Zumiez Inc (ZUMZ) 2007 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Zumiez third quarter 2007 earnings conference call. My name is Jahaida and I will be your operator for today.

At this time, all participants are in listen-only mode and we will conduct a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded.

And now, I would like to introduce Mr. David Griffith. Please proceed.

Thank you. Good afternoon.

Today's conference call includes comments concerning Zumiez, Inc.'s business outlook and contains forward-looking statements. These particular forward-looking statements and all other statements that made be made on this call that are not based on historical facts are subject to risks and uncertainties and actual results may differ materially.

Additional information concerning a number of factors that could cause actual results to differ materially than the information that will be discussed is available in Zumiez' filings with the SEC.

At this time, I'd like to turn the call over to Rick Brooks, Zumiez President and CEO.

Thank you, David. Good afternoon and thanks for joining us to discuss the Zumiez third quarter fiscal 2007 results.

Joining me today is Trevor Lang, our Chief Financial Officer. Following my opening remarks, Trevor will review our financial and operating highlights then I'll provide closing comments before we turn the call over to the operator to conduct the question-and-answer portion of the call.

The third quarter was another solid quarter for Zumiez. We posted strong comp store sales increases and our net income increased 19% from a year ago.

We opened 17 stores during the quarter and ended the quarter with 283 stores. Subsequent to quarter end we opened our last two stores in this fiscal year, bringing the total new stores in fiscal 2007 to 50, in line with our stated goals. As always, I want to recognize the contributions of everyone on our team from the store level to the home office and our vendor partners as well.

As for the results, net sales increased 26.5% in the third quarter with comparable store sales up 13.2%. Reported good comps throughout the quarter with monthly comps up 17.4%, 13.9% and 5.1% for August through October respectively.

October comps were softer than prior months due to a slow start for winter related merchandise. Had these categories been flat in October our comp would have been close to 10%.

Net income in Q3 increased 19% to $8.1 million, up from $6.8 million in Q3 last year, while diluted earnings per share came in at $0.28 in the third quarter, up from $0.24 in the prior year quarter.

As Trevor will cover in greater detail, we recorded several expense items in the third quarter that negatively impacted our bottom line growth. Some of these expenses were simply due to timing, however, we also made certain investments in our distribution center, store management and home office.

We believe that these investments are necessary to support our future growth. Our current projections show improved leverage in the fourth quarter and we continue to believe we will see improved operating margins into fiscal 2008.

I know many of you are interested in how our November sales are progressing. As you know, we don't typically comment on comp trends during the interim period but given the later reporting date, and that we're past the important Thanksgiving holiday weekend, I'm pleased to report that our November month-to-date comps through yesterday are in line with our earnings guidance.

We are particularly encouraged by our comp performance over the Thanksgiving holiday weekend which was up in the mid-teens. We report our full month of November comps next Wednesday.

With that, I'd like to turn it over to Trevor to discuss the financial results in greater detail. Trevor?

Thanks, Rick.

As Rick mentioned, we had a solid quarter of both sales and earnings growth. For the third quarter net sales totaled $104 million, an increase of 26.5% compared to $82.3 million in last year's third quarter. The increase in net sales reflected the opening of 50 net new stores since the third quarter of 2006, and a comparable store sales increase of 13.2%.

Our sales growth again benefited from the number of sales transactions and an increase in average unit retail. As a reminder, the calendar shift negatively impacted the third quarter sales comparison by about $2 million due to losing a key back-to-school week in early August and adding a lower volume week in early November.

Gross profit for the third quarter increased to $8.3 million to $38.6 million, or 37.1% of net sales compared to gross profit of $30.3 million, or 36.8% of net sales in the third quarter of last year. The improvement in gross profit margin was driven primarily by better product margins, offset somewhat by an increase in shrink and distribution expenses.

Moving to expenses, in total, SG&A expenses increased $6.5 million to $25.9 million compared to $19.3 million and increased as a percentage of net sales to 24.9% from 23.5% of net sales in the third quarter last year. The primary driver of this percentage increase was driven by a shift in the timing of our home office bonus accrual. The timing of this bonus accrual was worth about 100 basis points to operating margin, or $0.02 per diluted share.

