Zumiez Inc.

Good afternoon, ladies and gentlemen, and welcome to the Zoomies, Inc. first quarter fiscal 2021 earnings conference call. At this time, all participants are in a listen-only mode. We will conduct a question and answer session towards the end of this conference. Before we begin, I'd like to remind everyone of the company's safe harbor language. Today's conference call includes comments concerning Zoomies, Inc., business outlook, and contains forward-looking statements. These forward-looking statements and all other statements that may be made on this call that are not based on historical facts are subject to risk and uncertainty. Actual results may differ materially. Additional information concerning a number of factors that could cause actual results to differ materially from the information that will be discussed is available in Zumi's filings with the SEC. At this time, I will turn the call over to Rick Brooks, Chief Executive Officer. Mr. Brooks?

Hello, everyone, and thank you for joining us on the call today. With me is Chris Work, our Chief Financial Officer. I'll begin today's call with a few remarks about the first quarter, then I'll share some thoughts on sales for the second quarter to date before handing the call to Chris, who will take you through the numbers. After that, we'll open up the call to your questions. As you saw from our earnings release issued earlier today, fiscal 2021 has gotten off to a historically strong start with sales of $279 million and EPS of $1.03, both of which by far exceeded our expectations. Given the impact that COVID had on our business a year ago, when our stores were closed for approximately 50% of the days available during the quarter, we anticipated that results would be up meaningfully compared with 2020. Despite a slower start to this year's first quarter, we still expected that sales would exceed Q1 2019 as some of the headwinds we faced in February abated and the economy benefited from government stimulus. That being said, we were not anticipating that sales would increase more than 30% over the same period two years ago, particularly because a portion of our global store fleet remains closed. Our performance amidst very challenging conditions last year, and more recently as the operating environment has improved, underscores our market-leading position. and the strength of our business model. The work that this organization has been doing to execute the long-term consumer-centric growth strategy that Zumi has been building and evolving since its inception put the company in a position to successfully navigate the pandemic and now capitalize on the uptick in demand we are seeing from an economic recovery being boosted by record stimulus. In addition to capturing a meaningful share of the increase in consumer spending, Our record first quarter profitability reflects a shift back to a more historical mix between our store and digital channels as customers becoming increasingly comfortable returning to in-person shopping. This is a very positive development given the enriched brand experience that can be achieved human to human and the importance of our stores to the one channel cost structure we've built as part of our differentiated approach to retail. Looking ahead, We feel good about our ability to continue to exceed both 2020 and 2019 sales levels over the course of the year. However, not by the same magnitude we did in the first quarter as we face tougher comparisons and the benefit from stimulus is likely to fade. The second quarter has started strongly with May total sales increasing 42% year over year and up 31% compared with May 2019. While the near term is difficult to predict as markets are recovering from the impact of the pandemic at different paces, the long-term outlook for Zoomies continues to brighten. As I said on our last call, what we expected to happen within the retail industry over several years in terms of consolidation of winners and losers in retail has significantly accelerated. Our performance over the last 12 months clearly demonstrates the competitive advantages of our model and underscore the strength of our brand, culture, and best-in-class teams that are working to serve the customer in each of the markets which we do business. Thanks to these cornerstones of our foundation, we move forward with confidence in our ability to continue to gain, share, and drive results. Key to our success has been and will continue to be our dynamic teams, our one-channel mentality, and our advanced in-store fulfillment capabilities, including Zoomies delivery, which takes our best-in-class sales teams directly to our customers' door. While elements of our model have and will continue to evolve in the years ahead, our overarching consumer-centric strategy rooted in strong brand and culture will remain constant. We built a business in which we partner with great brands to bring diversity and uniqueness to our customers that allows them to individuate. We built an infrastructure in which a customer can shop with us to get what they want when they want, how they want, and as fast as they want. We've morphed our business into a channel-less organization with inventory visibility from all touchpoints and back-end capabilities that allow us to effectively leverage expenses regardless of the channel in which sales originate. The work together has been significant, and the path ahead will require further focus to move even faster to serve our customer. Therefore, we remain steadfast in our commitment to continuing to invest in our future. We know that times of disease create opportunities. With the right people, strategies, and resources in place, we are well positioned to emerge from this crisis a stronger brand than ever before. With that, I'll turn the call to Chris to discuss the financials.

