked about here on the call today, we have slowed international just from a standpoint of really focusing on profitability and cash flow.

So the store opening cadence is much less. I think when you think about opening approximately 5 stores a year in North America, the last few classes of stores have been really good. We've been able to be selective in where we're opening and really try to fill markets or fill opportunities we wanted to get into for a long time. There's still a lot of -- a fair amount of good assets in the country that we want to get in. We just have to find that right fit, right, that right location within the mall at the right economics that makes sense for us to be able to invest.

And I'm quite happy with how the real estate team and our store operations team has performed here in the last few years in our openings and each class having more winners than tougher situations. So that's a really good thing.

From a closure perspective, we started more significantly closing stores in 2023. And then in 2024, a few more. And last year was around 17. We are forecasting we'll be ahead of that 17 number this year, although, I'll tell you, these are forecasts. You're never quite sure what's going to happen in those markets and how malls will move or economics can change. But we are expecting to close approximately 20 stores in North America and 5 internationally.

And our closure process is -- as you would expect, it's a diligent process, right? It's looking at each trade area we're in, each market we're in. Are there underperformers, are there opportunities for consolidation and trying to figure out where those opportunities are. I mean we look at everything from sales and profitability, what the store's impact on that trade area is in regards to how it helps to fill product and even kind of leverage with the A centers in the market, obviously, the conditions of the centers, who the landlords are, how they're investing in the center.

We try to really manage the peak performance. And if that peak performance was 10-plus years ago, sometimes it speaks to where that center is headed, right? And then obviously, we try to do whatever we can around store economics before we walk away. But all those things combined, it's about sales growth. And I think that's why when we talk about 2026, we talk about growing sales in the low single digits despite closing some stores that are about $12 million impact.

So at the end of the day, I mean, we're really just trying to consolidate and we've given ourselves a challenge for quite some time, but we don't want to have one more store than we need in any given trade area, right? That's just extra capital and inventory you've got tied up. So we're really trying to be intentional about it.

Internationally, this will be a few more closures than we've had historically -- in 2026 is expected, and that's really just kind of, I would say, trimming that portfolio as well, right? We're trying to look at stores and say, okay, these ones are definitely working. They're great locations. There's maybe a mid-class that is -- that we're happy with, but we think we can still do better. And there's a third class that's kind of the lower class of stores that we are like, all right, we really have to make movement here or we will see consolidation.

And that's where we're kind of at, at this point is kind of going, okay, some of these are not making the traction we need and [ make ] their closures to make the overall business better.

I'd just add in that -- again, with a little bit longer context, as Chris said, 10, 15 years out. What we're seeing in the U.S. is actually finally the end of, I think, the final leg on a bunch of mall locations at the lower end C- and D-volume mall locations, where we had traditionally been able to make some money, but now they've just got to the point where they're just not working anymore.

But the important point in this is that, as you saw in our results in '24 and '25, where we closed units, total sales grew in North America. So what we're really talking about is how customer behavior has changed and moved to different centers within the trade areas. And I think that's -- this is kind of a long-term tail of playing out of -- that our malls are winning and the lesser malls are finally really losing to the point of closure. And we're often one of the last retailers to leave in some of these centers.

And -- but it's not about per se sales declining; it's about how customers are moving to the better retail experiences in the stronger and better malls.

Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back to Rick for closing remarks.

All right. Thank you again for all of your questions today, and we always appreciate your great interest in what we're doing and the progress we're making towards building back towards our historical profitability levels. And as I said earlier, I really want to thank everyone on our team and our partners and our brand partners and the support as we really drive better results. So much appreciated from everybody, and we'll talk to you again in June. Thank you.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.

Good afternoon, ladies and gentlemen. Welcome to the Zumiez, Inc. Third Quarter Fiscal 2025 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. business outlook and contains forward-looking statements. These 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. 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 filings with the SEC.

At this time, I will 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 third quarter performance and the momentum we're building as we head into the holiday season before discussing our strategic priorities. Chris will then take you through the financials and our outlook for the balance of the year. After that, we'll open the call to your questions. We're very pleased with our third quarter performance delivering top and bottom line results that were up meaningfully versus last year and exceeded our expectations. Comparable sales grew 7.6% on top of a 7.5% increase in the year ago quarter, representing our sixth consecutive quarter of positive comparable sales growth.

Once again, it was our North American business fueling our performance as comps in the region accelerated to double digits, bolstering our confidence heading into the critical holiday season. After a successful back-to-school period, sales remained strong throughout the quarter, reflecting the effectiveness of our merchandise assortments and attracting customers who pay full price even during less busy seasons. Encouragingly, our third quarter comp performance was driven by contributions from multiple areas of our business, led by women's and hard goods, which were up strong double digits along with low to mid-single-digit gains from both accessories and men's.

High single-digit comps and robust full price sales boosted gross margin, which combined with improved expense efficiency raised operating income significantly year-over-year. Earnings per share reached $0.55 in the quarter, well above the high end of our guidance of $0.29. Looking forward, we are increasingly confident in closing out the year with strong holiday results.

The fourth quarter is off to a good start with comparable sales through this past Tuesday, up 6.6%, including an 8.7% comp gain over the Black Friday, Cyber Monday period, which bodes well for the remainder of the holiday season. We are pleased with the momentum we have seen in our results as the year has progressed and are encouraged that we're now seeing comparable sales growth on top of comparable sales in the prior year.

We believe that our strategies have the company well positioned to build on our progress over the near and long term. Due to this, we remain focused on the same 3 strategic priorities that have driven our success. First, driving revenue growth through customer-focused strategic initiatives. Our commitment to refreshing our product mix with innovative, distinctive offerings continues to generate exceptional customer response. Momentum from introducing over 100 new and emerging brands annually has carried forward into 2025 with these new and emerging brands representing an increasingly important component of our sales mix and validating our merchandising strategy.

Private label performance remains a standout success story, continuing to reach new heights and representing our highest penetration levels in company history. This sustained expansion demonstrates organization's ability to identify emerging trends and create compelling products that resonate with our customers, while simultaneously enhancing our margin profile. Our investments in delivering exceptional customer experiences across both physical and digital touch points, continue to yield results. The enhanced staff development programs and technological capabilities we've implemented allow us to engage with customers through increasingly personalized and meaningful interactions, strengthening the relationships that have been 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. While the operational improvements we've executed throughout the year are generating meaningful benefits. Our continued focus in this area is key to establishing a more efficient and profitable business framework that positions us for sustained success. Regarding our international operations, while Europe continues to face challenging market conditions, we remain committed to our long-term strategy in these markets.

We're actively working to drive revenue through our distinctive product offerings, while maintaining our commitment to premium pricing and disciplined expense management. While European comparable sales are down low single digits, the trend line improved from the second quarter, and we continue to see product margin gains through disciplined full-price selling. We have confidence in the long-term potential of these markets, particularly given our ability to identify trends locally in each of the markets before they expand internationally.

Third, capitalize on our solid financial foundation to manage volatility by funding strategic expansion. Our financial position remains exceptionally strong, providing us with the flexibility to continue investing in our strategic objectives, while delivering value to shareholders. This financial stability enables us to navigate the ongoing uncertainties in the macro environment, while simultaneously positioning the company for long-term growth. Despite operating in an environment characterized by economic volatility, evolving trade relationships and global instability in certain regions, I'm increasingly confident in our ability to generate value for all of our stakeholders.

The fundamental strategies that have powered our success throughout our history, continue to demonstrate the relevance and our team's proven adaptability and execution capabilities fuel my optimism about our trajectory. Our direction remains clear and consistent, maintain our dedication delivering distinctive fashion-forward merchandise through customer connection strategies that have driven our growth, while preserving the operational discipline that has strengthened our financial performance.

We've demonstrated our resilience through previous market cycles, and I'm confident we're strategically positioned to continue that tradition. Before turning things over to Chris, I want to express my appreciation to our entire organization for their continued commitment and adaptability. Your dedication to our values and our customers remains the foundation for all of our achievements.

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 third quarter results. I'll then provide an update on our fourth quarter-to-date sales trends. Third quarter net sales were $239.1 million, up 7.5% from $222.5 million in the third quarter of 2024. Comparable sales were up 7.6% for the quarter. As Rick mentioned, the primary driver was our North America business, which shows outside strength even as macroeconomic uncertainty spurred by global trade policy continues. For the third quarter, North America net sales were $202.8 million, an increase of 8.6% from 2024. Other international net sales, which consist of Europe and Australia, were $36.3 million, up 1.7% from last year. Excluding the impact of foreign currency translation, North America net sales increased 8.7% and other international net sales increased 3.1% year-over-year. Comparable sales for North America were up 10%, marking the seventh consecutive quarter of comparable sales growth in the region.

Other international comparable sales declined 3.9% in the third quarter, but showed sequential improvement from the second quarter. From a category perspective, women's was our largest positive comping category, followed by hard goods, men'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 and an increase in transactions. Dollars per transaction were up for the quarter, driven by an increase in average unit retail, while units per transaction were roughly flat year-over-year.