Operating income was $12.7 million, or 12.2% of net sales compared to $10.9 million, or 13.3% of net sales in last year's third quarter. Net income for the third quarter was $8.1 million, or $0.28 per diluted share compared to $6.8 million, or $0.24 per diluted share in last year's third quarter.

Our effective tax rate for the quarter was 38%. Going forward we continue to anticipate a tax rate of approximately 38%.

Now turning to key balance sheet highlights, at November 3, 2007, cash and marketable securities increased to $37.6 million from $19.9 million at the end of October 2006, an increase of almost 90%.

Inventory was on plan and current at $67.8 million versus $56.7 million at the end of October last year. Average inventory during the quarter on a comp store basis increased about 2% from the same time last year while driving a 13.2% comp store sales gain in the quarter. We remain comfortable with our inventory position.

Also at November 3, 2007, the Company had no long-term debt including no outstanding balances on its revolving credit facility.

Turning to the first nine months of 2007 financial results, for the nine months ended November 3, 2007, the Company reported net sales of $254.8 million, an increase of 37.1% over the $185.8 million in sales in the first nine months of 2006. Keep in mind that the Fast Forward acquisition did not anniversary until late June of this year, aiding the comparison.

Comp store sales for the first nine months of 2007 increased 12.2% on top of the 13.6% increase in the first nine months of 2006.

Gross profit increased 37.9% to $88.7 million, or 34.8% of net sales from $64.3 million, or 34.6% of net sales in the first nine months of fiscal 2006. Again, this increase was driven primarily by improved product margins.

Operating income totaled $19.6 million compared to $14.4 million in the first nine months of fiscal 2006, an increase of 36%. Year-to-date operating margins were flat at 7.7% and net income improved to $12.9 million, or $0.44 per diluted share from $9.6 million, or $0.33 per diluted share in the first nine months of fiscal 2006. This represents a 33% increase in diluted earnings per share over fiscal 2006.

Now, let me outline our guidance for the remainder of this year. We currently expect our full-year fiscal 2007 sales to be in the range of $384 million to $388 million. This assumes an upper single-digit comp increase for the fourth quarter.

Remember, last year's fourth quarter included an extra week of sales due to the addition of the 53rd week in January. The loss of this additional week of sales is worth about $6 million to the fourth quarter of 2007.

We are reiterating our full-year fiscal 2007 diluted earnings per share guidance of $0.92 to $0.94. Weighted average diluted shares for fiscal 2007 are expected to be approximately 29,400,000.

As Rick mentioned, we have now opened all 50 stores planned in this fiscal year, expanding the Zumiez specific square footage slightly above our target of 20% square footage growth.

I know many of you are interested in our 2000 expectations. We are in the process of finishing up our 2008 budget and will review our final plan with our Board early next year after we complete the critical fourth quarter of this year. We will update you with more specifics regarding 2008 on our next earnings call in March.

That being said, we are focused on our square footage growth growing by 20% next year. We expect the addition of our stores in 2008, along with a mid single-digit comp increase should lead to total sales growth in the low 20% range with earnings growth of at least 25%.

And now, I'd like to turn the call back over to Rick.

All right. Thank you, Trevor.

Our results for the third quarter were solid and as we look into the future, our competitive strengths remain a great culture, a sales driven staff, brand and category diversity, and great training programs. All of these supporting our growth to 800 stores.

And now, I'd like to turn the call back over to the operator for questions and answers.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Jeff Klinefelter with Piper Jaffray. Please proceed.

Hi, guys. Just a couple questions for you.

First of all, Rick, could you just clarify your comment on November comps? You said November month-to-date is tracking what in line with your Q4 guidance for comps?

That's correct.

Okay. But Black Friday, that in particular that weekend had been up in the mid-teens.

That's correct, yes.

And assuming that part of the recovery, the strength sequentially from October has been an improvement in the seasonal sell-throughs. I know you don't want to get into categories, but I there was a particularly challenging comparison in your seasonal business toward the end of October. That I assume has improved to more of a normal trend. No.

No? Not correct. We were driven -- what's driving our comp gain this, or in November, Jeff, is a gain in transactions and we're still struggling with the winter categories through the month and if you -- give you a scale for it, Jeff, it's roughly, continues to be about, if you take those winter categories out, it tends to be about a 5% impact to comp through the period to date November.

