Tariff Strategies, Margin Gaps, and Skate Sales: Contradictions Emerge in Earnings Calls

The above is the analysis of the conflicting points in this earnings call

Date of Call: None provided

Financials Results

• Revenue: $214.3M, up 1.9% YOY (vs $210.2M prior year)
• EPS: ($0.06) per share, vs ($0.04) prior year
• Gross Margin: 35.5%, up 130 bps YOY (34.2% prior year)
• Operating Margin: 0.1%, improved from (0.2%) in the prior year

Guidance:

• Q3 sales expected at $232M–$237M; comps +5.5% to +7.5%.
• Q3 product margin to increase YOY; operating margin 2.3%–3.3%.
• Q3 EPS expected at $0.19–$0.29 (vs $0.06 prior year).
• Expect lower comps in non-peak weeks post back-to-school given macro caution.
• FY25 sales growth now expected at +3% to +4% despite store closures (~$14M sales headwind).
• FY25 product margins to grow modestly; occupancy/logistics leverage to aid gross margin.
• FY25 SG&A to be roughly flat as % of sales (ex one-time legal), driving higher operating margin; return to profitability.
• Plan 6 openings (5 NA, 1 AU) and ~20 closures; capex $11M–$13M; D&A ~$22M; ETR ~50%–60%; diluted shares ~17.3M.

Business Commentary:

* Comps and Sales Growth: - Zumiez Inc. reported a 2.5% increase in comparable sales for Q2, marking their fifth consecutive quarter of positive comparable sales growth. - The growth was driven by successful execution of merchandise and customer experience initiatives, resonating with their core customer base.

• North America Performance:
• North American net sales increased by 2.1% to $180 million, with comparable sales up 4.2%.

• This was attributed to strong execution of merchandise and customer experience strategies, despite macroeconomic uncertainties.

• Product Margin and Gross Profit:

• Gross profit increased by 5.9% to $76 million, with gross margin reaching 35.5%, a 130 basis point improvement.

• The increase was driven by 60 basis points improvement in product margin and benefits from leveraging store occupancy costs.

• International Challenges:

• Other international net sales were $34.2 million, up 1% from last year, but comparable sales were negative at 5.5%.

• Market conditions in Europe were challenging, making it difficult to build on improvements from 2024.

• Financial Stability and Future Outlook:

• The company ended the quarter with $106.7 million in cash and current marketable securities, with a strong balance sheet and no debt.
• Zumiez anticipates year-over-year sales growth of 3% to 4% in 2025, despite store closures, driven by strategic initiatives and cost management.

Sentiment Analysis:

• Management said Q2 results “exceeded expectations” with comps up 2.5% and an accelerating two-year stack. August U.S. comps were low-teens on top of last year’s double-digit growth. Q3 outlook calls for higher sales, margin expansion, and EPS of $0.19–$0.29 vs $0.06 prior year. For FY25, they expect 3%–4% sales growth, margin improvement, and a return to profitability, while acknowledging tariff and macro uncertainty.

Q&A:

• Question from Mitch Kummetz (Seaport Research Partners): For 3Q guidance, what comp run-rate are you assuming for the balance of the quarter, and how do gross margin vs SG&A drive the operating margin?
  Response: They assume comps slow to low single digits after back-to-school; expect meaningful leverage in occupancy/distribution plus product margin expansion and SG&A to grow below sales, yielding op margin improvement.

• Question from Mitch Kummetz (Seaport Research Partners): What’s driving higher AUR—tariff-related price increases, mix, or promotions?
  Response: AUR gains come from selective price increases (notably private label), favorable mix toward apparel, and bundling; back-to-school also saw transaction growth alongside AUR.

• Question from Mitch Kummetz (Seaport Research Partners): Where is private label strongest (e.g., denim), and are you benefiting from denim strength?
  Response: Private label has high penetration in denim/bottoms; strategy is to own key cut-and-sew categories amid faster brand cycles, offering premium-priced, trend-led sub-brands that are margin accretive.

• Question from Jeff (EURADA Securities): What is feasible for operating margins over the next few years, and what are the key drivers?
  Response: Long-term target is high single-digit operating margin driven by sales recovery beyond 2019 levels, continued product margin gains, cost leverage, and returning Europe to break-even over a multi-year plan.

• Question from Jeff (EURADA Securities): What are the main headwinds in Europe/Australia and what must improve to hit the plan?
  Response: Macro recovery (especially Germany) would help; internally they must sharpen trend-right, distinctive assortments and elevate store experience while maintaining premium pricing and expense discipline.

• Question from Mitch Kummetz (Seaport Research Partners): Have skate and footwear headwinds bottomed as comp drags?
  Response: Skate hardgoods turned positive but seasonality warrants caution; footwear remains broadly challenged across several brands and needs more time to realign with consumer demand.

• Question from Mitch Kummetz (Seaport Research Partners): How much higher are private-label product margins vs third-party brands?
  Response: Private-label product margins are roughly 10%–15% higher than branded; margin gains also occur in branded cycles, and a licensed model offers mid-tier margin benefits.