Third quarter gross profit was $89.8 million, up 14.7% compared to $78.3 million in the third quarter of last year. Gross profit as a percentage of sales was 37.6% for the quarter compared to 35.2% in the third quarter of 2024. The 240 basis point increase in gross margin was primarily driven by 110 basis points of leverage in store occupancy costs on higher sales and the closure of underperforming stores, 100 basis points of improvement in product margin and 30 basis points of benefit from lower inventory shrinkage. SG&A expense was $78 million or 32.7% of net sales in the third quarter compared to $75.9 million or 34.1% of net sales a year ago. The 140 basis point decrease in SG&A expense was driven by a 110 basis point decrease in non-wage store operating costs and 80 basis points of leverage of store wages tied to higher sales and the closure of underperforming stores.

These benefits were partially offset by a 40 basis point increase related to annual incentive compensation. Operating income in the third quarter of 2025 was $11.8 million or 4.9% of net sales compared with operating income of $2.4 million or 1.1% of net sales last year. Net income for the third quarter was $9.2 million or $0.55 per share. This compares to a net income of $1.2 million or $0.06 per share for the third quarter of 2024.

In the third quarter of fiscal 2025, we benefited from a onetime tax items, which increased diluted earnings per share by approximately $0.09. Our effective tax rate for the third quarter of 2025 was 26.1% compared with 63.4% in the year ago period. The year-over-year decrease in the effective tax rate was primarily driven by improved operating results, the allocation of losses across the jurisdictions in which we operate and the previously mentioned onetime tax item.

Turning to the balance sheet. The business ended the quarter in a strong financial position. We had cash and current marketable securities of $104.5 million as of November 1, 2025, compared to $99.3 million as of November 2, 2024. The increase in cash and current marketable securities over the trailing 12 periods was driven primarily by $50.5 million in cash provided by operating activities and the release of $3 million in restricted cash. This was partially offset by share repurchases and capital expenditures of $38.3 million and $12.5 million, respectively. As of November 1, 2025, we have no debt on the balance sheet.

During the third quarter, we repurchased 300.000 shares at an average cost, including commission of $18.61 per share for a total cost of $5.4 million. Fiscal year-to-date through November 1, 2025, the company has repurchased 2.7 million shares at an average cost, including commission of $14.18 per share and a total cost of $38.3 million. As of November 1, 2025, we had $1.7 million remaining on the $15 million repurchase authorization approved by the Board on June 4 of this year. We ended the quarter with $180.7 million in inventory, down 3.5% compared with $187.2 million last year. On a constant currency basis, our inventory levels were down 5.1% from last year. We feel good about our current inventory position.

Now to our fourth quarter-to-date results. Net sales for the 31-day period ended December 2, 2025, increased 7.5% compared to the 31-day period in the prior year ended December 3, 2024. Comparable sales for the 31-day period in December 2, 2025 were up 6.6% from the comparable period in the prior year, and we are seeing changes in foreign exchange positively increased total sales growth by approximately 1.7%. From a regional perspective, net sales for our North America business for the 31-day period ended December 2, 2025 increased 6.7% compared to the 31-day period ended December 3, 2024, while our other international business increased 10.6%, excluding the impact of foreign currency translation, North America net sales increased 6.7% from the prior year, while international net sales increased 2.5%.

Comparable sales for North America increased 7.8% for the 31-day period in December 2, 2025 compared to the same weeks in the prior year, while comparable sales for our other international business increased 2.6%. From a category perspective, hard goods was our strongest comping category followed by women's, accessories and men's. Footwear was our only negative comping category quarter-to-date. The 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 average unit retail and an increase in units per transaction.

With respect to our outlook for the fourth quarter of fiscal 2025, I want to remind everyone that formulating our guidance involves some inherent uncertainty and complexity and estimated sales, product margin and earnings growth given the variety of internal and external factors that impact our performance. This is even more pronounced in today's environment with the current tariff situation that adds additional uncertainty and complexity to pricing and the potential to limit the ability of our customer to continue to spend.

Our recent trend line in North America has been very encouraging and provides confidence as we head into the heart of the holiday selling season. That said, we think it is prudent to balance our current domestic momentum with some near-term conservatism given the general uncertainty in the macro environment and recent trends where we have seen nonpeak consumer traffic soften. We are anticipating total sales will be in between -- sorry, will be between $291 million and $296 million for the 13 weeks ended January 31, 2026, representing sales growth of 4% to 6%.

Total comparable sales are planned to be in the 2.5% to 4% range. This reflects continued strength in North America and comparable sales planned in the 4.5% to 6.5% range. Comparable sales in our international business are planned to be tougher as we anniversary promotional trends from the fourth quarter of 2024. Internationally, we expect comparable sales to be down in the low single digits, with overall growth in product margin dollars year-over-year as we continue our efforts to drive full price selling.

For the fourth quarter, we are expecting product margin to increase modestly from the fourth quarter of last year. Consolidated operating income in the fourth quarter is expected to be between 8% and 8.5% of sales, and we anticipate earnings per share will be between $0.97 and $1.07 compared to EPS of $0.78 in the prior year. We estimate that our fourth quarter diluted share count will be approximately 16.5 million shares, which excludes any stock repurchases beyond the end of the third quarter. Regarding full year 2025 results, we have performed well in North America during the important back-to-school season and start to the holiday shopping, which is generally a reasonable indicator for overall holiday performance, but continue to experience headwinds with our international business.

Overall, borrowing a significant downturn in the economy for the full year, we believe that we'll see year-over-year total sales growth between 4.5%, 5%, and despite the closure of 33 stores in fiscal 2024 and approximately 21 store closures planned primarily in late 2025, which combined, are estimated to have a negative impact on sales of roughly $15 million for the year. We anticipate 40 to 50 basis points of growth in product margin in 2025 on top of 70 basis points of improvement in fiscal 2024.

We anticipate driving additional gross margin leverage through other expense categories such as occupancy, distribution and logistics, and finally, we believe that we can hold our 2025 SG&A costs relatively flat as a percentage of sales with our fiscal 2024 results through continued focus on expense management, while also investing in important long-term strategic initiatives. This is inclusive of the previously mentioned $3.6 million settlement of a wage and hour lawsuit in California as well as meaningful growth in our incentive costs on stronger performance. Combined, these expectations will drive a year-over-year increase in operating margins and net profit for fiscal 2025, with anticipated earnings per share between $0.57 and $0.67 compared to a loss of $0.09 in 2024.

Included in these fiscal 2025 expectations are the following: 6 new store openings during the year, including 5 in North America and 1 in Australia. We also plan to close approximately 21 stores in fiscal 2025, including up to 18 in the United States, 1 in Canada and 2 in Europe. We expect our capital expenditures for 2025 to be between $10 million and $12 million compared to $15 million in fiscal 2024 and $20.4 million in fiscal 2023. We expect that depreciation and amortization, excluding noncash lease expense, will be approximately $22 million, in line with the prior year. And while the effective tax rates have fluctuated significantly by quarter, we anticipate our full year effective tax rate will be roughly 51% to 54% in fiscal 2025.

We are currently projecting our diluted share count for the full year to be approximately 17.2 million shares, which excludes any stock repurchases beyond the end of the third quarter.

And with that, operator, we'd like to open the call up for questions.

[Operator Instructions]

Our first question will come from the line of Mitch Kummetz from Seaport Research Partners.

Rick, maybe we can start on hard goods. Could you elaborate on what's driving the strong performance there. I think you said it was double-digit comp in the quarter, and it seems to be your leading category for 4Q to date. I mean, the bulk of your hard goods business, if I recall, is skate. I'm wondering if you're getting any contribution from snow in Europe? Or what kind of trends in skate are you seeing in the U.S. that's driving this?

Thanks, Mitch, for the question. The driver here to be clear is skate. And it is true across our global regions here in North America as well as improvements in Europe and Australia, too. And I think what we're finally seeing, Mitch, is the reversal of a multiyear negative trend, which has been very painful for us over the last few years. And as you know, and we've discussed in 2020, we reached an all-time high, I think, like a lot of things with bikes, hiking, camping gear, all so much volume got moved into 2020, things you could do outside on your own because of pandemic.

And our skate hard goods business at that point reached an all-time high for us. And here in '24, we reached -- in '24 reached an all-time low. So I think what we're finally seeing, Mitch, is a turn in that business. And we're cautious, optimistic now that we're going to see that turn play out over the next few years as we typically would in a new skate hard goods cycle. We'll have to see how that goes on holiday though. And our holiday typically is a good -- and as reflected in November, typically is a -- skate is a good gift-giving category in holiday. So I feel, again, optimistic about how we're positioned there. But I think Mitch this was the long awaited after 4 painful years of massive declines in skate hard goods, this is the long-awaited turn that we've been looking for.

That's helpful. And then Chris, on the fourth quarter outlook, you guys were obviously performing well through the first 31 days of the quarter. What are your comp assumptions for the balance of the quarter? I mean, I think you said that you're taking a conservative approach just based on some consumer uncertainty. But can you kind of fill us in on kind of what sort of comp is embedded over the balance of the quarter to get to your guide for 4Q?