Okay.

I mean, outside of, obviously, weather in some markets, it has been cooler, or it has been warmer than average but it has cooled down across other parts of the country. Is there anything you're attributing it to outside of just weather patterns?

No, from our perspective the patterns follow, as you look at our results across the country, the toughness in the winter categories follows warmer weather.

Okay.

Second question would be on your outlook for '08, but more importantly, kind of what that would say then as we kind of drill down some of the new store performance and other components of that guidance and at least 25% bottom line guidance, obviously, very healthy. Is that -- that's a slight change from your prior guidance of 30% and so just kind of curious as we dig into that, is that looking just at more conservative overall macro outlook or is that looking at a different performance in some of the new stores or how should we look at that change in guidance?

I'll let Trevor address the new store performance in a moment, Jeff.

There's no doubt, I mean, we're looking at the macroenvironment and we have some general concerns about the overall macro economic situation. But I also want to comment on that relative to an operating margin perspective, I guess, and, you know, as you know, we've been really successful over the last few years in significantly improving and expanding the operating margin.

And at this time, so I'm clear about this, Jeff, at this time we're sticking with our objectives of getting our operating margin into the low teens, and that's as we continue to grow square footage over the 20% per year over the next few years. So I think it's a reflection of the macroeconomic environment and it's a reflection of the fact that we've been very successful growing the operating margin and as we look at what we think is realistic for our business model as a total operating margin in the low teens.

With that, I'll let Trevor address your question regarding new stores.

Yes. Jeff, over a pretty long period of time we've gone back and looked at how our new stores perform in their first year of performance and it's been relatively consistent in that they do 70% volume of the mature stores and then they obviously comp up pretty nicely for the next three years until they get to be in the mature store base. So we don't currently expect that to be materially different.

As we looked at our real estate plan next year, we've communicated that we still see the 20% growth in that square footage. That's going to get you to just over 55 stores and we're going to follow the same real estate strategy that's been successful for the Company for a long period of time, meaning we're going to do a few new green areas.

We'll probably enter two new states next year. We will do a mixture of A, B and C models and within that, we will do a mixture of fill-in markets and new green areas.

Okay. Great.

And then just one last question on product private label. I know there was an increase this year, Rick, at least slight increase midway through the year in your private label penetration. How are you looking at that now for the balance of the year and kind of as your initial plan going into '08?

We look at that periodically, Jeff, and again, I like to think about this on a full-year basis. I think that's because of the seasonality of the business, I think it's the right way to look at it. And so we are expecting that private label penetration, if you remember last year it was, I believe, 14.3% of sales, we're anticipating that it's going to be flat.

Okay.

For the full-year this year.

Okay. Great. Thanks. Good luck with the fourth quarter.

Thanks very much, Jeff.

Your next question comes from the line of Sharon Zackfia with William Blair. Please proceed.

Hi. Good afternoon.

I just wanted to follow-up on the outerwear question. I guess, can you give us some perspective on what percent of the mix that tends to make up as we get into these colder months and do you have some cushion in your guidance in case you do have to take markdowns if it never gets cold anywhere?

I'll take the first one and let Rick take the second one. This is Trevor.

The cold business in the fourth quarter really starting in October represents about 20% of our business and we sort of define that as both the hard goods and the soft goods. And it's sort of split even and even meaning 10% is the hard goods, meaning snowboards, boots, bindings, things like that and then the soft goods including the snow pants and the snow jackets represents about the other 10% of the business.

As to the markdowns, we have anticipated some, Sharon, as we look forward and I guess I'll approach this from two angles. First off, let's talk about our inventory position today in those products because that's, obviously, at the central point of your question.

Our buyers have done a terrific job over the last, almost two months now, of continually repositioning, working with our branded partners and repositioning our inventory position related to these winter categories. And from that perspective, as we look at planning the rest of this season, we think that we're pretty well positioned from an inventory perspective.

So now, that being said, that means that if winter just doesn't happen well then we're going to have a problem at this point that we would need to take a look at. But at this point in time, we're feeling pretty good about how we're positioned from an inventory perspective and our buyers are doing a really great job of repositioning our inventory and cancelling off orders on the back end.