Thanks, Rick, and good afternoon, everyone. It has been a record start to fiscal 2021 with results that well exceeded our expectations. With our stores closed for approximately half of the quarter last year due to the pandemic, I'll provide comparisons to both the prior year and first quarter fiscal 2019 where appropriate. Following my review of our first quarter results, I'll provide an update on our second quarter to date sales trends before providing an updated perspective on how we are thinking about the full year. First quarter net sales were $279.1 million, up 102.6% from $137.8 million in the first quarter of 2020, and up 31.1% from the $212.9 million in the first quarter of 2019. Compared with the first quarter of 2019, the increase in sales was driven by the net addition of 15 stores, and comparable store sales growth of 34.2%. Our stores were open for approximately 94% of potential operating days during the first quarter of 2021, compared to 50% in the first quarter of 2020 and 100% in the first quarter of 2019. From a regional perspective, North American net sales were $248.7 million, an increase of 113.4% over 2020 and up 32.3% compared with the same period in 2019. Other international sales, which consists of Europe and Australia, were $30.4 million, up 43.2% from last year and up 21.7% from two years ago. Excluding the impact of foreign currency translation, North American net sales increased 112.6%, and other international net sales increased 29.1% compared with 2020. Both our European and Canadian operations had impactful COVID-related store closures during the first quarter of this year, and they were open for approximately 40% and 77% of the available operating days, respectively. From a category perspective, all categories were up in total sales from the prior year. with men's being our most positive, followed by accessories, hard goods, women's, and footwear. First quarter gross profit was $103.2 million compared to $23.7 million in the first quarter of last year and $66.5 million in the first quarter of 2019. Gross margin as a percentage of sales was 37% for the quarter compared to 17.2% in the first quarter of 2020 and 31.2% in the first quarter of 2019. The 1,980 basis point improvement from the first quarter of 2020 was largely due to 1,200 basis points of leverage in our occupancy costs, including the impact of the continuation of rent charges in 2020 while stores were closed. In addition, product margin increased 390 basis points, and we gained 340 basis points related to the leverage of fixed costs in fulfillment and distribution with a significantly higher level of sales. Gross margin improved 580 basis points from 2019, driven largely by product margin improvements, occupancy leverage, and reduction of shrink as a percentage of sales. SG&A expense was $68.9 million, or 24.7% of net sales in the first quarter, compared to $51.6 million, or 37.4% of net sales a year ago, and $65.5 million, or 30.7% of net sales two years ago. Compared to 2020, The 1,270 basis point decrease in SG&A expenses of the percentage sales resulted from meaningful leverage of our fixed costs on higher revenue base in 2021 compared to the prior year when we experienced significant store closures due to COVID-19. The most significant improvements were 620 basis points of leverage in our store wages, 520 basis points of leverage in our other store costs, 340 basis points of leverage in corporate costs, And these improvements were partially offset by 180 basis points related to governmental subsidies in the prior year that did not repeat in the first quarter of 2021, and 110 basis point increase in incentive compensation. Operating income in the first quarter of 2021 was $34.3 million, or 12.3% of net sales, compared with an operating loss in the prior year of $27.8 million, or 20.2% of net sales. In the first quarter of 2019, we had an operating profit of $1 million or 0.5% of net sales. During the quarter, we recognized flow through on incremental sales of 44% from the first quarter of 2020 and 50% from the first quarter of 2019. Net income for the first quarter was $26.4 million or $1.03 per share. This compares to a net loss of $21.1 million or 84 cents per share for the first quarter of 2020 and net income of $0.8 million or 3 cents per share for the first quarter of 2019. Our effective tax rate for the first quarter of 2021 was 25.7%, compared to 20.9% in the year-ago period. Turning to the balance sheet, the business ended the quarter in a very strong financial position. Cash and current marketable securities increased 84.3% to $400.4 million as of May 1st, 2021, compared to $217.2 million as of May 2nd, 2020. The increase in cash and current marketable securities was driven by cash generated through operations, partially offset by capital expenditures. As of May 1st, 2021, we had no debt on the balance sheet and continue to maintain our full unused credit line of $35 million. We end the quarter with $136.5 million in inventory, essentially flat with the end of both Q1 2020 and Q1 2019. On a constant currency basis, our inventory levels were down 3.2% from last year. Overall, the inventory on hand is healthy and selling at favorable margins. Now to our fiscal May sales results. Net sales for the four-week period into May 29, 2021 increased 42.4% compared to the four-week period into May 30, 2020. Compared to the four-week period into June 1, 2019, net sales increased 30.5%. From a regional perspective, net sales for our North America business for the four weeks into May 29, 2021 increased 45.9% over the comparable period last year and was up 27.9% compared to the four-week period into June 1, 2019. Meanwhile, our other international business increased 19.9% versus last year and increased 54.9% compared with the same period of 2019. From a category perspective, all categories were up in total sales from prior year with the exception of hard goods. Men's was our most positive category, followed by accessories, footwear, and women's. In terms of comparable sales for May, because we only had a portion of our stores open long enough to be included in the comp base last year, combined with the accelerated shift to online spending as a result of COVID-19, we are comparing May 2021 results to May 2019 results. For the