Yes. I think, Mitch, as we think about the guide, we are assuming on the North America side, that it will just be a little bit softer than what we saw here in November. We saw good November. Obviously, highlighted, as Rick pointed out in his commentary by the Black Friday and Cyber Monday weekend was our strongest point, but we would expect it to slow a little bit here in the interim weeks between Black Friday, Cyber Monday and obviously, the important holiday week right at the end of December. So we are planning just a slight deceleration from November for North America.

And on the Europe side, we're really encouraged by where November came in positive comparable sales and margin growth as well, really magnifying the impact to product margin dollars. But we also know, as we commented in the call that we had some promotional activity in December and January of last year, and that resulted in a benefit to sales, but obviously a detriment to margin. And so as we look to anniversary in 2025, we are looking for that trend line to decelerate and turn negative again after being positive in November.

But at the same time, driving product margin dollars. So what you would expect to have product margin increases that would offset that sales decline. And that's what we are planning the business at. So the run rate from here for December and January is a negative comp in Europe that would offset those gains that we had in November.

Got it. And then on the private label business, just maybe speak to the performance in the quarter, where is the penetration today? And how much contribution are you getting from private label in terms of your product margin?

Yes, I'll take a shot at some of the -- quantifying it and then let Rick add whatever he'd like to add. I mean we are incredibly encouraged by our private label as we've talked about for a number of quarters here. And I think what we're really proud of our teams here is their ability to drive trend. I think that we are seeing more and more customers come into our store, asking for our private label brands because they see them as brands and they're willing to pay full price for the value and what they see in those brands.

And so that's an exciting thing for us. As you pointed out, we have seen continued penetration in private label. It's up just right around 200 basis points year-over-year to date, meaning it's growing 2 full percentage points as a percent of our overall sales. So really happy with that and happy with how the business is trending. It does run at a higher product margin, but it also is part of our overall ability to continue to add value for our customers, too, where we run 4 for $135 is a promotion, which is 2 tops and 2 bottoms for $135, and that's something that resonates with our consumer. And while we have some branded product in there, it's primarily our private label product that's driving that. So really happy with the trajectory of where private label is at.

And I'd just add to Chris' comment, Mitch, that it's also -- it's more than -- it's really about a 5-year window here of where we've really worked hard at private label, reinvented our trend process, internally in the organization. And I think what you're seeing is a really great collective effort of our entire organization around what we believe is a requirement now of most new brands and the speed of brand cycles. Most new brands never get to doing cut and sew product. They're screenable businesses.

So we have committed ourselves to owning that business through our owned brands. And then the only last point I just want to make that Chris echoed here is we're a full price, full margin here. And I think in these categories, these cut and sew categories in our private label business, I mean, we're in some cases, we're the premium price player amongst our competitors in the market. So it really says we're doing some special for customers.

And are you seeing more strength on the women's side than the men's? And is that contributing to the outperformance of women's right now? Or is that not really the situation?

We have good strength across our private label brands in both men's and women's. The mix is different in terms of penetration, but there's good strength in both sides.

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

Just a follow-up on Mitch's questions on private label. Maybe I missed it. Did you give the penetration of private label roughly what that is now?

Yes. Year-to-date, we're running right just under 31% of total product and to Rick's point earlier, 5 years ago, we were right around 11% or 12%. So we have seen a large run in private label. Jeff, you've been around the story for some time. We've been over 20% in our past. In fact, we were over 20% as recently as 2015. And we saw that decrease that 11% to 12% across the end of the last decade, really on a heavy brand cycle. And now I think we're seeing our private label drive higher numbers than we've seen in the past because I think it's really hitting on trend.

And so just -- I know this is a tough question, but where do you think private label penetration peaks out? Does that go to 40? Or is it -- are we kind of probably -- maybe you didn't expect it to get to 31, I don't know.

I think it's a really good question, Jeff. And one, obviously, as you would expect, we spent a lot of time talking internally. But it will go where the customer wants it to go. I think, is kind of our answer here. I mean, we really appreciate working with our brands and the relationship we have with brands. And as we think about the cycles I laid out on your first question, I mean, when we went from 21% to 11% we weren't trying something different. We just saw brands really accelerate and saw brands become more important to our customers. And that's the direction we went in.

I will say we grew product margin during that period too. And of course, in this cycle that we're in, we're seeing our private label brands really take off. And along with some of our brands. I don't want to paint any picture that our comp trajectory is just private label. We definitely have brands that mean a lot in this cycle. But I think we'll kind of let it go where the customer wants it to go, but I don't see some situation where we are more predominantly private label in our stores or anything like that because I think the branded element of what we sell is so important to what we're doing, and it's important to who our consumer is.

I mean, you have to remember, this is a consumer that wants to individuate and be unique and different and we've talked over time about 20% to 30% turnover in our top 10 and top 20 because they're on to what's next. And that's an exciting thing about what we sell. It's also a challenging thing about what we sell because you've got to bring in newness. And I I'm just really proud of our buying team that they're able to do that both across our private label to bring in newness and also our brands.

And I would just add to Chris' comments, Jeff, that I agree with everything you said, and I'll just give you maybe a context is we will have another brand run again. As gate goes off, it's low, it's almost -- it is for us a completely a branded product cycle in skate hard goods. So we'll have runs there.

So I think we may see situations where penetration looks like it's going down, but I don't think dollars are going to go down in private label. We'll still grow our business from a dollar perspective. So I think we'll have brand cycles, but I think where we dominate with our owned brands, we'll still be able to grow the business on that side of the business. So it will just be a shift in mix relative to the strength of branded cycles.

It's a really good point because footwear is in that same bucket. Where in footwear, we just don't do private label. So we have a large chunk of our business that is going to be branded.

But Footwear has been kind of negative lately, correct?

No doubt. This has been our toughest category. Yes.

Okay. And then -- so let me ask you this, whoever, which one of you wants to answer. What -- or who do you think you're taking market share from in North America? Do you think it's from the independents? Do you think it's from -- I mean, wherever you feel like however you want to answer that question. And then also, do you think that the demographic you're selling to is changing or evolving? Do you think you're picking up new customers with more private label, maybe more on the women's side? Maybe just I don't know if you give us any thoughts around those ideas.

Yes, I'll start, and Chris can add on, Jeff. I mean, we are laser-focused on our core customer and that the same core customer we've always been focused on, which is a young person, as Chris said a moment ago that wants to individuate and self-express their identity, they move through adolescent more so than their broader age demographic. So where we're, I think, benefiting is from this, and we may be drawing some people into that because of the faster nature of how I think how forward we are on trend. We may be trying some broader people. But I want to be clear, our focus is on our core consumer.

And I think that's always a winning strategy as you think about how you serve your customers. You've got to start with your core consumer and hyper-serve them in this world. And that is our focus. And yes, maybe we are picking up in other areas, but it's because we're winning with, I think, what is one of the most influential consumers in the marketplace today, the person who's willing to lead on trend, that's our core consumer. And they may be bringing others along with them because of our ability to execute on behalf of that core consumer.

Okay. And then I'm sorry, on taking market share, any thoughts on who you might be taking some share from?

I don't have any significant thoughts on that. I think what's happened in -- and again, let's be clear, I think most of our gain, as Chris just laid out here, we've had some. We're starting to see some small transaction gains, but most of our gains has been through executing in, I think, on trend, partnering with our great brand partners and most of our gains have been driven by AUR over the last year, 2 years actually.

Now I think we're starting to win some transactions. So I'm not sure -- I think we're reflecting the reality of the market that we discussed about the volatility of the market, too. And I think what it really speaks though, is that our execution levels is we're able to probably own more wallet share, maybe what we're really doing here because it's been AUR over the last 2 years that has really driven our gains.

Now in the November period that you just finished, I think the transactions, I believe you said were down slightly. I'm just curious, what did you see in store traffic during this latest period?

Yes, I'd have to break it into 2 different regions because on a consolidated basis, we were down slightly. We were up in North America, and we were down slightly in Europe. Even though Europe ran a comp, again, more AUR, DPT driven than transactions. So we did see a transaction gain in North America. And I think what we saw traffic-wise was decent comps actually throughout the month with week 4 being by far our strongest though.

We saw, I think, a really good pickup similar to how we saw Q3 where we saw back-to-school be really strong. And then it actually stayed more stable than we anticipated through the back 2 months of Q3. We saw the same thing in November, where it's stable and good comps, weeks 1 through 3, but week 4, definitely more impressive.

And the longer term here, Jeff, what I'd tell you is, as consumer's income levels catch up with the rates of inflation we've had over here. I think we're -- the next phase, we're starting to see that. I think as we saw in back-to-school, we ran comp gains as Chris saying here in North America in November. As consumer incomes catch up with the rate of inflation, I think we're going to turn and we'll now be capturing transaction rates.

Victor, do we have any more questions from the group?

I'm not sure if Victor dropped. This is Jill. Jeff, I see you have a follow up?