Can you remind us what time of year do you like to be fully out of your outerwear? Is it February that you want to be completely out? I'm just wondering kind of when the panic button is pushed.

You know, there's a standard markdown cycle to it, Sharon, that we go through with the business. We obviously are in liquidation mode end of February time period and trying to move out a lot of the product. That condenses down to fewer and fewer stores and there'll be some stores that will even carry the product into March.

Okay. Well, it got really cold here in Chicago so that should help.

Keep it up, Sharon.

And then secondarily, I guess there's been a lot of talk throughout the space about kind of juniors being weaker and I was just wondering if you could comment on your juniors business and how it's been tracking?

I mean we've been pleased with performance of our juniors business. Again, remember that the mix of it is that that 16, 17% of our business on a juniors apparel basis, but we have been comping up in our juniors business.

All right. Great. Thanks.

Thank you.

Your next question comes from the line of Brad Stephens with Morgan Keegan. Please proceed.

Hey, good afternoon, guys.

On your square footage for next year, can you discuss the new states you're going into? And then if you're going to grow square footage 20% next year, I think you, Rick, you said a few times that you're seeing occupancy costs go up. How should we think about our occupancy expense next year?

Okay.

Couple things, I guess, is, I would assume our average square footage as you're doing your modeling out there, Brad, just over 2900 square feet for the new stores, that was the average this year. We see no material increases. We ended this quarter, for those of you who want it, at 822,000 square feet and we would expect that to be close to probably 828,000 square feet as we come into the next year.

Looking at next year, we currently are looking at Virginia and Massachusetts to enter new states. Again, we wouldn't go there in a very heavy way, but we would have a few new stores in those areas. And then the remaining of the stores would be in California, Florida, Texas, just where the over 27 states that we currently reside in is where we would put the rest of those stores.

And for occupancy expense in comparison to the 20% square footage growth?

So, our occupancy cost, obviously, gets a lot of questions. All of our occupancy costs for the class of '06 and beyond continue to get leveraged.

Where we have seen cost increasing because you have a much higher rent structure on a store that's doing 70% the volume of a mature store, that's where we obviously we give back some of that. And so I think we currently don't anticipate that the real estate market is going to materially soften in '08.

So I think we will continue to see the class of '07 stores, as we go into '08, will start to get leverage because, again, based on history, they comp up very nicely next year but the rent expense doesn't really change, but the class of '08 stores will then come back and mitigate some of that. So we would not assume to get any material improvement in rent leverage because of the fact we're going to continue to grow our square footage 20% a year.

Okay.

As you open in these warmer weather markets, or those markets that probably don't have the large winter hard goods and associated soft good gear, is there a different seasonality we should think about to be aware of just within the flow of those volumes throughout the year on a sales basis?

You know, there isn't -- I wouldn't say there's a different seasonality, Brad, there's a different product mix. Obviously, holiday is still holiday, whether you're in a warm weather market or a cold weather market but we just sell different things.

I guess a way of illustrating that is the strength of our Texas business and the Fast Forward stores, or former Fast Forward stores are performing as we expected them to coming into this first full-year with our, as I think we've talked about, with our full product selection now in place and with getting our training program started down there and (inaudible). So we're seeing the kind of good results we expected to see from those stores. We're just selling a different mix of product.

Okay.

So if you're going to say that earnings growth was 25% next year, would that be -- would there be lumpiness in that? It seems like the third quarters, then, over the last two years have been substantially below the first, second and fourth quarter from an earnings growth perspective.

Brad, I don't think we're ready to give that level of detail at this point. We'll have to follow-up with you on March after we've had a chance to finish this quarter and go over our Board with it.

Great, guys. Good luck.

Thanks, Brad.

Your next question comes from the line of Jody Love with CIBC World Markets. Please proceed.

Hi. Thanks. Good afternoon. It's Jody Love for Roxanne Meyer.

Rick, I know you don't like to give away any big details but we're hoping with regards to merchandising that perhaps you can give us some additional detail on the new juniors private label that you introduced for back-to-school, perhaps how it performed, what some of the strongest categories were and what are some of the opportunities you have going forward for either holiday or spring in relation to that business?