four weeks into May 29th, 2021, comparable sales increased 32.9% compared with the four weeks into June 1st, 2019. Due to limited visibility in the business, we will not be providing specific guidance for the second quarter of 2021 or the fiscal year. That said, based on our first quarter performance in May results, we do want to give you a directional update on our expectations for the year. Concerning revenue, For the full year fiscal 2021, we have previously projected that we would exceed 2019 revenue levels. Given the significant growth from 2019 in the first quarter and the strong May results to begin the second quarter, we now believe that fiscal 2021 net sales will grow in the low to mid teens from fiscal 2019. On a quarterly basis, Year-over-year comparisons between fiscal 2020 and fiscal 2021 will be challenged due to the seasonality shift caused by the pandemic. As previously discussed throughout the year, we'll be comparing our results not only in 2020 but also to 2019, anticipating a return to more normalized seasonality. Examining the high-level impacts by quarter from 2021 to 2020 and 2019 for the remainder of the year, we note that in the second quarter of 2021, we anticipate that the impacts of the stimulus will begin to wane. And as a result, growth rates will slow from the first quarter of 2021. However, with our May results and current trends in the business, we anticipate that we will see double digit sales growth from fiscal 2019 in the second quarter of this year, which translates to high single digit growth to low double digit growth from our record setting second quarter in fiscal 2020. As we look to the back half of the year, we grew sales year over year in both the third quarter and fourth quarter of fiscal 2020 compared to fiscal 2019 despite the challenges of the pandemic. Considering the muted back to school season in the prior year due to much of the country employing remote learning and restrictions still in place during the 2020 holiday season, we are encouraged about the potential in 2021. We currently anticipate fiscal 2021 sales growth compared to 2020 to be in the low to mid single digits for our third and fourth quarters. Moving on to gross margin, 2021 gross margin is currently planned to grow year over year, driven by a reduction in shipping costs as web revenue normalizes with stores being open and leverage of occupancy costs on increased sales. Product margin improved by 70 basis points in 2020 versus 2019 to record levels and grew for the fifth year in a row. We are planning product margin in 2021 to improve over 2020 for the year. Fiscal 2021 SG&A costs are expected to increase slightly ahead of our sales growth from 2020 for several reasons related to the pandemic. The drivers of this include store wages and benefit reductions in 2020 due to store closures and reduced mall hours that are not anticipated to repeat in 2021. Governmental subsidies received in 2020 not anticipated to repeat in fiscal 2021. an increase in costs related to training and recognition events that were foregone in 2020 due to the pandemic, an increase in marketing events and other related spending that were not possible with restrictions in 2020, and an increase in travel costs in the back half of 2021 with very little travel included in our fiscal 2020 results. In summary, we expect to see expansion in gross margin while SC&A expenses grow much closer with overall sales. On a net basis, however, we're anticipating operating margins will be up year over year in fiscal 2021, reaching double digits as a percent of sales. We are currently planning our business, assuming an annual effective tax rate of approximately 26% in fiscal 2021, compared with 25.6% in fiscal 2020. We are planning earnings per share to increase meaningfully in fiscal 2021 compared with fiscal 2020, with a strong start to the year we just disclosed. Throughout the remainder of the year, we anticipate that more expenses will come back into the model as COVID restrictions are reduced, such as store payroll related to capacity and hours, travel, training, and other costs discussed above. With more moderate sales increases expected in future quarters, we are currently planning the majority of our 2021 EPS growth to be attributed to the first quarter of the year. As an example, we are anticipating our second quarter EPS will be down from the prior year when we had a record-setting second quarter and saw a surge in sales as stores reopened after the initial shutdowns, while we experienced minimized expenses due to the controls put in place to conserve cash resources. In the event our sales estimates exceed those outlined today, we would expect a strong flow-through on incremental sales. We are planning to open 22 new stores in fiscal 2021, including approximately five stores in North America, 12 stores in Europe, and five stores in Australia. We are planning to close approximately five to six stores during the year. Capital expenditures are planned to be between $20 million and $22 million in fiscal 2021 compared with $9.1 million in fiscal 2020. The majority of our capital spending will be dedicated to new store openings and planned remodels. We expect that depreciation and amortization, excluding non-cash lease expense, will be approximately $23 million in fiscal 2021 compared to $23.5 million in fiscal 2020. And we are currently projecting our share count for the full year to be approximately 25.8 million shares. Any share repurchases during the year will reduce our share count from this estimate. We are very proud of the effort of our teams and our financial results to start 2021. Our long-term strategies have allowed us to outperform the marketplace in a period of time that continued to be heavily impacted by the unusual events of the pandemic and enhanced economic stimulus. We believe our operating model is strong and that we continue to have good opportunities for top and bottom line growth in the future. As we look to the first quarter of 2022, we anticipate it will be challenging to replicate the results we experienced in the first quarter of 2021. However, we continue to make confidence in our ability to drive long-term value for our shareholders into the future. And with that operator, we'd like to open the call up for questions.

