Zumiez(ZUMZ) - 2022 Q3 - Quarterly Report

Part I. Financial Information Financial Statements Financial statements reflect a strong recovery from COVID-19, with doubled net income and assets of $978.2 million Condensed Consolidated Balance Sheets Total assets slightly decreased to $978.2 million, while shareholders' equity declined due to stock repurchases Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Oct 30, 2021 (Unaudited) | Jan 30, 2021 | | :--- | :--- | :--- | | Total Current Assets | $546,934 | $535,277 | | Inventories | $175,108 | $134,354 | | Total Assets | $978,189 | $998,364 | | Total Current Liabilities | $217,641 | $195,452 | | Total Liabilities | $446,447 | $445,768 | | Total Shareholders' Equity | $531,742 | $552,596 | Condensed Consolidated Statements of Operations Net sales grew 27.0% and net income surged to $81.1 million for the nine-month period, showing strong recovery Performance Summary (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $289,455 | $270,952 | $837,190 | $659,116 | | Gross Profit | $114,664 | $105,806 | $322,797 | $220,392 | | Operating Profit | $39,842 | $37,865 | $106,075 | $43,129 | | Net Income | $30,702 | $29,139 | $81,085 | $33,430 | | Diluted EPS | $1.25 | $1.16 | $3.20 | $1.32 | Condensed Consolidated Statements of Cash Flows Operating cash flow decreased to $71.9 million due to inventory investment, with significant cash used for share repurchases Net Cash Flow by Activity (9 Months Ended, in thousands) | Activity | Oct 30, 2021 | Oct 31, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $71,936 | $81,754 | | Net cash provided by (used in) investing activities | $26,219 | $(38,261) | | Net cash used in financing activities | $(96,217) | $(12,551) | - The significant use of cash in financing activities was driven by $98.5 million in common stock repurchases during the first nine months of 2021[14] Notes to Condensed Consolidated Financial Statements Notes detail store operations, COVID-19 impacts, a class-action settlement, and a new $150 million share repurchase program - The company operates 733 stores under various names across the U.S, Canada, Europe, and Australia as of October 30, 2021[16] - Due to COVID-19, stores were open approximately 96.2% of possible days in the first nine months of 2021, compared to only 72.8% in 2020[18] Net Sales by Geographic Region (Nine Months Ended, in thousands) | Region | Oct 30, 2021 | Oct 31, 2020 | | :--- | :--- | :--- | | United States | $707,070 | $542,956 | | Canada | $36,577 | $37,384 | | Europe | $82,192 | $70,519 | | Australia | $11,351 | $8,257 | | Total Net Sales | $837,190 | $659,116 | - The company reached a resolution for a class action lawsuit, recording an estimated settlement of $2.8 million in SG&A expenses[39] - In September 2021, the Board approved a new share repurchase program of up to $150 million, with $86.3 million remaining available[50] - Subsequent to the quarter's end, the company repurchased an additional 0.5 million shares for $23.1 million[60] Management's Discussion and Analysis of Financial Condition and Results of Operations Strong sales growth of 27.0% drove significant gross margin improvement, with liquidity remaining strong despite share repurchases Results of Operations Nine-month sales growth of 27.0% leveraged fixed costs, expanding gross margin by 520 basis points - Q3 2021 vs Q3 2020: Net sales increased 6.8%, gross profit margin increased 60 basis points, and SG&A as a percent of sales increased 80 basis points[79][81][82] - 9 Months 2021 vs 9 Months 2020: Net sales increased 27.0%, gross profit margin increased 520 basis points, and SG&A as a percent of sales decreased 100 basis points[84][86][87] Liquidity and Capital Resources Liquidity is supported by cash from operations, with planned capital expenditures of $19-21 million and significant share repurchases - The company expects to spend approximately $19 million to $21 million on capital expenditures in fiscal 2021 for new stores and remodels[92] - Net cash from operating activities decreased by $9.8 million year-over-year, primarily due to a significant investment in inventory[93] - The company maintains two credit facilities with no outstanding borrowings as of October 30, 2021[98][99] Quantitative and Qualitative Disclosures About Market Risk The company's market risk profile has not materially changed from the prior fiscal year-end - There have been no significant changes to the company's market risk profile since the fiscal year-end on January 30, 2021[156] Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes in internal controls - Management concluded that the company's disclosure controls and procedures were effective as of the end of the quarter[157] - No changes occurred in the company's internal control over financial reporting during the third quarter that would materially affect these controls[158] Part II. Other Information Legal Proceedings The company is involved in various routine litigation incidental to its business, with outcomes being unpredictable - The company is periodically involved in litigation arising from its ordinary course of business and refers to Note 5 of the financial statements for details[159][160] Risk Factors Key business risks include the COVID-19 pandemic, fashion trends, competition, and reliance on international manufacturing - The COVID-19 pandemic continues to pose a material risk to the business through potential store closures and supply chain disruptions[106][107] - The business is highly dependent on anticipating fashion trends, and failure to do so could lead to excess inventory and markdowns[113] - Most merchandise is produced by foreign manufacturers, exposing the company to risks from international trade and supply chain disruptions[118] - The business relies heavily on customer traffic to its physical stores and e-commerce sites, and a decline could materially harm sales[119] - The omni-channel strategy requires significant investment and may not deliver the anticipated results if it fails to meet customer expectations[137] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 2,235,000 shares in Q3 and authorized a new $150 million repurchase program Common Stock Repurchases (Q3 2021) | Period | Total Shares Purchased (thousands) | Average Price Paid per Share | | :--- | :--- | :--- | | Aug 1 - Aug 28, 2021 | 342 | $41.91 | | Aug 29 - Oct 2, 2021 | 844 | $40.97 | | Oct 3 - Oct 30, 2021 | 1,049 | $40.72 | | Total | 2,235 | N/A | - A new share repurchase program of up to $150 million was approved in September 2021, expected to continue through January 28, 2023[162]