And then, Trevor, you mentioned on the gross margins that are product margins and just hoping you can give a little bit more detail about what was better in the quarter, whether it was IMU or better volume purchases, or perhaps some other efficiencies that you're seeing? Thank you very much.

All right. Thank you, Jody.

On the women's private label business, again, as I think people are referring to, we introduced, or Jody's referring to, we introduced a new women's private label brand at back-to-school and so I'm absolutely clear about this, it was not significant in volume just because we were -- the first time we're doing it, it's relatively small quantities, so not significant in terms of the dollar impact at all.

But as you would guess, Jody, we learned some things that worked well and some things that didn't and so what we're doing now is we readjusted to what we experienced in the back-to-school time period and we've made those adjustments and are continuing to roll that brand out here into the holiday season. So again, but the quantities are still very small and aren't going to move the sales dial either way at this point.

And then specifically about the product margins, we are having great success on the product margin side of our business in both branded product margins as well as private label margins. As you'll remember, Rick just mentioned that private label's about 14% of our business.

We're doing slightly better in the private label side of our business as we've become more mature and we've hired some strong talent in that side of our organization. We have seen a higher improvement in our private label margins than we have seen in the branded, but to be clear, both of them are up.

Okay. Great. Thanks so much and good luck.

Thanks, Jody.

Your next question comes from the line of Mitch Kummetz with Robert Baird. Please proceed.

Yes, thanks.

Just want to drill down a little bit more on the snow business for both October and then November month-to-date. Rick, you made the point that it's taken about 5 points out of your comp for both periods. Did I hear you correctly there?

That's correct, Mitch. And just so I'm clear about that, that's just getting it flat to last year in sales, that's not assuming any comp gains.

Okay. Right. But you've had -- the comparison, the snow comp to last year was easier in November than October. Is that correct?

Slightly, yes.

Okay. So not materially so?

That's correct.

Okay. Does it get any easier in December or over the balance of the season that you'd be selling snow?

It does, Mitch, in December. I think a lot of people remember last year wasn't a great winter either. It does ease up a bit.

But as you're familiar with this business, this is one of those businesses that if it just doesn't happen, it just doesn't happen. The longer that goes on into the season, I think the more risk you take and that's the reason we've been very aggressive in managing our inventory position, our on order position.

And that kind of leads into my next question. What has your experience been in the past? I mean, you've obviously been doing this a long time. When we've had a slow start to the snow season up through essentially November, how much pent-up demand is out there in the marketplace and then if the weather all of a sudden turns and we get colder weather and we get snow in the mountains, I mean, how much of a positive impact does that end up having on the snow business over the balance of the year? I mean, assuming that that would play out that way?

I mean, how much of that can you still capture and at what point does it really become too late and then it's just a matter of trying to move through to the inventory, really, kind of working it through on price?

Yes, it's a hard question to answer, Mitch, because, of course, as you're describing in your question, the way you described it is absolutely correct which is that the later it goes, I think the less pent-up demand you capture. There's no doubt when you get snow, you get a bit of a pop in business, but it's less and less at the later and later the season happens because people just choose not to make the investment in new gear if the season's going to be really short.

Now, the other thing that makes it hard for me to answer is that, obviously, the macroenvironment I think at this point also affects that question as to how big of an increase might you get if, when the snow hits. So it makes it a bit tougher and I think that is the general macroeconomic environment is probably going to mitigate some of that.

Hey, Mitch, this is Trevor.

The other thing that's interesting that we've been watching and Rick's seen this cycle happen before is, when the traffic comes to the malls, we're getting a good piece of that business and so what we're seeing a bit of is over the Thanksgiving holiday, as well as other holidays throughout the year, when the consumer has time to go shop, we're doing really well. And that's evidenced by Rick's comments on how our comps did over the Thanksgiving period of time relative to our comps month-to-date for November.

So we're feeling pretty good about the last few weeks of the year as we get into Christmas, assuming that consumer comes which currently there are no major indications that they won't come meaning if you looked at the Thanksgiving week, they performed well. So our comps have been driven by traffic most of the back half of the year.