Thank you. Ladies and gentlemen, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Jeff Van Sinderen from B. Riley. Please go ahead.

Good afternoon, everyone. And let me say congratulations on the strong start to the year. Can you give us your latest thoughts on supply chain and just wondering, you know, how the challenges are shaking out there? What's improving? How and I guess, you know, how you're managing inventory as you think about, you know, what would normally be a traditional back to school period? Just wondering, you know, in terms of. perhaps some pull forward that you saw in Q1 or you might be seeing in Q2 for school, maybe not so much Q2, but schools are reopening Q1. Just maybe you can help frame that for us.

Sure, Jeff. I'm happy to take the question. I think from a supply chain perspective, we talked a lot as we moved across 2020 of the challenges related to supply chain and getting product and getting the product we wanted, especially in some of the longer-term categories within our assortment like footwear and hard goods that just take a little bit longer than the printables business. You know, that challenge is still there today, I would say, at a much more minimized level. It was pretty strong through Q3 and Q4 and even into the beginning of the first quarter, although we do feel like our buying teams and our vendors have done a great job really trying to catch up. We still are seeing some delays at port and some other challenges within the ecosystem, but I think there are things we're kind of learning to work around and planning through, so I think we feel pretty good about where we are from an overall supply chain perspective. On the inventory side, as you saw, our inventory levels were pretty strong, and we feel really good about how current they are and where they stand across all of our entities. As we think about back to school, this is one of the challenges of a year like this. Obviously, in Q1, we had to chase a lot. We performed exceptionally beyond our expectations, and so the teams continue to work with the brands to to move orders around and where things are selling, we're chasing and where things are maybe a little slower, we're pushing out. And I think that's pretty standard within our ecosystem. You know, as it relates to back to school in a period like this, we make a bet and the teams are pretty good at what they're doing and they have We've kind of put a plan together for back to school. We've got it kind of thought through both, you know, regionally and holistically to be able to serve these communities as they go back to school. And, you know, if we need to chase, we'll chase. And if we have to push out, we can push out.

