Zumiez Inc.

Good afternoon, ladies and gentlemen, and welcome to Zoo Med Inc. fourth quarter fiscal 2025 earnings conference call. At this time, all participants are in the 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 Zoo Med Inc., business outlook, and contains forward-looking statements. These forward-looking statements and all other statements that may be made on this call 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 domestic filings with the SEC. At this time, I would like to turn the call over to Rick Brooks, Chief Executive Officer. You may begin.

Hello, and thank you, everyone, for joining us on today's call. With me today is Chris Work, our Chief Financial Officer. I'll begin with remarks about our fourth quarter performance and the successful holiday season we just completed before reflecting on our strong full-year 2025 results and discussing our strategic priorities. Chris will then take you through the financials and our outlook for fiscal 2026. After that, we'll open the call to your questions. We're pleased with our fourth quarter results, which capped off a second consecutive year of important progress for Zoomies. Q4 results were highlighted by robust full-price selling in North America during the important holiday season, which fueled mid-single-digit comparable sales growth in the region and meaningful growth margin expansion. In addition, the work we've done focused on assortment and full-price selling in our European business, drove 660 basis points of year-over-year product margin improvement. This, coupled with disciplined expense management, resulted in 380 basis points of operating margin growth, despite sales being down high single digits year-over-year in local currency for the quarter. Our performance in both regions reflects the continued effectiveness of our full-price selling and cost-saving strategies, even as we faced regional headwinds. From a category perspective, Men's led our bonds of comparable sales growth during the holiday period, followed by women's, accessories, and hard goods. This broad-based strength across multiple categories validates our merchandising approach and the investments we've made in product units and private-level expansion throughout the year. Reflecting on fiscal 2025, we took important steps towards returning to historical levels of sales and earnings. Our merchandise installments and customer experience initiative generate positive content every quarter, range from low single digits to high single digits, and a 4.3% comparable sales gain for the year, on top of a 4% increase in 2024. Our North American businesses demonstrate consistent momentum, registering eight consecutive quarters of comparable sales growth. Our strategic shift in Europe, implemented just one year ago, gained momentum as we moved through the year. This consists of bringing newness, strong inventory management, full-price selling, and expense management that we believe will drive the business to better results in the near term. The combined impact of our initiatives helped to improve full-year earnings per share to $0.78 from a loss of $0.09 last year. These results validate the strategic initiatives we've been executing and position us well for continued success in 2026. As we look ahead, we remain focused on the same three strategic priorities that have driven our success throughout 2025. First, driving revenue growth through consumer-focused strategic initiatives. Our commitment to refreshing our product mix with innovative, distinctive offerings has proven to be a cornerstone of our success. In 2025, we launched over 150 new and emerging brands across our banners. and this movement continues to generate exceptional customer response. Private-level penetration reached its highest level in company history in 2025, at approximately 30% of sales, up from 12% five years ago. This sustained expansion demonstrates our organization's ability to identify emerging trends and create compelling products that resonate with our customers, while simultaneously enhancing our margin profile. and digital touchpoints continue to yield strong results. Enhanced staff development programs and technological capabilities we've implemented allows to engage with customers where they want, when they want, and in more personalized ways, strengthening the relationships that have long served as another cornerstone of our success. Second, sustaining our rigorous commitment to profitability optimization across our geographic footprint. Within North America, our premium pricing strategies continue to support both margin expansion and market share growth. But the operational improvements we've executed throughout 2025 are keeping sales growth well ahead of our expense growth. Our continuing focus in this area has established a more efficient and profitable framework that positions the business for a strong closure on incremental sales to fuel operating margin gains. Regarding our international operations, while Europe continues to face challenging market conditions, Our disciplined approach to new assortments, full price selling and expense management is starting to show