[Operator Instructions]

I see Jeff Van Sinderen is still in the stage.

My questions were answered.

And I'm not showing any further questions in the queue at this moment. I'd like to turn the call back over to Rick for any closing remarks.

All right. Thank you, Victor. And I'll close with just my best wishes to all our -- to all those people who I greatly appreciate following what we're doing here at Zumiez, and wishing you all a very happy holiday season. Thanks very much.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

Good afternoon, ladies and gentlemen, and welcome to the Zumiez Inc. Second Quarter Fiscal 2025 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. business outlook and contains forward-looking statements. These 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. 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 filings with the SEC.

At this time, I will turn the call over to Rick Brooks, Chief Executive Officer. Mr. Brooks?

Thank you. Hello, and again, thank you everyone joining us on today's call. With me today is Chris Work, our Chief Financial Officer. I'll begin with a few remarks about the second quarter and the back-to-school season before touching our strategic priorities. Chris will then take you through the financials and our outlook for the balance of the year. After that, we'll open the call to your questions.

We are pleased that our second quarter results exceeded expectations, demonstrating the continued resilience of our North American business and the effectiveness of our strategic initiatives. Comparable sales grew 2.5% and marking our fifth consecutive quarter of positive comparable sales growth. Even more encouraging is that our 2-year comparable sales stack accelerated 300 basis points versus the first quarter, indicating our momentum is building even as we face increasingly difficult year-over-year comparisons. Comparable sales growth accelerated each period during the quarter as we build towards back-to-school and the North American business continues to be the primary driver of our performance. This strength reflects a successful execution of our merchandise and customer experience initiatives, which are clearly resonating with our core customer base despite the challenging operating environment.

Our momentum continued to build into August with low teens comparable sales growth in the United States on top of a double-digit increase in the year-ago period, providing confidence in our approach and optimism heading into the important holiday season. However, we remain prudent in our outlook given the broader economic uncertainties around tariffs and the consumer.

Heading into the back half of 2025, we remain focused on three strategic priorities: first, driving revenue growth through customer-focused strategic initiatives. Our commitment to refreshing our product mix with innovative offerings continue to generate strong customer response, building on momentum from introducing over 120 new brands throughout 2024, we persist in our mission to deliver distinctive exclusive merchandise that sets us apart in the marketplace. The expanded presence of these new and emerging brands in our sales mix validates the effectiveness of our merchandising approach.

Private label performance remains exceptionally strong, reaching 30% of total sales year-to-date through the second quarter versus 27% a year ago and representing the highest private label penetration in our history. The sustained expansion showcases our organization's capability to identify emerging trends and create compelling products that connect with our customers while enhancing our margin profile.

Our commitment to exceptional customer experiences across both physical and digital touch points remains unwavering. Continued investments in staff development and technological capabilities allows us to engage with customers who increasingly tailored and meaningful interactions, reinforcing the relationships that have anchored our success for decades.

Second, sustaining our rigorous commitment to profitability optimization across our geographic footprint. Within North America, our emphasis on premium pricing strategies continues supporting margin gains alongside market share expansion. The operational improvements we have executed continue to generate benefits, establish a more efficient and profitable business framework. Regarding Europe, market conditions are challenging, making it difficult to build on the improvements we made in sales, product margin operating results in 2024. We remain actively engaged in driving revenue through distinctive product offerings while preserving our commitment to premium pricing and expense management. We continue to have confidence in its long-term potential, particularly as we see trends developing locally before expanding internationally.

Third, capitalizing our solid financial foundation to manage volatility while funding expansion. Our financial position remains strong with cash and liquid investments exceeding $106 million at quarter end and historically speaking, our highest cash generation months ahead of us. This fiscal stability enables continued investment in our strategic objectives, provides the ability to address opticals that could emerge and simultaneously deliver shareholder value to our stock repurchase initiative.

Despite operating an environment characterized by economic volatility and shifting trade relationships, I am confident in our ability to generate value for our entire stakeholder community. The fundamental approaches that have powered our achievements across our organization's history continue holding tremendous relevance. Our team's demonstrated adaptability and execution capabilities fuel my enthusiasm regarding our trajectory through the balance of 2025.

Our direction remains well defined, maintain our dedication to delivering distinctive fashion-forward merchandise through the customer connection strategies that have propelled our growth while preserving the operational rigor that has strengthened our financial performance. We've proven our resilience through previous market cycles, and I am certain we're strategically positioned to uphold that tradition.

Before I transition to Chris, I want to express my appreciation to our entire organization for their ongoing commitment and flexibility. Your dedication to our values, and our customers continues to serve as a foundation for all of our achievements. With that, let me hand the call over to Chris for the financial review.

Thanks, Rick, and good afternoon, everyone. I'm going to start with a review of our second quarter results. I'll then provide an update on our third quarter-to-date sales trends.

Second quarter net sales were $214.3 million, up 1.9% from $210.2 million in the second quarter of 2024. Comparable sales were up 2.5% for the quarter. As Rick mentioned, the primary driver was our North America business, which shows outsized strength even as macroeconomic uncertainty spurred by global trade policy intensified during the period. For the second quarter, North America net sales were $180 million, an increase of 2.1% from 2024. Other international net sales, which consist of Europe and Australia, were $34.2 million, up 1% from last year. Excluding the impact of foreign currency translation, North America net sales increased 2.1% and other international net sales decreased 4.2% year-over-year. Comparable sales for North America were up 4.2%, marking the sixth consecutive quarter of comparable sales growth.

After positive comparable sales in the important fourth quarter of 2024, our other international comparable sales have been negative in 2025, declining 5.5% in the second quarter. From a category perspective, women's was our largest positive comping category, followed by hardgoods and accessories. Footwear was our largest negative comping category, followed by Men's. 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, offset by a decrease in units per transaction.

Second quarter gross profit was $76 million, up 5.9% compared to $71.8 million in the second quarter of last year. Gross profit as a percentage of sales was 35.5% for the quarter compared to 34.2% in the second quarter of 2024. The 130 basis point increase in gross margin was primarily driven by 60 basis points of improvement in product margin and 60 basis points of benefit related to the leverage of store occupancy costs on higher sales and the closure of underperforming stores.

SG&A expense was $75.9 million or 35.4% of sales in the second quarter compared to $72.2 million or 35.4% of net sales a year ago. The 100 basis point increase in SG&A expense was driven by a 40 basis point increase in corporate costs, 30 basis points related to higher-than-anticipated legal settlement, 20 basis point increase related to annual incentive compensation, 20 basis point increase related to store wages, a 20 basis point increase in non-store SG&A wage costs and 30 basis point increase related to numerous smaller changes to impairment costs, training and other miscellaneous costs. These increases were partially offset by 60 basis points of benefit in non-wage store operating costs.

Operating income in the second quarter of 2025 was $0.1 million or 0.1% of net sales compared with an operating loss of $0.4 million or 0.2% of net sales last year. Net loss for the second quarter was $1 million or $0.06 per share. This compared to a net loss of $0.8 million or $0.04 per share in the second quarter of 2024. Our effective tax rate for the second quarter of 2025 was 210% compared with 252% in the year ago period. The higher-than-usual tax rate in the second quarter this year and last year was primarily due to the allocation of losses across the jurisdictions in which we operate.

Turning to the balance sheet. The business ended the quarter in a strong financial position. We had cash and current marketable securities of $106.7 million as of August 2, 2025 compared to $127 million as of August 3, 2024. The decrease in cash and current marketable securities over the trailing 12-month period was driven primarily by share repurchases and capital expenditures of $38.3 million and $14.1 million, respectively, partially offset by $26.6 million in cash provided by operating activities and the release of $3 million in restricted cash. As of August 2, 2025, we have no debt on the balance sheet.

During the second quarter, we repurchased 0.6 million shares at an average cost, including commission of $13.10 per share for a total of $7.8 million. As of August 2, 2025, we had $7.2 million remaining on the $15 million repurchase authorization approved by the Board on June 4. We ended the quarter with $157.7 million in inventory, down 0.6% compared with $158.8 million last year. On a constant currency basis, our inventory levels were down 1.7% from last year. We feel good about our current inventory position.

Now to our third quarter-to-date results. Net sales for the 30-day period ended September 1, 2025, increased 10.6% compared to the 30-day period in the prior year ended September 2, 2024. Comparable sales for the 30-day period ended September 1, 2025, were up 11.2% from the comparable period in the prior year representing a 2-year comparable sales stack of 23.3%.

From a regional perspective, net sales for our North America business for the 30-day period ended September 1, 2025 increased 11.7% compared to the 30-day period ended September 2, 2024, while our other international business increased 2.3%. Excluding the impact of foreign currency translation, North America net sales for the 30-day period ended September 1, 2025, increased 11.7% from the prior year, while the international net sales decreased 2.1% compared to 2024. Comparable sales for North America increased 13% for the 30-day period ended September 1, 2025, compared to the same weeks in the prior year, while comparable sales for other international business declined 3.2%.