Okay. Fair enough. And then maybe if you don't mind, if you could speak more about your international business, the metric progression you've seen there lately. and then I guess the outlook for international for the remainder of the year, how you're thinking about that?

Sure. Yeah, I'll take a quick shot and then let Rick add anything that he would like to. You know, we talked in our march about the challenges of Q4 with our European business specifically as We saw closures across the important holiday season, and maybe just as important, we saw a lot of the winter resorts shut down and restrict travel. So it was a very challenging quarter for them to end 2020 after really quite good nine months to start the year. We're really encouraged by what the teams have done in Q1. Those challenges that existed in Q4 did not subside. We were closed a majority, about 60% of the possible days in Q1 with rolling closures across all of the geographies we're in. And some of the geographies actually just closed pretty much all of Q1. So it was a really, really challenging environment. You know, the closure rate in Q1 was higher than what it was in Q4 and higher than what it was in all of 2020, just to put it in perspective. So, you know, I think the good news about our European business is going into the pandemic. We had about 50% of our sales online to begin with. So, uh, as you would expect that channel ramped up and it was no different in the first quarter. I, you know, We're really proud of our European teams and how they've really kind of had to fight through this. This is not an easy operating environment by any means. But I think that the online volumes have picked up for some of the closures that we've had in Q1. And while they're not quite where we were hoping they'd be in Q1, they're not far off. And so I really give them a lot of credit given the unexpected challenges we've had with closures. I think... you know, longer term. We're still very bullish on our beliefs around Europe. I think, you know, we've talked before to grow Europe to what it is today has taken a pretty meaningful investment. And we're starting to really see the payoff here. And we think that we can really capitalize on this investment as we move forward. I mean, as difficult as the operating environment's been over there on us, we know it's probably more difficult on some of our peers of smaller scales, or some of our competitors, I should say, of smaller scale. And I think we have a really good opportunity based on how our customer has communicated with us and moved online. And when we've been able to open stores, they've been back in stores. I think we have a really good opportunity as we get to a more normalized environment there. And so we're still remain pretty optimistic about the Europe business. And, you know, I think what it means also to our global business, as we think about really trying to globalize across each of the geographies, there's definitely synergies and opportunities that are coming out of the business platform we've put together. And then lastly, I'll just mention Fast Times, as the other international business in Australia, has done extremely well. We're very proud of what the teams have done there. 2020 was a phenomenal year for them, the best since we acquired them, and they're off to a great start in Q1 of 2021. Despite the fact that even in Australia, there are closures from time to time, it just kind of part of the operations they're working through. But they've done a great job navigating it and building the teams and growing units. So we're happy with how that business is performing.

And I just add that Chris did a great job, Jeff. I just add to him that, again, to execute our strategy, our model, our integrated channel-less omni model, you have to build scale in markets to do that. You have to have the physical presence as well as the digital presence. So that has really been a focus of our European businesses, exactly doing that on a country-by-country basis. and then, of course, being able to roll in our tools. But that's why the investment is so important in building the skills we can execute and then really drive the profitability side of the business. And as Chris said, we were effectively closed during holiday, all the physical stores last year. So it's hard to imagine that holiday could be worse. Now, I'm not going to say it can't be, but it's hard to imagine it could possibly be worse than it was a year ago. So I think, again, I'm appreciative of our team's hard work and effort over there and looking forward to a much, much stronger holiday season this year.