results. The significant product margin improvements we achieved in the fourth quarter and full year demonstrate the effectiveness of our strategy and we remain committed to our long-term vision for the countries in which we operate. We continue to see tremendous value in our ability to identify trends locally in each market before they expand internationally. Third, that lays on our solid while funding strategic expansion. Our financial position remains exceptionally strong, providing us with the flexibility to continue investing in our strategic objectives while delivering value to shareholders. This financial stability enables us to navigate ongoing uncertainties in the macro environment by simultaneously positioning the company for long-term growth and continued market share gains. Despite operating environments characterized by economic volatility and evolving global dynamics, I'm increasingly confident in our ability to generate value for all of our stakeholders. The fundamental strategies that have powered our performance throughout 2025 continue to demonstrate their relevance, and our team's proven adaptability and execution capabilities fuel my optimism about our trajectory into fiscal 2026. Our direction remains clear and consistent. Maintain our dedication to delivering distinctive, fashion-forward merchandise growth, but preserving the operational discipline that has strengthened our financial performance. We've demonstrated our resilience and ability to execute through various market cycles, and I'm confident we're strategically positioned to continue building on this momentum. Before turning things over to Chris, I want to express my appreciation to our entire organization for the continued commitment and exceptional execution throughout 2025, their dedication to our values, and our customers remains a foundation for all of our achievements and positions as well for continued success in the year ahead. For that, let me hand things over to Chris for our financial review.

Thanks, Rick, and good afternoon, everyone. I'm going to start with a review of our fourth quarter and full year 2025 results. I'll then provide an update on our first quarter to date sales trends before providing some perspective on the full year. Net sales for the fourth quarter of 2025 increased 4.4% to $291.3 million, compared to $279.2 million in the fourth quarter of 2024. Comparable sales were up 2.2% for the quarter. As Rick mentioned, the primary driver was our North America business, which showed outside strength, even as macroeconomic uncertainty spurred by global trade policy continues. For the fourth quarter, North America net sales were $224.4 million, an increase of 4.8% from 2024. Other international net sales, which consists of Europe and Australia, were $66.9 million, up 3% from last year. Excluding the impact of foreign currency translation, North American net sales increased 4.6%, and other international net sales decreased 7.1% year-over-year. Comparable sales for North America were up 5.5%, marking the eighth consecutive quarter of comparable sales growth in this region. Other international comparable sales declined 7.5% in the fourth quarter. From a category perspective, men's was our largest positive comping category, followed by women's, accessories, and hard goods. Footwear was our only negative comping category. The consolidated increase in comparable sales is driven by an increase in dollars per transaction, partially offset by a decrease in transactions. Dollars per transaction were up for the quarter, driven by an increase in average year retail and an increase in units per transaction. Fourth quarter gross profit was $111.4 million, compared to $101 million in the fourth quarter of last year. Gross margin was 38.2% of sales for the quarter compared with 36.2% in the fourth quarter of 2024. The 200 basis point increase in gross margin was primarily driven by 180 basis points of improvement in product margin and 50 basis points of leverage in store occupancy costs on higher sales and the closure of underperforming stores. These benefits were partially offset by 20 basis points related to increased incentive costs on improved results. FG&A expense in the fourth quarter of 2025 was $86.4 million, or 29.6% of net sales, compared with $80.9 million, or 29% of net sales in 2024. The 60 basis points improvement in FG&A expenses as a percentage of net sales was driven by 100 basis points of increased incentive costs on improved results and 20 basis points related to corporate wage costs. These cost increases were partially offset by 50 basis points of leverage in store wages related to increased sales and hours management, and 20 basis points of leverage in other store operating costs. Operating income in the fourth quarter was $25 million, or 8.6% of net sales, compared to prior year operating income of $20.1 million, or 7.2% of net sales. Net income for the fourth quarter was $19.6 million, or $1.16 per share. In the year-ago period, we reported net income of $14.8 million or 78 cents per share. Our effective tax year for the current quarter was 26.3% versus 26.1% a year ago. Looking at our