From a category perspective, all categories delivered positive comparable sales quarter to date with women's being the largest comp followed by men's, accessories, footwear and hardgoods. The consolidated increase in comparable sales was driven by an increase in dollars per transaction and an increase in transactions. Dollars per transaction were up for the period, driven by an increase in average unit retail, partially offset by a slight decrease in units per transaction.

With respect to our outlook for the third quarter of fiscal 2025, I want to remind everyone that formulating our guidance involves some inherent uncertainty and complexity in estimating sales, product margin and earnings growth given the variety of internal and external factors that impact our performance. This is even more pronounced in today's environment with the current tariff situation that adds additional uncertainty and complexity to pricing and the potential to limit the ability of the consumer to continue to spend. Our recent trend line in North America during back-to-school has been very encouraging and provides confidence as we head into the holiday season. That said, we think it is prudent to balance our current domestic momentum with some near-term conservatism given the general uncertainty in the macro environment and recent trends where we have seen nonpeak consumer traffic soften.

We are anticipating total sales will be between $232 million and $237 million for the 13 weeks ended November 1, 2025, including comparable sales growth of 5.5% to 7.5% over the prior year. For the third quarter, we are expecting product margin to increase from the third quarter of last year and consolidated operating income for the third quarter is expected to be between 2.3% and 3.3% of sales and we anticipate earnings per share will be between $0.19 and $0.29 compared to EPS of $0.06 in the prior year.

Regarding full year 2025 results, uncertainty remains in the macro environment. The overall tariff situation continued pressure on consumer discretionary income require caution. We have performed well in North America during the important back-to-school season, which is generally a reasonable indicator for holiday performance. Overall, barring a significant downturn in the economy, we remain confident in our original projections for the year. We now believe that we'll see year-over-year sales growth of 3% to 4% in 2025 despite the closure of 33 stores in fiscal 2024 and 20 store closures planned primarily in late 2025, which combined are estimated to have a negative impact on sales of roughly $14 million for the year. We anticipate modest year-over-year growth in product margins in 2025 on top of 70 basis points of improvement in fiscal 2024. We anticipate driving additional gross margin leverage through the other expense categories such as occupancy, distribution and logistics. And finally, we believe that we can hold our 2025 SG&A costs, excluding the onetime legal charges relatively flat as a percent of sales with our fiscal 2024 results through continued focus on expense management, while also investing in important long-term strategic initiatives. Combined, these expectations will drive a year-over-year increase in operating margins and net profit for fiscal 2025, bringing the company back to profitability.

Including these fiscal 2025 expectations are the following: six new store openings during the year, including five in North America and one in Australia. We also plan to close approximately 20 stores in fiscal 2025, including up to 17 in the United States, two in Canada and one in Europe. We expect our capital expenditures for 2025 will be between $11 million and $13 million compared to $15 million in fiscal 2024 and $20.4 million in 2023. We expect the depreciation and amortization, excluding noncash lease expense, will be approximately $22 million, in line with the prior year. And while effective tax rates are likely to fluctuate significantly by quarter, we anticipate that our full year effective tax rate will be roughly 50% to 60% in fiscal 2025. We are currently projecting our diluted share count for the full year to be approximately 17.3 million shares, which excludes any stock repurchases beyond the end of the second quarter.

With that, operator, we would like to open the call up for questions.

[Operator Instructions] Our first question comes from Mitch Kummetz with Seaport research partners.

Thanks for taking my questions, I got a few of them. First of all, I guess, Chris, on the 3Q guide, maybe a couple of things there. Obviously, you're comping very well quarter-to-date. What are you assuming for comp for the balance of the quarter to get to your comp guide for the quarter? And then also, can you maybe kind of break out the op margin in terms of kind of gross and SG&A? I would imagine that you get a pretty good amount of leverage, both on kind of BDO and also SG&A expense based on the kind of the comp level that you're expecting, but you're also expecting product margins to be up too. So maybe some more color there would be helpful.

Yes. Thanks, Mitch. Happy to take that. I think from an overall comp perspective, as we've seen from the last couple of years, we have seen kind of the nonpeak time periods slow. And while we are ecstatic about how our back-to-school has run here. I mean, as we said in our prepared remarks, the August comp was 11.2%. The 2-year comp was 23.3%. If we just look at North America, the 2-year stack is 27.9%. So we're really encouraged by what the product offering has been through back-to-school. But we know we have seen some slowdown in the last two years after back-to-school. So we are assuming a much lower comp level in the, I'll say, low single digits to -- in the quarter as we kind of wrap up this week, which is week 5 of the period. So from here on out, we would assume it to go back to something closer to what we saw in Q2. And then obviously, if we're able to beat that, we see that there's some upside to the plan.

On the second piece of your question, just thinking about Q3, on this type of comp growth, we expect to get pretty meaningful expansion both in gross margin tied to what we would expect to see a pretty significant leverage on things like occupancy and distribution as well as some product margin expansion. And on the SG&A side, we would expect to have pretty meaningful leverage. As we talked about in our annual remarks, we expect to grow SG&A at a lower rate than sales. And I think with the sales levels that we're predicting at this point for 2025, we think we'll be there kind of absent some of these onetime legal charges that have happened in the first six months that we've laid out. So we feel like we can leverage SG&A. Obviously, Q2 was a little higher, but I think that's going to show to be timing as we wrap the entire year and feel like we'll get some good leverage on SG&A in Q3.

Great. That's very helpful. And then maybe two others. It sounds like comp in the quarter was really driven by AUR and that, that's also benefiting you guys for 3Q to date. Could you maybe speak to what's driving AUR? Like how much of that is just higher MSRPs given the tariffs versus maybe mix of business or a lower level of promotions or anything else? Could you maybe address that?

I'll start and let Chris add on, Mitch. It is going to be a combination of those factors, clearly. I mean, as we've discussed in the previous quarter call, we have taken the price increases as we prepared for the back-to-school window. But there's also obviously mix shifts in the business. Obviously, the apparel businesses that are driving the business. So you're seeing some positive, I think, mix shifts relative to the nature of the business and away from other departments that have been a little bit more pressured or like accessories, which tend to have lower AUR. So there is no doubt mix shift in place here as well as some -- emphasis on the price. And then of course, we also have -- the price we took was also in our private label businesses. So we have been dealing with mix shifts on the brand side, too, and then I think you do look at what we've been doing with our bundling promotion, there's aspects of that. And -- but again, there's mix shifts among those two that are playing out not only in Q2 but into Q3 as well. Did I miss anything, Chris?

No. I think the only thing I do think is important to call out is this is our fifth overall quarter. Q2 is our fifth overall quarter of positive comparable sales. It's our sixth in North America. And what's interesting across those quarters is almost all of it has been driven by AUR gains as you indicated and Rick just laid out. What's encouraging for us is we did move into back to school here as we did see transaction gains. And so it was AUR, it was still a larger portion, but we're encouraged to see transactions as well during the peak of back-to-school.

And then I guess my last question, just on the strength of the private label business getting to a 30% penetration level in the -- I guess that's year-to-date. What product categories are you seeing the most strength in your private label? And I don't know if you're willing to say it, but I'd be curious to know what private label penetration is of denim and if you're benefiting from some -- or if you think you're benefiting from some of kind of the overall strength in the denim category these days?

I'll start again and let Chris add, Mitch. I mean, clearly, you can be in our stores and see how significant our denim presentation is amongst our private label brands. So I think you can surmise that we have fairly high penetration within our private label brands in those key bottom categories just by observing what we're doing in store.

Now I think what's going on in private label something a bit deeper relative to the trend -- what's happening more broadly with the consumer role today. And what our share gains in private labels flex over the last number of years because we've been doing well in growing private label for the last 4 or 5 years now. I think it fundamentally reflects something different from the consumer world perspective and that's that, brand cycles are so fast now and new brands are cycling fast than they've ever cycled into our business, which is really exciting from that perspective. But it also means that new brands don't have as much time to develop their competencies, around cut and sew categories. So I think we've recognized over the last few years that we have to own those categories in a much deeper way. And that's been the initiative. And of course, to do that, you have to lead on track and be at the front end to trend cycles.

So I think that is exactly what we've done over the last few years with our private label products. And I think we have the advantage again of a number of brands that are positioned uniquely to target specific consumer segments within our customer base. And again, so it's not just one brand fits all sizes that we're actually targeting different brands at different niches of our consumer base. So I think we have a really well-established platform. I think we're recognizing the realities of the consumer world and reacting to it. And we're benefiting across that both in terms of our ability to be responsive to the customer and to drive sales because we're not a value player here in private label. I want to be clear about that. As we've talked about, we're the premium price player now in the mall in a lot of these categories like denim.

So we're really -- and this is because we're offering unique product and leading on the trend cycle itself. So I feel great about where we're at. I think it's been, again, reflective of what's going on in the consumer world. And I think our teams have executed at a really high level. Chris, anything else?

[Operator Instructions] our next question comes from Jeff Van Sinderen with B. Riley Securities.

And let me say congratulations on the stronger peak back-to-school trends. Looking at your business, sort of a high level, what do you believe is feasible in terms of operating margins for the enterprise over the next couple of years? And what are the drivers that you see to get you to whatever that higher level of operating margin is?