Okay. Well, it seems like it's just around the corner. It's creeping up fast. Appreciate all your comments, and we'll wish you guys the best for the remainder of Q2. Thank you.

Thank you. Our next question will come from Janine Stitcher with Jefferies. Please go ahead.

Hi. Good afternoon, everyone, and congrats on the results. A couple questions. I want to ask first about stimulus. It sounds like you still think there's some stimulus benefit, especially at the start of 2Q. Curious if you could maybe give us a sense of how much you think the consumer has spent versus how much is still left in their wallets. And then I also just wanted to ask about hard goods. I think you said down versus last year in May. Wondering if that was just anything with the comparison from last year, if there's anything you're seeing in the hard goods business to suggest slowing. Thank you.

Sure. I'll go ahead and try to tackle these here from a stimulus perspective. I wish I had the crystal ball to answer your question. As we said in our prepared remarks, we definitely think it had a positive impact on Q1. We think that that went into May as well. It's really interesting, actually, as we've looked at the business and we've looked at the last five years of our comparable store sales, and we've run pretty good results over the last five years and are very happy with the performance of our business. Pretty much all of our highest comping periods have come when there's been economic stimulus in the environment, so May and June of 2020. January of 2021, and now March and April and into May of 2021 as well. So there's definitely a correlation on the business. As I said in my remarks, I think the important part is to have a business model that, you know, is mobile and is working for the customer so that you have the ability to have inventory there in all channels and allow the customer to shop when they want to get those results. So I won't be able to really comment on how much of it's left, although I'm sure you've seen what we've seen around where savings rates are and where the where consumers are. We feel like we're in a good spot, and we can capitalize on that with our really best-in-class sales teams and the model we've put together. On the second piece on hard goods, as you know, our business here is really around driving sales gains. And our whole focus is on that. And we would love to tell you every quarter that all our departments are up, but that's just not the model. We see our customers sort of move around what's trending and what's hot. And with hard goods, it's been an incredible run, you know, starting really in 2019 and 2020. It was up in Q1. We did say it was down in May, although I would say it was just down ever so slightly. In fact, the impact is really felt in the markets where we had closures. So both in Canada and Europe where we had meaningful closures or probably what took it down just slightly. So we're not worried about it because if you think about the increase that hard goods has had throughout 2019 and 2020 as a percent of overall sales, these are still phenomenal results for the hard goods category. And I think We're anniversarying here a period of time during closure last year where this became a very popular buy for people that were sheltering at home and looking for things for their kids to do. So we sold a lot of skateboards during the closure period. We're anniversarying that now, and, you know, we're still optimistic about how the category will play out for the remainder of the year.

Great. Thanks for all that perspective. That's a great one.

Thank you. Our next question will come from Jonathan Kompf with Baird. Please go ahead.

Yeah, hi, thank you. A bit of a follow-up, but I want to ask a little bit more, you know, a broader question coming off of such a strong quarter. How do you view the split between what's sort of temporary as a result of the environment, maybe more what's permanent or lasting as a result of execution and other tailwinds like fewer competitors, and how does that play into your decision to allow the upside to flow through versus reinvesting for the broader strategic outlook?

