Zumiez Inc. (NASDAQ: ZUMZ) is a retail company specializing in skater and action sports-style apparel, catering primarily to young male customers. With a focus on LA skater fashion—featuring oversized silhouettes and vibrant graphics—Zumiez offers a mix of third-party brands and a growing private label collection.
While third-party brands make up 80% of its sales, the company has increased its private label share from 10% in FY20 to 18% in FY22. Zumiez operates over 600 stores in the U.S. and has expanded globally with outlets in Canada, Europe, and Australia. Known for its strong digital presence and community involvement, Zumiez combines profitable growth, long-tenured leadership, and effective logistics management to maintain its position in the market. Despite some pushback from core skaters, the company continues to resonate with a broader audience, particularly younger consumers aiming to embrace the skater lifestyle.
Strong Second Quarter Zumiez Performance
In the second quarter, Zumiez’s business surpassed expectations, reflecting the resilience of its brand and the loyalty of its customer base. Total sales increased by 8% year-over-year, reaching $210 million, exceeding management’s guidance range of $199 million to $204 million. North America led the charge, with total comparable sales turning positive in June and accelerating into July as back-to-school season began.
Key drivers of this success included continued growth in the men’s category for the third consecutive quarter and a strong performance in the women’s category, which posted double-digit growth compared to the prior year. Footwear sales also turned positive, contributing to the company’s overall momentum.
Zumiez is focusing on full-price selling in Europe which is helping to improve merchandising margins, while cost structure efficiencies provide further leverage. This robust top-line growth significantly boosted the company’s bottom line, reducing its loss per share to $0.04, a substantial improvement from the $0.44 loss per share in the same period last year.
Zumiez Managing Store Closures and Optimizing the U.S. Fleet
Zumiez has accelerated its store closures in recent years, focusing on underperforming locations that contribute minimally to overall profitability. Over the past two years, the company has closed nearly 50 stores, including 21 closures last year, representing approximately $10 million in sales. However, these closures have had little impact on the bottom line, as the stores in question generated marginal returns that did not justify the associated corporate expenses.
Moving forward, Zumiez remains committed to carefully managing its U.S. fleet. The company evaluates various factors for each location, such as profitability, sales volume, and the store’s influence on its surrounding trade area. Additionally, Zumiez assesses the condition of the shopping centers where its stores are situated, as well as its relationships with landlords.
In 2024, Zumiez anticipates closing around 25 stores. However, this figure may change depending on the company’s ability to increase sales and optimize the performance of its remaining stores. The primary goal is to ensure that each location contributes meaningfully to the overall business, while balancing Zumiez’s brick-and-mortar presence with its digital growth strategies.
Zumiez Navigating Higher Labor Costs and Competitive Pressures
Like many retailers, Zumiez faces significant pressure from rising operating costs, particularly labor expenses, which have increased across all regions. The company recognizes that these costs are unlikely to decrease soon, making it imperative to adapt by implementing new strategies focused on productivity. This effort is not limited to the U.S. but spans Europe and Australia as well, reflecting the global nature of the challenge.
Zumiez has been proactive in managing labor costs by optimizing workforce deployment, aligning labor investment with transaction volume, and ensuring that each store contributes to overall sales performance. Despite the hurdles, the company remains confident in its ability to improve operating margins by driving productivity and refining labor strategies.
From a competitive standpoint, Zumiez is also witnessing the impact of these pressures on other retailers, particularly in Europe. Competitors with larger footprints or higher operating costs are increasingly exiting the business, driven by both elevated labor expenses and a challenging macroeconomic environment. This reduction in competition could present opportunities for ZUMZ to strengthen its position in key markets, especially as the company continues to navigate these pressures with a strategic focus on labor efficiency and profitability.
Conclusion
Looking ahead, Zumiez remains focused on navigating the evolving retail landscape by leveraging its operational strengths and strategic adaptability. As the company continues to refine its approach to labor management and productivity, it is well-positioned to capitalize on opportunities created by shifting market dynamics. With a commitment to driving long-term growth, ZUMZ stock will remain vigilant in adjusting to both external pressures and internal efficiencies, ensuring it remains competitive and resilient in a challenging environment. The company’s ability to innovate and respond effectively to industry changes will be key to its sustained success in the future.