Jeff, I'll let Chris deal with the numbers here. He's usually better at the numbers side as I am. But I think clearly, the story is a simple one, which is that we have to have unique products both in the sense of what we're delivering from a brand perspective and also, as I just commented on, relative to trend cycles and those trend cycles that really play in our private label. And this is going to benefit margin, but most importantly, our story is a sales recovery story. And post the pandemic, where we actually had a good year in 2020, a really good year in 2021, like everyone else with the stimulus spending. Then we had some really tough challenges after that, right? moved all that skate volume into 2020, really difficult years across skate hardgoods in the last few years. And likewise, we had a big challenge with the footwear brand that had a big downturn.

So we had some big headwinds that hit us in 2022 and 2023. So our story is how do we recover back our sales level. At the same time, establish a much higher basis for our product margins. And I think that's why we're so excited about the stacked back-to-school comps and particularly here in our U.S. business because I think that is exactly what we're demonstrating we can do. So with that color, I'll let Chris comment a bit on how he thinks about the targets.

Yes. And I think, Jeff, you've been around the model for a long time. As we have kind of rethought this, and obviously had a little bit of a reset here, I don't think our long-term goals have changed. I'm not saying this is where we're going to be in the next three years. But I think over time, we still believe we can get long-term operating margins back to that high single-digit level. We've been there before. We've been beyond that before.

And I think it speaks to what Rick's talking about is, number one, a sales recovery, right? When you look at our sales even compared to a period like a lot of retailers look at 2019, there's a good chunk -- still a good discrepancy from where we are planning this year to 2019. And if you break that apart even further, knowing that we've grown the international side of the business, the North America side of the business still has a lot of growth to get back to 2019 levels. And that's just on a pure dollars perspective. So as we think about really the newness and the ability to inject with both our branded and our private label format, we think we should be able to grow beyond 2019 because we all know that AURs have gone up since then. So we have to continue to push to bring in newness that will drive sales beyond those levels. That alone would solve a lion's share of our delta to where we sit from 2019 profitability.

Beyond that, as Rick said, I think product margin is an opportunity for us. I think there'll be some pretty meaningful leverage on some of the bigger cost items of the business with sales at that level. And then the international side of the business continues to be an opportunity for us to fix. As we've talked about with Europe, we are in year 1 of a 3-year plan to really drive that back to a breakeven level. We're pushing very hard to do that. I think the first 6 months have been tougher than we would like, but I think we're on the right trajectory to be able to execute on that over a multiyear period. And I think as that piece flips, you'll see additional kind of leverage and growth in operating profit on the bottom line that would be significant.

So you sort of touched on the European business, and I was also thinking about the Aussie business. But just thinking about Europe, in that business, and I realize you have a multiyear plan to improve it. But what are really the biggest headwinds that you're facing in that business now? What do you need to overcome to sort of have that 3-year plan work out?

Well, first, I think, Jeff, we have to -- we need the economy to cooperate there. And I think we feel that we have maybe some good indications that the economy will start growing at a more significant rate and particularly the largest market for us in Europe is Germany, which the last years has had basically no growth, in fact, it's slightly negative. So -- but with the spending package coming into Germany, the government is just approved, I'm hoping and the forecast we're going to see some growth economically from the GDP perspective in 2026. So I hope we get some assistance from that perspective. It would be nice if there wasn't a war in Europe too, in terms of consumer confidence. And then we have to execute -- to be clear, we have to execute better. I think we said this in the script that we have to really distinguish our assortments more than we have. We have to be better on the trend side of the business over there, and we're really leveraging from the strengths and what we know here in the U.S. and we have to make sure that we are curating and differentiating this element. That is Mission 1. And then, of course, we want to replicate and -- I think we have a really unique store experience today, but I want to continue to work on that and heighten that experience so we can again sell more units and win more wallet share with that consumer. So I think we own the piece that we own, better assortments, great in-store experiences and then we need some cooperation just in general recovery of the -- in the economic environment.

Our next question comes from Mitch Kummetz with Seaport Research Partners.

I've got a couple of follow-ups. One, Rick, you mentioned in response to one of Jeff's questions that it's a sales recovery story and you mentioned a couple of somewhat unique headwinds to your business, one being skate and the other one being this large footwear brand. I'm curious, as you kind of look at those two pieces, do you think that you kind of reached the bottom there with those and that being kind of a pressure point on comp, that's largely behind you? And then I have one more.

Right. I'll start and try to address both the skate and shoe business, Mitch, and let Chris add again to it. So as you saw in our disclosures, our skate business -- skate hardgoods business has turned positive. Now we're still going to be cautious why we're encouraged there. And I'll remind -- I know you know this well, Mitch. But generally, I think we're probably the most significant skate retailer of skate -- true skate component businesses in the world today in terms of just our scale. So we benefit greatly -- we benefit disproportionately on the up cycles and unfortunately, disproportionally when there's a major down cycle like we've had over the last few years.

So I'm encouraged, and I think our whole team is encouraged by the positive results we've been getting lately in our skate hardgoods business. Again, I'll be a little bit cautious. I want to -- typically, we always see better results in skate hardgoods in the spring and summertime. So I think I want to be a little bit cautious if we head into the fall and winter season in North America before I called out a permanent trend, but it certainly is encouraging. I -- we've been feeling like we just have to find the bottom. So we're hopeful we have down the bottom of the cycle.

Shoes. Shoes continue to be why we were -- we ran some comps here periodically in the shoe categories. It continues to be a very challenging category overall. And it's not just one brand. We've had a few brands that have been very challenging in the footwear business. So -- but again, this speaks in some ways to when looking at our whole business, again, consecutive quarters of comp gains now. We're doing despite the up and downs in the footwear business despite the negative drag of state, I think it shows resilience that we can find ways to run gains. And so I would say we're not out of the -- I'm hoping we're -- hopeful that we're out of the -- we found the bottom of the skate trend. You can look to a prolonged period of upward cycle in skate and I think we still have a ways to go, Mitch, on really getting shoes figured out relative to what the consumer wants today.

Yes. And then my last question because it also sounds like you expect continued product margin opportunity. And I guess I'm wondering how much of that is tied to the private label penetration continuing to grow? And is there any way you can say from a product margin standpoint, kind of what the delta is between private label and third party?

Sure. Yes. I'll go ahead and take that from a numbers perspective. And I just want to remind you, too, as we look back in time, I mean, we do believe that a chunk of our product margin gains are driven by what we're doing in private label but we've run product margin gains in branded cycles, too. And if we look back into '17, '18, '19, that we grew product margin pretty meaningfully and private label is actually shrinking as a percent of the business is a pretty heavy branded cycle. So as we think about product margin overall, we think there's probably tend to 15% benefit in our private label product from our pure branded product. And then, of course, there is also kind of an in between where we work with brands on more of a license model, which is sort of a -- will fall in between those numbers. So we're executing all of those today and believe there's a real benefit of that strategy to both have your own private label to capture trend. As Rick has talked about, obviously, to have brands that are hard to find and unique in the market. And then we have a license model as well in which we can work with brands that we can help in more ways. We've got a lot of resources in regards to building product and sourcing product and where we can help brands will execute that way as well.

Thank you. I would now like to turn the call back over to Rick Brooks for any closing remarks.

All right. Again, as I always like to say, I truly appreciate everyone's interest in Zumiez, and your -- and appreciate your continued interest in Zumiez, and we're going to look forward to talking to you in December when we release Q3 results. Thank you, everybody.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

Good afternoon, ladies and gentlemen, and welcome to Zumiez Inc. First Quarter Fiscal 2025 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. business outlook and contains forward-looking statements. These 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. 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 filings with the SEC.

At this time, I will 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 a few remarks about our first quarter performance and the evolving trade environment before touching on our strategic priorities for the remainder of 2025. Chris will then take you through the financials and our outlook for the balance of the year. After that, we'll open the call to your questions.

I'm pleased to report that our first quarter results demonstrate the continued momentum we built throughout 2024, with our North American business proving resilient despite an increasingly complex macroeconomic backdrop. Comparable sales for the company grew 5.5%, marking our fourth consecutive quarter of positive comparable sales growth. This performance reflects the successful execution of our strategic initiatives and our team's ability to adapt quickly to changing market conditions.

What's particularly encouraging is that our results exceed the high end of our guidance ranges for both sales and profitability, excluding a onetime legal sentiment that Chris will touch on later. Our strong full price selling performance demonstrates that consumers continue to respond positively to our merchandise assortments and shopping experience, validating the investments we've made in product newness, private label expansion and customer engagement.

The resilience of our North American business gives me confidence in our ability to manage through the global trade environment. In response to changes in the landscape, we've taken decisive action to further diversify our sourcing base and expect to have meaningfully reduced our exposure to China by the end of 2025. This diversification, coupled with continued partnership with our manufacturers and vendors, as well as selective price adjustments will help us offset the impact of tariffs on our business. While the ultimate impact on consumer sentiment from ongoing trade negotiations remains uncertain, our proactive approach positions us to outperform the market regardless of how these dynamics evolve.