full-year results, net sales for fiscal 2025 were $929.1 million, an increase of 4.5% from $889.2 million for 2024. Comparable sales for the full year were up 4.3%. Consolidated increase in comparable sales was driven by an increase in dollars per transaction, partially offset by an increase in transactions. Dollars per transaction were up for the quarter, driven by an increase in average unit retail and an increase in units per transaction. From a category perspective, for the full year, women's was our largest positive comping category, followed by men's, hard goods, and accessories. Fulwear was our only negative comping category. From a regional perspective, North American net sales were $757 million, an increase of 5.1% from 2024. Other international net sales were $172 million, up 1.7% from last year. Excluding the impact of foreign currency translation, North American net sales increased 5.2%, and other international net sales decreased 4.2% compared to 2024. Comparable sales for North America were up 6.7%, And comparable sales for international were down 5.4% for the full year. 2025 gross margin was 35.8% of sales, compared to 34.1% in 2024. The 170 basis point increase was primarily driven by 90 basis points of product, of the improvement of the product margin, and 70 basis points of leverage and store occupancy costs on higher sales and the closure of underperforming stores. FD&A expense is $315.5 million, or 34% of net sales for fiscal 2025, compared with $301.1 million, or 33.9% of net sales in 2024. The 10 basis point increase of the percentage of net sales is driven by 50 basis points of increased incentive costs and improved results, and 40 basis points related to wage and hour of litigation settlements in California. These benefits were partially offset by 50 basis points of leverage in non-wage store operating costs. and 30 basis points of leverage in store wages on increased sales and hours management. Fiscal 2025 operating income was $17 million or 1.8% net sales compared to operating income of $2 million or 0.2% net sales in the prior year. Net income in fiscal 2025 was $13.4 million or 78 cents per share compared to a net loss of $1.7 million or 9 cents per share in the prior year. fiscal 2025 was negatively impacted by approximately 15 cents per diluted share related to a wage and hour litigation settlement in California. During the balance sheet, the business ended the year in a strong financial position. We had cash and current marketable securities of $160.6 million as of January 31st, 2026, up from $147.6 million as of February 1st, 2025. The increase in cash in current marketable securities over the last year was primarily driven by cash flow from operations of $53.5 million, a $2.9 million benefit from foreign currency fluctuation, and a relief of $2.7 million in restricted cash, partially offset by common stock repurchases of $38.3 million and capitalist expenditures of $11.1 million. As of January 31st, 2026, we have no debt on the balance sheet and continue to maintain our full unused credit facility. The company repurchased 2.7 million shares in fiscal 2025 at an average cost of $14.18 per share and a total cost of $38.3 million. On March 11, 2026, the Board of Directors approved the repurchase of up to an aggregate of $40 million of common stock. The repurchase program is expected to continue through January 29, 2028 unless the time period is extended or shortened by the Board of Directors. This repurchase program supersedes the prior authorized approval Approved on board of directors on June 4, 2025. It was set to expire on June 30, 2026. We ended the year with $147 million in inventory compared to $146.6 million last year. Growth of 0.2% year-over-year. On a constant currency basis, our inventory levels were down 3.8% from last year. We feel good about our current inventory position. Now, our first quarter of the day's results. Total sales for the four-week fiscal period into February 28, 2026 increased 9.8% compared to the four-week fiscal period into March 1, 2025. Comparable sales over the same period increased 7.5%. From a regional perspective, North American net sales for the four-week period into February 28, 2026 increased 5.6% over the four-week period into March 1, 2025, while our other international business increased 27.6%. Excluding the impact of foreign currency translation, North American net sales increased 5.3%, and other international net sales increased 12%, compared with 2025. Comparable sales for our North America business increased 6% for the four-week period ended February 28, 2026, compared to the same weeks in the prior year, while comparable sales in our other international business increased 13.2%. From a category perspective, Quarter to date, hard goods is our largest positive comping category, followed by men's, women's, and accessories. Footwear was our only negative comping category. The consolidated increase in comparable sales was driven by an increase in dollars per transaction, partially offset by a decrease in transactions. Dollars per transaction were up for the quarter, driven by an increase in average unit retail and an