Sure. I'll take a crack, and, you know, great question. Obviously, one, we spent a lot of time, too. I mean, I think our overall perspective is that, you know, and you heard, and I've I talked about this in my prepared remarks is, you know, it's going to be hard to anniversary Q1 of 2022. It just will. We have not had a quarter like that in our history for the first quarter of the year. That being said, I believe we're taking share. I believe with our operating model and our product offering and our sales teams that we are winning in a consolidated market. And I think we're seeing it and we believe we're seeing it in every market that we're operating in. And so I do think there's a permanent piece here, but I think every retailer is going to have to look at what they experienced in Q1 and try to do this analysis. And for some, it will be different than others. So I'm not going to comment on what Q1 of 2022 is going to be right now, other than I would tell you we feel really good about these results. We feel good about the economics of the model and how it flowed through. And I think we've got some opportunity to really see strong earnings results like you've seen from us the last few years as it relates to this year and into the future. I think the second part of your question around reinvestment in the business and taking these results is a really good one, right? And I think... I hope all of our investors would expect us to do that. We are trying to take advantage of opportunities in this type of cycle. You've seen our store count. Opening count has actually increased a little bit from historical levels. We're seeing really great deals, and we're seeing opportunities in the market. As you'd expect, we're going to try to capitalize on those. We think back to 08 and 09, which were obviously very challenging times from an economic perspective and a real estate market. And we opened a lot of stores, and those stores were some of the real great stores we had over the last decade. So we're looking at this as that kind of opportunity as well, and we're going to look for opportunities to invest in 2021 that make sense, that we think will drive long-term top-line value or reduce expenses.

I would just add, John, that, again, that part of our investment is that continuing investment in our team. So we've still, you know, for safety reasons, not been able to get back to in-person events or in-person marketing events. So those costs are all going to come back into the model because we believe it's what drives long-term value creation for our shareholders. And, of course, it's our commitment to our people, too, about helping in their development as professionals in our business. And it's why partly so many people stay so many years here at Zoom is because of our commitment to invest in their future. So those costs are going to come back in, too, as conditions from a safety perspective relative to the virus allow us to bring those back in.

Yeah, that's really helpful to hear. And then on your cash balance, just given that I think it's over a third of your market cap now, just looking at it on that basis, what should we think about your plans for the rising cash balance and potential uses there?

Well, it seems like maybe our market cap should go up would be my first start. But I think as we think about cash, obviously, we do have a very healthy balance sheet. And I That was a big benefit to us coming into the pandemic. Obviously, it helped us weather the storm of the pandemic and make some really great business decisions. It's not lost on us that just over a year ago, we were trying to figure out if we could pay our people throughout the closure period and how important it would be to pay our people. And I think that was a huge investment for us that paid off in a big way. And we're going to see that here continued as we roll forward results and we see, you know, we got open very quick last year and our teams were hit the ground running and we're super proud of what that meant to 2020. But I also think it pays into these results that we're seeing in 2021 of just the continuation of our teams together. So, Obviously, having a strong balance sheet is a big focus of ours. Our thoughts on cash long-term are to be really smart about how to use it. We sit down with our board every quarter and work through a pretty defined hierarchy that we have, which very simply is, We're going to first invest in the business and find ways within the business to really drive value for the long term, either through sales growth or reducing expenses or building out programs that are unique to what we're doing. And then secondly, we're going to look for ways to invest outside the business and to try to see if there's potential opportunities that would work for us both from a culture and a value perspective that would be, you know, accretive for our shareholders over the long term. And then lastly, we'll return our cash to shareholders. And as you know, we have a $100 million buyback that's been authorized by our board at this point. You know, we're pretty smart in how we try to utilize those funds. And, you know, I think as we look at the cash balance and where it sits today and the economics of the model and how it generates cash, you know, we believe we're in a spot where we can do all those things. We can invest in the business. We can look for opportunities outside the business. and we can return cash to shareholders. And, you know, our belief is that the winners kind of in each retail segment will have that opportunity, and we feel like we're in a good spot to be able to do that.

All right, points well taken. Best of luck. Thanks. Thanks. Thanks.

Thank you. As a reminder, ladies and gentlemen, if you would like to ask a question, please press the stars and one key. Our next question comes from Mitch Cummins with Pivotal Research. Please go ahead.

Yes, congrats on the quarter. Thanks for taking my questions. Let me start on hard goods. And I guess what I'm really trying to understand, I know that, Chris, you mentioned that, you know, during lockdown last year that was a hot, hot item that people were buying. And I guess what I'm trying to understand, it was your best comping category throughout the year. last year. I'm just wondering, when was it strongest? Was it strongest in May last year because of the lockdown, or was it stronger later in the year? I'm just trying to understand how difficult the comparisons on hard goods are as we think about the year.