As we progress through 2025, we remain focused on 3 strategic priorities. First, accelerating top line expansion through strategic investments and winning with consumers. Our approach to injecting assortments with newness continues to resonate strongly with our customers. Following our successful launch of over 120 new brands in 2024 and 150 brands in 2023, we remain committed to bringing fresh, unique products to market that our customers can't find elsewhere. These newer brands now represent a meaningfully larger portion of our sales compared to historical levels, confirming that our curation strategy is working. Our private label expansion has also exceeded expectations, reaching nearly 28% of total sales in 2024 and increasing to 30% in the first quarter of 2025. This is up from 23% in 2023, and just 11%, 5 years ago. This growth demonstrates our team's ability to anticipate trends and deliver value conscious options that resonate with our customer base, providing us with another important avenue for profitable growth.

We continue to invest in customer engagement through best-in-class service, both in stores and online. Our ongoing investments in training and technology are enabling us to connect with customers in increasingly personalized and relevant ways, strengthening our relationship that has been the foundation of our success for nearly 5 decades. Second, maintaining our disciplined focus on profitability across all markets. In North America, our focus on full price selling has helped us maintain healthy margins while growing market share. Driving product margin, coupled with operational efficiencies we implemented throughout 2024 continue to drive meaningful results. The closure of 31 underperforming locations, combined with comprehensive staffing model optimizations and structural cost reductions in shipping and logistics has created a more streamlined and profitable operating model.

In Europe, the market environment remains challenging. After making progress in 2024 in sales, product margin and operating results, 2025 is off to a tougher start. With the slower start, we are actively working to drive the top line through new and unique product selection, while also remaining focused on full price selling and controlling costs. Third, leveraging our strong financial position to navigate uncertainty, while investing in growth. Our balance sheet remains robust with over $101 million in cash and current marketable securities at the end of the quarter, providing us with the flexibility to respond to both challenges and opportunities as they arise. This financial strength has allowed us to continue investing in our strategic initiatives, while also returning value to shareholders through our share repurchase program.

The first quarter this year, we bought back 1.8 million shares or 9.4% of the company based on our year-end 2024 outstanding shares. In addition, today, we have announced a new buyback plan authorized by our Board for an additional $15 million to continue driving long-term value for our shareholders. While we're operating in an environment marked by macroeconomic uncertainty and involving trade dynamics, I'm confident in our ability to continue delivering value for all of our stakeholders. The strategy has driven our success throughout the company's history remain as relevant today as ever, and our team's proven ability to adapt and execute gives me optimism about our prospects for the remainder of 2025. Our path forward is clear. Stay focused on bringing unique trend-right product to our customers through the engagement initiatives that have fueled our success, while maintaining the operational discipline that has enhanced our profitability. We've demonstrated our ability to navigate challenging cycles before, and I'm confident we're well positioned to continue that tradition.

Before I turn the call over to Chris, I want to thank our entire team for their continued dedication and adaptability in an environment that continues to change rapidly. The commitment to our culture and our customers remains a cornerstone of everything we accomplish. I'm grateful for your efforts as we navigate this dynamic environment together.

With that, I'll turn the call to Chris to discuss the financials.

Thanks, Rick, and good afternoon, everyone. I'm going to start with a review of our first quarter results. I'll then provide an update on our second quarter-to-date sales trends.

First quarter net sales are $184.3 million, up 3.9% from $177.4 million in the first quarter of 2024. Comparable sales were up 5.5% for the quarter. As Rick mentioned, the primary driver was our North America business, which showed outsized strength even as macroeconomic uncertainty spurred by global trade policy intensified during the period.

For the first quarter, North America net sales were $149.7 million, an increase of 4.9% from 2024. Other international net sales, which consists of Europe and Australia were $34.6 million, down 0.2% from last year. Excluding the impact of foreign currency translation, North America net sales increased 5.2% and other international net sales decreased 0.1% year-over-year. Comparable sales for North America were up 7.4%, marking the fifth consecutive quarter of comparable sales growth. After positive comparable sales in the important fourth quarter 2024, our other international comparable sales turned negative in the first quarter and were down 2.3%. From a category perspective, women's was our largest positive comping category, followed by men's, footwear and then accessories. Hardgoods 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 was $55.3 million, up 6.6% compared to $51.9 million in the first quarter of last year. Gross profit as a percentage of sales was 30% for the quarter compared to 29.3% in the first quarter of 2024. The 70 basis point increase in gross margin was primarily driven by leverage of our store occupancy costs on higher sales.

SG&A expense was $75.2 million or 40.8% of net sales in the first quarter compared to $72.1 million or 40.6% of net sales a year ago. The 20 basis point increase in SG&A expense was driven by a 160 basis point increase from a onetime $2.9 million legal cost associated with the settlement of a waging hour lawsuit in California. This increase was partially offset by 70 basis points of leverage in non-wage store operating costs, 30 basis points of leverage in corporate costs and 40 basis points of leverage across several other items, such as wages, training and annual incentive compensation.

Operating loss in the first quarter of 2025 was $19.9 million or 10.8% of net sales compared with an operating loss of $20.2 million or 11.3% of net sales last year. Net loss for the first quarter was $14.3 million or $0.79 per share, inclusive of the previously mentioned onetime legal settlement worth $2.9 million or $0.13 per share. This compares to a net loss of $16.8 million or $0.86 per share for the first quarter of 2024. Our effective tax rate for the current quarter was 9.1%.

Turning to the balance sheet. The business ended the quarter in a strong financial position. We had cash and current marketable securities of $101 million as of May 3, 2025, compared to $146.6 million as of May 4, 2024. The decrease in cash and current marketable securities over the trailing 12-month was driven primarily by share repurchases and capital expenditures of $50.4 million and $14.7 million, respectively. This was partially offset by $17.2 million in cash provided by operating activities.

As of May 3, 2025, we have no debt on the balance sheet. During the first quarter, we repurchased 1.8 million shares at an average cost, including commission of $13.82 per share for a total cost of $25.2 million. This fully exhausted the buyback authorization approved by the Board of Directors in March. On June 4, the Board of Directors approved a new repurchase authorization for up to $15 million of common stock. This repurchase program is expected to continue through June 30, 2026, unless the time period is extended or shortened by our Board of Directors.

We ended the quarter with $149.9 million in inventory, up 2.1%, compared to the $146.8 million last year. On a constant currency basis, our inventory levels were up 1.1% from last year. As we discussed in our fourth quarter earnings call, we pulled inventory receipts forward in the fourth quarter of 2024 in anticipation of potential tariffs. As of the end of the first quarter, inventory is now in line with the prior year, and we anticipate ending fiscal 2025 down from the end of fiscal 2024 when we pulled forward the inventory. We feel good about the quality of our inventory on hand.

Now to our May sales results. Net sales for the 4-week period ended May 31, 2025, increased 0.7% compared to the 4-week period ended June 1, 2024. Comparable sales for the period increased 1.4% from the comparable period in the prior year. From a regional perspective, net sales for our North America business for the 4 weeks ended May 31, 2025, increased 2.9% compared to the 4-week period ending June 1, 2024, while our other international business decreased 9.6%. Excluding the impact of foreign currency translation, North America net sales for the period increased 3% from the prior year, while other international net sales decreased 12.7% compared to 2024.

Comparable sales for North America increased 5.1% during the period, while comparable sales for other international decreased 14.8%. From a category perspective, women's was our largest positive comping category, followed by hardgoods. Men's was our largest negative comping category, followed by footwear and accessories. The consolidated increase in comparable sales was driven by an increase in dollars per transaction, while comparable transactions were down during the period. Dollars per transaction were up for the period, driven by an increase in average unit retail, partially offset by a slight decrease in units per transaction.

With respect to the outlook for the second quarter of fiscal 2025, I want to remind everyone that formulating our guidance involves some inherent uncertainty and complexity in estimating sales, product margin and earnings growth given a variety of internal and external factors that impact our performance. This is even more pronounced in today's environment with the current tariff situation that adds additional uncertainty and complexity to pricing and the potential limit the ability of the consumer to continue to spend. That said, our recent trend line has been encouraging, and we feel that we have a good line of sight into the next couple of months, assuming no additional unexpected changes in the regulatory environment.

Based on our quarter-to-date results, current tariff rates and actions taken thus far to mitigate the increased costs from higher tariffs, we are anticipating total sales to be between $207 million and $214 million for the 13 weeks ending August 3, 2025, representing a negative 2% to positive 2% sales change from the prior year. Comparable sales growth for the same time period is expected to be between negative 1% and positive 3%.

For the second quarter, we are expecting product margin to increase from the second quarter of last year. Consolidated operating loss for the second quarter is expected to be between $0.7 million and $4 million compared to a loss of $0.4 million in the prior year. We anticipate loss per share will be between $0.09 and $0.24 compared to a loss of $0.04 in the prior year. Overall, the high end of our guidance is showing a slightly lower operating profit from the core business on a low single-digit top line growth. However, we are seeing pressure on total earnings due to a decline in interest income on lower cash levels and a slightly higher loss in Europe, which is further impacted by unfavorable foreign currency movements from the prior year. The mix of our loss shifting toward Europe creates an unfavorable effective tax rate, and our stock buyback has also added to the loss per share given we have reduced overall share count.