And so to the extent the consumer comes and he's interested in getting some of this stuff, we're feeling pretty well positioned and then think that's when we could have some great snow business when they do come at the later part of this month.

Is that what you saw over the Thanksgiving period is that with the comp there, where I think you said it was mid-teens, did that inflate all of your business or was it more focused on the non-snow versus the snow or did it just kind of raise all of it?

It did raise all of it, Mitch, but it -- the non-snow was not raised as much.

Okay.

Excuse me, the snow was not raised as much.

Okay. Right. Okay.

And then lastly, you know, when you look at the -- when you look at how this year has played out, I think at the beginning of the year your guidance was, I think, $0.94 to $0.96 based on a mid single-digit comp and, obviously, three quarters in you've done a lot better than that and based on the fourth quarter guidance you're on pace to do something low double digits for the year and yet the overall guidance for the year is now coming in a little bit below what it was initially.

When you look back, you know, what, and I don't want to say what went wrong, but what changed to where you didn't get to the earnings even though your comp ended up coming in better than what you were initially looking at?

You know, we -- there are a number of things with it, Mitch, I guess I'd start off with, the first is our concern about the general macroeconomic environment that we're facing here in the fourth quarter. I mean, I think it's appropriate, I think everyone is feeling the same things.

We're seeing the kind of trend as we go into this fourth quarter that does get you some concern relative to weaker weekday business, bigger weekend business, the amount of time we have between Thanksgiving and Christmas this year is the largest it can get. So I think that tends to make you get the pop at Thanksgiving and then have you a couple of pretty, it tends to be these interim weeks tend to be relatively slow. And then we really have the great pressure on those eight to ten days in advance of Christmas and the five days post-Christmas.

And then you combine that with the winter business and I think some of what you're discussing and from our perspective is reflected in our take on this fourth quarter. And then there were some timing issues and some stock option compensation expense results that Trevor addressed those in terms of their impact.

But the volatility of the stock option expenses, increasing that volatility rate had a significant impact on the actual expenses we've incurred relative to stock options. So, Trevor, I don't know if you want to add anything to that.

No, I think you hit the big ones, Rick. O mean there are probably three main line items that inhibited the Company from hitting the goals and potentially exceeding them and I think we've spoken briefly about these. The shrink number was slightly higher than our expectations and we're sort of seeing -- because we have a lot of these hot brands that you can't get anywhere else, we're seeing a little bit higher shrink than the Company has historically had.

By far the biggest one that Rick mentioned is the stock-based compensation. That expense alone was some portion of $0.07 a share higher in earnings per share and then those, I think, are really probably the biggest ones that are worth mentioning that were probably higher than the Company estimated when it was doing its year-end budget last year.

Okay. That's helpful. Good luck, guys.

Thank you, Mitch.

Your next question comes from the line of Crystal Kallick with D.A. Davidson. Please proceed.

Good afternoon, everyone, and congratulations on managing in a tricky environment.

Trevor, could you talk a little bit about where you're looking at, obviously, you guys are working pretty diligently on managing inventory levels. Should we look for a similar rate of increase as far as end of Q4 versus what you did in Q3?

Just to be clear, inventories at the end of the quarter were down 1.4% on a per store basis. So they were slightly down and they also obviously drove a 13.2% comp so tremendous effort by the team there. But as we look into the end of the year we probably would see a slight increase sort of mid single-digit range in average store inventories.

Okay. Average store, but not necessarily per store?

Yes, I'm saying on a per store basis we'd see average inventories increased at the end of the year versus having a slight decrease at the end of the third quarter.

Okay. Okay. Great.

And I know the snow category questions continue to mount and it's pretty challenging. So it sounds like from your prior conversations and prior experience, as far as realistically looking at a demand shift from Q4 into Q1 from what you said previously, then, the later we get that's probably not a realistic expectation that if winter hits right at Christmas that you could see a pretty sizable demand shift into Q1. It sounds like typically in the past that's really not the case with your snow category business.

Again, it's a complicated question, Crystal, in the sense that you also have to factor in how late the snow season goes. If the snow season continues to be great into March well then you can find that you see some carryover into the business and have a really strong season into February and into March.

You can find you have some carryover but we don't think about it from planning that way, that's more reacting as we get into that quarter to determine what the plan of action's going to be.