Sure. Yeah, just very simply, the answer is yes. It was our largest comp that HeartGoods had last year would have been P3, 4, and even into the 5. So periods 3, 4, and 5 of the year were our strongest comping periods, which would correlate to April, May, and June. And so it was super strong a year ago. I think what's probably even more impactful than that is when you look at the two-year comps, it was strong throughout 2019 as well. You know, this is a part of our business to increase 600 basis points as a percent of total sales. So, yeah, I think we've seen just phenomenal results here. I think, you know, obviously skate's been popular everywhere, but we are – you know, one of the largest, if not the largest distributor of skateboards out there. So we're a destination to come get that product. And I think our results have shown that. So again, I think when I look at it and I look at those metrics and I look at the two-year stack, that's what gives me confidence that, you know, there's still a runway on this in 2021. But these levels are phenomenal for us regardless.

Yeah, Mitch, and I would just add to that, that I You know, these are toughest cops, but we still ran up 30 over 2019 So it just shows you the strength of the other departments right and how dollars again for me It's always that we're gonna run games matter what it's about wallet share owning that wallet share It tells you we got a lot of things working in other departments where we're continuing to drive sales Okay, I'm not surprised by that comment Rick.

I Very consistent with what I've heard for almost 20 years now. I appreciate that. On SG&A, Chris, I think a lot of the color that you gave was really kind of on the year over year. But what really struck me when I look at my model is that, you know, when I compare your SG&A dollars to two years ago, they're only up like a little over $3 million, even though the sales increase is like, you know, over $60 million. I don't know how instructive Q1 is. given that you had closed stores, but how should we be thinking about SG&A on a two-year basis?

Yeah, you know, I think we're going to see growth in SG&A on a two-year basis, you know, but I think what you're going to see is something that's, you know, more aligned with how we've tried to plan SG&A over time, which is below our sales growth. And, you know, there's I think the teams have done a phenomenal job managing expenses throughout this pandemic. I do appreciate that you're looking at 2019 because I do feel like that's more normalized. It excludes the impacts of store closures and reduced operating hours and governmental stimulus, reduction of marketing events and training and recognition and all those things. I think if you're looking at it over a multi-year period, you should expect that we would have leverage to 2019, albeit, you know, so growing less than what our sales growth from 2019 would be. Okay.

And then just last question. I know that you don't have a crystal ball on stimulus, but what might be helpful, I don't know if you can provide it. I'm just kind of curious. You mentioned that February was difficult, and obviously the quarter as a whole was great. Is there any way you could give us the two-year comp for March, April, and May? I'm guessing that April was stronger than May on a two-year basis because there was more benefit from stimulus on April. Is that a fair conclusion?

It's hard to do. You're talking about just the comp to 19 is what you're looking at.

Right, right, which normalizes most everything else. I would just think that April was probably a stronger month than May because there was more stimulus in April than May.

I just have the quarter at my fingertips right now, Mitch. What I tell you is we gave you the comp for Q1 to 2019, and actually the total sales increase to 2019 is very close to the comp, as you'd expect, given where our store growth is at. And then I think we gave you what February was. when we did the March call, which February was down, right? We were down, I think, 3% when we reported in March. And we had expected some of that because of the delayed tax refunds and just where we were within that cycle. Obviously, when we reported in March, we knew stimulus was an idea that was out there. It actually had not been approved. So that was something that came right after we reported. And once that stimulus hit, we started to see it really come on at the end of March. and into April. I think what was hard for us to separate at first was what was tax refunds versus what was stimulus, but both had a positive impact on the business as we moved to the quarter. Okay.

All right. Thanks again, and good luck. Yep. Thanks, Mitch.

And speakers, I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Rick Brooks for any closing remarks.

All right, thank you, everyone. As always, we greatly appreciate your interest in Zoomies and all the things that we're tackling in the challenge of the modern consumer world. So we really appreciate it, and we'll look forward to talking to you all on our Q2 call in September. Thank you, everybody.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.