While our share buyback will have a negative impact on earnings per share in the quarter, we expect it to have a positive impact on the full year and into the future as we generate earnings. Regarding the full year 2025 results, as we have discussed, there has been increased uncertainty and volatility since March when we provided our initial thoughts for the full year. The announcement of tariffs, subsequent temporary suspension of reciprocal tariffs and ongoing discussions on the topic have impacted supply chains and consumer confidence. If significant tariffs are reinstated, higher costs may lead to increased retail prices, potentially straining consumers' discretionary income and negatively affecting our results. While this all provides less visibility into the year than we had in March, we continue to trend on plan in North America through the end of May. And under the current circumstances and tariff levels, we believe that achieving our previously mentioned annual expectations for fiscal 2025 remain feasible.

To reiterate, we believe that we will see year-over-year sales growth in 2025 despite the closure of 33 stores in fiscal 2024 and 20 store closures planned in 2025, which combined are estimated to have a negative impact on sales of $14.7 million for the year. We anticipate modest year-over-year growth in product margin in 2025 on top of 70 basis points of improvement in fiscal 2024. We anticipate driving additional gross margin leverage through other expenses such as occupancy, distribution and logistics. And finally, we believe that we can hold our 2025 SG&A costs, excluding the onetime legal charges relatively flat as a percentage of sales with our fiscal 2024 results through continued focus on expense management, while also investing in important long-term strategic initiatives. Combined, these expectations will drive a year-over-year increase in operating margins and net profit for fiscal 2025, bringing the company back to profitability.

Included in these fiscal 2025 expectations are the following: 9 new store openings during the year, including 6 in North America, 2 in Europe and 1 in Australia. We also plan to close approximately 20 stores in fiscal 2025, including up to 17 in the U.S., 2 in Canada and 1 in Europe. We expect our capital expenditures for 2025 to be between $14 million and $16 million compared to $15 million in fiscal 2024 and $20.4 million in 2023. We expect the depreciation and amortization, excluding noncash lease expense, will be approximately $22 million, in line with the prior year.

While effective tax rates are likely to fluctuate significantly by quarter, we anticipate that our full effective tax rate will be roughly 50% to 60% in fiscal 2025. And we are currently projecting our diluted share count for the full year to be approximately 17.5 million shares. This share count does not include the impact of any future share repurchases, including the repurchase approved on June 4, 2025, by the Board of Directors.

And with that, operator, we would like to open the call for questions.

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

Let me begin on tariffs. I was hoping you could just walk us through that a little bit more. I think when we last met, China was at a 20% tariff. There was no universal tariff. And then obviously, we know where that's gone. So can you remind us what's your China exposure is for the year? How are you seeing tariffs impact your COGS both in terms of what you're doing with private label and what you're seeing in terms of pricing on the third party you use? What are you guys doing to mitigate the cost increases? Just any more color on tariffs, I think, would be helpful.

Yes. Sure, Mitch. I'll take a crack at this here and let Rick chime in if I've missed anything. But as you would expect, I mean, we -- this is something we've spent a lot of time on. Our teams have been super diligent. I give them just a ton of credit with how hard they've worked to kind of navigate through this. I mean, we've -- we started to work on this really last November. As the landscape started to change, we got pretty proactive. As we talked about in our March call, we brought in $7 million at cost from inventory that was coming from China to really try to get ahead of what might have been coming at us. This was really a benefit in the first quarter and probably will be throughout 2025. I think as we -- as you think about tariffs in our business, it's important to note that 30% of the product is our own private label.

So we control the sourcing all the way through bringing it into the country. The other 70% is branded. So it requires us to work with our brands. So to kind of break down your question, let me kind of tackle this from a sourcing perspective and a cost perspective. I think from a sourcing perspective, we've made a lot of progress in 2025. When we ended 2024 on our March call, we talked about having a fairly high concentration from China. We are roughly 50% of our product was coming out of China. That percentage has been pretty consistent in the first quarter. That said, we expect to see a meaningful decrease as we move through the year. In fact, our back-to-school, just kind of like-for-like time period will be down about 50% year-over-year, and holiday, we expect the same. So at this point, as we get towards the end of the year, we think we'll probably 30% or even potentially lower in product coming out of China.

And long term, our goal in 2026 and beyond is to have no individual country represent more than 20% of our goods that we're sourcing. From a cost perspective, we've tried to be as proactive as possible. As we have experienced an uptick because of tariffs, we've worked with our brand partners and our manufacturers to really rethink the production process and obviously, where things are coming from to keep costs as low as possible. Where needed, we have looked at prices, while also kind of evaluating how we do bundling, markdowns, package deals to really try to adequately offset the cost that we are incurring for tariffs. So obviously, it's an evolving backdrop, but we're pretty encouraged by the work our teams have done to get us to this point, and we'll just keep monitoring where it goes from here.

And just as a follow-up to that, you're still anticipating product margin to be up year-over-year, although I think you said modestly so. Again, how does how does the tariffs on private label factor into that, especially given that you do still have pretty material exposure to China, even though you've been able to reduce that?

Yes. I mean, I think it comes back to kind of the different strategies we're putting into play, right? It's working with our brands, working with our manufacturers, trying to manage, first of all, mitigate any inbound cost we can get, whether it's just the way we work together, the way we're sourcing it from, things like that. Secondly, it comes to looking at how we move private label through our stores. And we have used it in a bundling and promotional aspect, and we've changed the way we thought through some of that. And then in certain circumstances, we have had to take some prices up. So it's a combination of all of the above. And I think, Jeff -- or Mitch, when we put all that together, we think we'll have the opportunity to still grow product margin is our strategy at this point. As you know, even pre-tariffs, we felt like we had some opportunity ahead of that to grow product margin. So it is modestly. I appreciate you saying that. We probably would have had a little bit more in our thought process if it wasn't for this environment, but we continue to think we can still grow product margin.

And I guess my last question, just on other international. I know you've kind of slowed the unit growth in Europe to focus on profitability, and correct me if I'm wrong, but I would think that the profitability there really hinges on comp. And I thought I heard you say that May comp for other international was down like, I think you said 14.8%.

That's correct.

Just help me understand what's going on in other international? And what can you guys do strategically to show better results there?

Sure. I'll take another crack in it and let Rick chime in. I mean -- and let me just kind of back up a little bit to talk about the overall landscape. I mean, we did talk in 2024 about changing our strategy with Europe. We're really slowing growth and focusing on the core business with a key thought process of driving profitability and cash flow. We ended 2024, the business was about EUR 135 million. We were losing money, but less than 2023. That being said, we didn't make the progress we were hoping to make in 2024, but we were seeing a little bit of improvement there. The best we've ever done is really right pre-pandemic. In 2019, we got very close to breakeven, but it's been a tough place to operate over the last 5 years. And so with just under 90 stores now in 9 countries, we definitely have a solid base. But we've got a -- we've really got to push to profitability. That's been our focus. The results of 2025 has started slow. And you're right about May, but Q1 was not where we wanted it to be either. As I think as we look at May and we look at what we've got planned in the second quarter guidance, we are planning other international down at this point, not nearly at the significance of what May was. I think when it's all said and done, we're going to see that there was some holiday shifts and some just timing changes that will moderate what the -- what May was. But to be clear, May was below our plan and where we thought we'd be. So we've started a little bit of a hole here for the 2025. I think the good news for especially our Europe business is what really matters in Europe is the fourth quarter, kind of a little different than our North America business, over 40% of our sales are here in the fourth quarter. So we're very focused on transitioning to that. We've made some changes in how we're trying to do things. We're really focused on product and bringing newness into the business. The teams, I think, are totally aligned around that and how we drive the top line, how we comp in our existing units. But at the same point, really trying to rationalize the business around growing margin. Even last year, as we kind of saw sales tick back, we were able to get more profitable because we were able to expand margin. We have seen actually pretty favorable margin even in May when the results were tougher. And we're managing expenses and then also managing inventory levels, really all of the above. Inventory in Europe for the first quarter was down to where we were in the prior year. I think the teams continue to make some good strides there. So again, we're really trying to set ourselves up for the big volume in the back half of the year and specifically the fourth quarter. We continue to believe in the international theory of the trends are emerging globally -- or locally and moving globally, and that includes emerging here in North America as well as in Europe. I think it's the best way we can serve our customers long term. But all that said, we're very focused on turning out around what the business is today.

[Operator Instructions] I'm showing no further questions in the queue. I would now like to turn the call back over to Rick for closing remarks.

All right. Thank you. And again, I just want to close up with a big thank you, everyone, for your interest in Zumiez and your continued interest in Zumiez. And we're going to look forward to talking with you next September when we get a chance to share Q2 and early back-to-school results. So thank you, everyone. Much appreciated.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.