Zumiez(ZUMZ) - 2021 Q1 - Quarterly Report

Part I Item 1. Condensed Consolidated Financial Statements This section presents unaudited interim financial statements, reflecting a significant net loss of $21.1 million due to COVID-19 store closures Condensed Consolidated Balance Sheets Total assets decreased from $914.3 million to $861.4 million, with shareholders' equity declining to $431.2 million Balance Sheet Highlights (In thousands) | Balance Sheet Highlights (In thousands) | May 2, 2020 (Unaudited) | February 1, 2020 | | :--- | :--- | :--- | | Total Current Assets | $375,595 | $412,588 | | Cash and cash equivalents | $63,731 | $52,428 | | Marketable securities | $153,494 | $198,768 | | Inventories | $136,354 | $135,095 | | Total Assets | $861,433 | $914,258 | | Total Current Liabilities | $156,881 | $159,710 | | Total Liabilities | $430,279 | $448,172 | | Total Shareholders' Equity | $431,154 | $466,086 | Condensed Consolidated Statements of Operations Net sales fell 35.3% to $137.8 million, resulting in a net loss of $21.1 million and ($0.84) diluted loss per share Statement of Operations (In thousands, except per share) | Statement of Operations (In thousands, except per share) | Three Months Ended May 2, 2020 | Three Months Ended May 4, 2019 | | :--- | :--- | :--- | | Net sales | $137,772 | $212,928 | | Gross profit | $23,736 | $66,464 | | Operating (loss) profit | $(27,848) | $968 | | Net (loss) income | $(21,101) | $793 | | Diluted (loss) earnings per share | $(0.84) | $0.03 | Condensed Consolidated Statements of Cash Flows Net cash used in operations was $17.5 million, while investing activities provided $42.7 million and financing used $13.1 million Cash Flow Summary (In thousands) | Cash Flow Summary (In thousands) | Three Months Ended May 2, 2020 | Three Months Ended May 4, 2019 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(17,542) | $9,862 | | Net cash provided by investing activities | $42,734 | $2,285 | | Net cash (used in) provided by financing activities | $(13,082) | $345 | | Net increase in cash, cash equivalents, and restricted cash | $11,257 | $12,026 | Notes to Condensed Consolidated Financial Statements Notes detail COVID-19's impact, including 9% of stores open and a $1.5 million impairment charge, alongside revenue and repurchase data - Due to the COVID-19 pandemic, the company began closing its retail stores globally between March 16 and March 19, 2020, with only 65 of its 719 stores (9%) open as of May 2, 2020[18][25] - The company recorded $1.5 million in impairment charges related to long-lived assets and operating lease right-of-use assets due to COVID-19 store closures[29] Net Sales by Geographic Region (In thousands) | Net Sales by Geographic Region (In thousands) | Three Months Ended May 2, 2020 | Three Months Ended May 4, 2019 | | :--- | :--- | :--- | | United States | $110,364 | $176,918 | | Canada | $6,173 | $11,032 | | Europe | $19,600 | $22,946 | | Australia | $1,635 | $2,032 | | Total Net Sales | $137,772 | $212,928 | - During the quarter, the company repurchased 694,000 shares of its common stock for a total cost of $13.4 million, at an average price of $19.31 per share[60] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) MD&A details Q1 2020 performance, heavily impacted by COVID-19, with net sales down 35.3% but comparable sales up 12.9% - In response to COVID-19, the company took several actions to preserve financial liquidity, including suspending hiring, reducing operating costs, cutting capital spending, canceling inventory orders, suspending rent payments, and pausing share repurchases[83][87] - Net sales decreased by 35.3% to $137.8 million, primarily due to COVID-19 store closures, partially offset by a 12.9% increase in comparable sales from e-commerce[85][86] - Gross profit margin decreased by 1,400 basis points to 17.2%, mainly due to deleveraging fixed costs and increased web fulfillment expenses[87] Results of Operations Net sales fell 35.3% due to COVID-19, gross profit margin contracted to 17.2%, leading to a $21.1 million net loss Key Metrics (% of Net Sales) | Key Metrics (% of Net Sales) | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Gross Profit | 17.2% | 31.2% | | SG&A Expenses | 37.4% | 30.7% | | Operating (Loss) Profit | (20.2)% | 0.5% | | Net (Loss) Income | (15.3)% | 0.4% | - Comparable sales increased by $15.3 million or 12.9%, driven by strong e-commerce sales, particularly in the hardgoods category[86] Liquidity and Capital Resources Company maintained strong liquidity with $217 million cash and investments, no debt, and reduced capital expenditure plans - The company ended the quarter with $217 million in cash and investments and no debt[84] - Capital expenditure plans for fiscal 2020 were reduced to approximately $10-11 million from an earlier estimate of $18-20 million[93] - The company has an undrawn $35.0 million senior secured credit facility maturing in December 2021[98] Risk Factors Key business risks include ongoing COVID-19 impacts, potential store closures, supply chain disruptions, and market competition - The COVID-19 pandemic is a major risk, with potential for continued adverse impacts from store closures, reduced consumer spending, supply chain disruptions, and macroeconomic recession[105][106][109] - The business is highly seasonal, with sales and profitability disproportionately higher in the third and fourth fiscal quarters due to holiday shopping[122] - Reliance on foreign manufacturers exposes the company to risks from international trade, tariffs, political instability, and public health emergencies[116] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's market risk profile has not significantly changed since the prior fiscal year-end - The company's market risk profile at May 2, 2020, has not significantly changed from the profile disclosed in its Annual Report on Form 10-K[155] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - Based on evaluation, the company's disclosure controls and procedures were effective as of May 2, 2020[156] - No material changes occurred in the company's internal control over financial reporting during the quarter[157] Part II Item 1. Legal Proceedings The company is involved in a putative class action lawsuit regarding California wage and hour laws - The company is defending a putative class action lawsuit, Alexia Herrera v. Zumiez Inc., concerning California wage and hour laws[50][159] Item 1A. Risk Factors This section cross-references risk factors from MD&A and the Annual Report, noting no material changes - This section refers to Risk Factors in the MD&A and Annual Report on Form 10-K, with no material changes noted[160] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details common stock repurchases: 694,000 shares for $13.4 million under a $100 million program Share Repurchase Activity | Share Repurchase Activity | Value | | :--- | :--- | | Period | March 1, 2020 - April 4, 2020 | | Total Shares Purchased | 694,000 | | Average Price Paid per Share | $19.31 | | Total Cost (in thousands) | $13,417 (calculated) | | Remaining Authorization (in thousands) | $86,583 | Item 6. Exhibits Lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and XBRL financial data - Lists exhibits filed, including CEO and CFO certifications under Sarbanes-Oxley Act and XBRL financial data[163]