increase in units per transaction. With respect to our outlook for the first quarter of fiscal 2026, I want to remind everyone that formally our guidance involves some inherent uncertainty and complexity in estimating sales, product margin, and earnings growth, given the variety of internal and external factors that impact our performance. Our comparable sales results in early fiscal 2026 have maintained positive momentum, and we are cautiously optimistic that we'll continue to deliver top and bottom line improvements in the first quarter, assuming no significant economic impact on the business from the current global complex or tariff changes. For the first quarter, we are anticipating total sales to be between $189 million and $193 million for the 13 weeks ending May 2, 2026, representing growth of 3% to 5%. Comparable sales for the same time period are expected to be between 2% and 4%. Consolidated operating loss for the first quarter is expected to be between negative $15.6 million and negative $17.8 million compared to a loss of $19.9 million in the prior year. Included in this reduction of our operating loss is continued product margin expansion in North America and Europe, as well as the benefit related to a 2.9 million one-time wage and hour litigation settlement incurred in the first quarter of 2025. This is an improvement of between 140 to 270 basis points in the percentage sales. We expect this improvement to be driven by 130 to 200 basis points of gross margin expansion and 10 to 70 basis points of SG&A leverage. Before providing our first quarter APS guidance, I'd like to point out that our loss per share comparison in the prior year is negatively impacted by favorable foreign exchange valuation and interest income items in the first quarter of 2025 that did not repeat in the first quarter of 2026. Also, due to share buybacks in fiscal 2025, we have reduced our basic shares outstanding by approximately 10%, negatively impacting our loss per share guidance by an additional 7 cents per share. With that, we anticipate that our loss per share will be between negative 77 cents and negative 87 cents compared to a loss of negative 79 cents in the prior year. As we consider the outlook for the full fiscal year of 2026, with seven consecutive quarters of positive comparable sales behind us and momentum into the new year, we are confident in our strategy and execution. However, caution is warranted given the ongoing volatility in the macro environment. We will refrain from giving specific annual guidance, but will provide some context around how we see the business trending throughout the year. Top line strength continues in North America, and we have lapped the promotional period in our European business last year, then along with a difficult snow season contributed to the fourth quarter sales decline in the region. Both North America and Europe are trending positive in the first quarter today. With relative stability in the macro environment, we believe we can grow total sales in the low single digit for the year, inclusive of the negative impact of closed stores worth approximately $12 million in sales. From a product margin perspective, 2025 was at a high point, excluding the stimulus driven 2021 results. We believe that we will continue to grow product margin year over year in 2026 through steady improvements in North America and continued pricing discipline in our international entity. We believe that our private label business will continue to grow helping drive the overall results, including potential tariff benefits should the current situation hold throughout the year. In addition to product margin growth, we believe further leverage exists in our occupancy costs and other components that will drive gross margin expansion. With sales growth discussed, we would anticipate leverage of our SG&A costs, further contributing to operating margin expansion. With the previously mentioned assumptions, we anticipate operating margin growth in the 50 to 100 basis point range in fiscal 2026. While effective tax rates will fluctuate by quarter, we anticipate that our full-year effective tax rate will be roughly 35 to 40% in fiscal 26, compared to an effective tax rate of 44.4% in 2025. We are planning to open five new stores in 2026, all within the U.S. This compares to six total stores open in 2025 and seven stores in 2024. We plan to close approximately 25 stores during fiscal 2026, including 20 in North America and five internationally. And we'll close 17 stores during fiscal 2025. We expect our capital expenditures for 2026 to be between $14 million and $16 million, compared to $11.1 million in fiscal 2025 and $15 million in 2024. We expect the depreciation and amortization, including non-cash lease expense, will be approximately $18.9 million. down from $21.3 million in 2025. We are currently projecting our diluted share count for the full year to be approximately 17.1 million shares. This share count does not include an impact of any future share repurchases, including those under the repurchase agreement announced today. Now, with that, operator, would you like to open the call for questions?