Zumiez Inc. 2027 Q2 Earnings Call

Mr. Brooks? This call. With me today is Chris C. Work, our Chief Financial Officer.

I'll the trends we're seeing so far in the third quarter before providing an update on our strategic priorities for the remainder of the year. Chris will then take you through our financial results in along with our outlook for the third quarter. After that, we'll open the call to your questions. Our second quarter sales decreased 2.5% from the prior year. While we're disappointed that results were short of expectations due to softness in the U.S., we're encouraged by diversification of our global business where our international entities provided positive sales growth for the quarter. Our current quarter to date trends through Labor Day have shown similar results to the second quarter.

The U.S. is trending down after very strong performance over the similar period in the two prior years, growing 14.1% in 2024 and 13.2% in 2025. While our international entities have seen low single digit positive comparable sales in the same timeframe this year. Current overall sales results have been meaningfully impacted by our U.S. sales deceleration, driven by softness in footwear and an overall drop in transactions. We know from experience that these down cycles are generally temporary, and we're actively working to refine our merchandise assortments and further lean into our customer experience initiatives to improve the trajectory. As we move forward, we're executing on both our domestic and international strategies to continue advancing the business. First, domestically, we're evaluating all areas of business to positively impact the customer through the important holiday cycle and into 2027.

As we reflect on the U.S. business second quarter and back to school results through Labor Day, the footwear category has been the most significant headwind, accounting for 70% of the total U.S. sales decline from the prior year through that timeframe. Footwear has been challenged since the second quarter of 2025, and the year-over-year comparisons get easier as we head into the fourth quarter of this year. We've also seen evolution in apparel trends that have positively driven the business for over two years. These changes created a sense of urgency to work with our brand partners as well as our own private label brands to bring newness and changes to our assortment. On the service front, we continue to invest in our people with training focused on capturing every sale.

We are learning more about our customers through our data initiatives, which are enhancing our ability to communicate with them in relevant ways to improve the effectiveness of marketing initiatives and evaluate where operational changes are needed in the business to enhance the customer experience. As we've said for some time, our job is to meet consumers where they are and continue to move with them in this important stage of their life. Identifying and leading on trends has been at the core of Zumiez' success throughout our history, and we have confidence that our teams will deliver as we move through this transitional period. Second, internationally, we remain focused on the key strategic priorities that have helped us improve the business dating back to the fourth quarter last year.

This includes driving revenue through refreshing our product mix with innovative and distinctive offerings, continued growth of private label that has supplemented our branded product and resonated with our customers while enhancing our margin profile, maintaining a rigorous commitment to profitability optimization in each market. This includes executing a premium pricing strategy to drive margin expansion while managing expenses to grow the bottom line. With the positive inflection in our sales, we are making traction on this initiative in each of the international markets. Lastly, we continue to maintain our solid financial foundation, which is the backbone of our ability to manage volatility while funding initiatives aimed at serving our customer. Our financial position remains a source of real strength, giving us the flexibility to continue investing in our strategic objectives while also delivering value to shareholders through our share repurchase program.

Financial flexibility matters more than ever in a consumer environment where the speed of trend cycles has never been faster, and it underpins confidence in our ability to navigate whatever comes next while continuing to build long-term shareholder value. Let me be clear, I'm disappointed with our current results, and our people are working hard to improve the business. I have confidence in our team to make the changes needed to positively impact the fourth quarter in 2027. Closing, I want to thank our entire organization for the continued hard work and dedication to our customers. It remains the foundation of everything we do. With that, let me hand the things over to Chris for the financial review.

Thanks, Rick, and good afternoon, everyone. I am going to start with a review of our second quarter fiscal 2026 results. I will then provide an update on our quarter-to-date sales trends before providing an outlook for the third quarter.

Net sales for the second quarter of fiscal 2026 decreased 2.5% to $209 million, compared with $214.3 million in the second quarter of fiscal 2025. Comparable sales were down 2.1% for the quarter, with Canada, Europe, and Australia all having positive comparable sales growth for the quarter. The negative comp was driven by softness in the U.S., as Rick previously covered. For the second quarter, North American net sales were $173.9 million, a decrease of 3.4% from fiscal 2025. Other international net sales, which consist of Europe and Australia, were $35.1 million, up 2.5% from last year. Excluding the impact of foreign currency translation, North American net sales decreased 3.3%, and other international net sales were up 0.8% year over year. Comparable sales for North America were down 2.9%, while other international comparable sales increased 2.1% in the second quarter.

From a category perspective, accessories was our largest positive comping category, followed by men's. Footwear was our largest negative comping category, followed by hard goods and women's. The consolidated decrease in comparable sales was driven by a decrease in transactions, partially offset by an increase in dollars per transaction. Dollars per transaction were up for the quarter, driven by an increase in units per transaction, offset by a decrease in average unit retail. Second quarter gross profit decreased to $73.9 million, compared to $76.1 million in the second quarter of last year. Gross margin was 35.3% of sales for the quarter, compared with 35.5% in the second quarter of fiscal 2025. The 20 basis point decrease in gross margin was primarily driven by 60 basis points of deleverage in store occupancy costs due to lower sales, partially offset by 50 basis points of benefit from tariff refunds.

SG&A expense for the second quarter of fiscal 2026 was $75.2 million, or 35.9% of net sales, compared with $75.9 million, or 35.4% of net sales in fiscal 2025. The 50 basis point increase in SG&A as a percentage of net sales was driven by a 50 basis point increase in non-wage store operating costs, 40 basis points of deleverage in store wages on lower sales, 40 basis points of deleverage related to non-store wages, and 20 basis points of deleverage in other corporate costs. This was partially offset by 70 basis points of benefit related to lower annual incentive compensation and 30 basis points benefit related to a litigation settlement recorded in the second quarter of last year. Operating loss in the second quarter was $1.3 million, or 0.6% of net sales, compared to a prior year operating income of $0.1 million, or 0.1% of net sales.

Net loss for the second quarter was $2.7 million, or $0.17 per share. In the year-ago period, we reported a net loss of $1 million, or $0.06 per share. Our effective tax rate for the current quarter was -91.5%, versus 210% a year ago. The unusual tax rates in the second quarter this year and last year were primarily due to the allocation of losses across the jurisdictions in which we operate. Lastly, due to our repurchase activity over the past 12 months, our share count is down approximately 6% since the second quarter of last year, which will positively benefit full year EPS but is a headwind in the 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 $97.3 million as of August 1, 2026, compared with $106.7 million as of August 2, 2025. The decrease in cash and current marketable securities from the second quarter of last year was primarily driven by $34.5 million in share repurchases and $10.6 million of capital expenditures, partially offset by $35.7 million in cash flow from operations. As of August 1, 2026, we have no debt on the balance sheet, and we continue to maintain our full $25 million unused credit facility. During the second quarter, we repurchased 1.2 million shares at a total cost of $23.2 million under the authorization provided by the Board of Directors on March 11, 2026. Year to date, through the second quarter, we have repurchased a total of 1.5 million shares at a total cost of $29.5 million.