Right. Okay.

Now, at the start, I think at the start of the questions, you commented basically the disappointing sales have been where there's been the warmer weather. So it does sound like with snow slowly surfacing in a couple of areas you're sealing some improvement in the trend in some areas?

That's correct.

Okay. Okay.

And then just any opportunity or when you get into a season like this where, certainly, everybody's in the same boat as far as the snow categories, does it give you opportunities for next year as far as special buys? Do you ever really look at that or extra negotiating opportunity with your vendors or is that something you just try to clear out and reassess at the start of next year?

We obviously want to keep our inventories as clean as we can. I mean that's our first internal mission.

Second off, we believe in being good partners with our brands and if that means that there are opportunities for us to do special buys that are beneficial for them and for us we would certainly take a look at that.

So again, it kind of depends upon the situation. It depends on what the brand wants to do and what they feel is appropriate for themselves and whether or not there's an opportunity that would work for both of us.

Great. Thanks very much and good luck in the holiday.

Thank you, Crystal.

Your next question comes from the line of Betty Chen with Wedbush Morgan Securities. Please proceed.

Thank you. Good afternoon, everyone.

You've alluded repeatedly to being conservative in the macroenvironment which is obviously very prudent. I was wondering if you can speak to any variances in store performances between your A, B and C malls?

And then secondly, I think, if I recall correctly, your e-commerce sales as a percentage of your total is pretty small. Was wondering any initiatives on that front in terms of maximizing sales growth in that channel given I would imagine your target customer is online quite a bit. Thank you.

All right. Thank you, Betty.

I'll start with the Web channel piece of it. Our Web business is growing substantially faster than our overall top line this year so we're pleased with that. We think on a longer-term basis that there's a great opportunity for us there, so, but we're going to approach it very carefully.

We're going to plan it carefully and execute it carefully and so don't -- I wouldn't anticipate any great movements in what we're doing there. But we're going to execute on a structured and a planned basis to see how we can build our Web business.

As relates to the stores, I don't think any -- I don't look at it as an A, B and C. I don't think that's really the way we're seeing differences in terms of performance at this point. It tends to be more geographic, Betty, in terms of looks of how performance is going.

Geographic in two senses. First, is the weather impact where, again, where it's been warmer and there's no snow, we see that impact. And then secondly, I think the macroeconomic conditions and I think we're experiencing what everyone is experiencing, the sense that California, Arizona, Florida are become tougher markets for us.

Betty, this is Trevor.

One thing I think it is important to mention that the Company should be very proud of in that, if you look at the 12.2% comp that the Company has delivered for the first nine months of the year as well as the over 13% comp for the quarter, all of our districts posted positive comps. Obviously some are higher, some are lower.

Now, I'm not going to say that trend is going to continue every month and every individual month it may not. But for the year and for the quarter, we've got positive comps in all of those districts.

Okay. That's very helpful.

And then sorry to talk about the Thanksgiving weekend again, but sounds like business definitely picked up nicely for you and was wondering if there was any change in your promotional cadence and (inaudible) any incremental events for the week versus last year.

And then in regard to the inventory being up mid single-digit at the end of Q4, was that as planned? Is there a change in spring receipt or merchandise flow? Any clarification would be helpful. Thanks.

All right. I'll take promotional cadence, Betty, and let Trevor talk about the inventory position.

No material difference in the promotional cadence. We did on the Thanksgiving weekend take some regional point of sale kind of markdowns in some regions relative to some of the winter product but that was it. But even that is not a significant overall effect.

I'll let Trevor handle inventory.

At the second quarter call that we had back in August, I had mentioned then that we would probably have a slight increase in average store inventory, both in the third quarter and the fourth quarter. Obviously, we had a slight decrease in the third quarter and that was driven by having tremendous sales growth. So I'd say, no, that's not a change.

We've guided both at the end of the second quarter as well as now at the end of the third quarter that we'd have this slight increase in average store inventory.

Thank you and good luck.

Thank you.

Your next question comes from the line of Christian [Buss] with Thomas Weisel. Please proceed.

Yes, hi. I was wondering if you guys could provide a little bit of color on how the calendar shift impacts net sales in November, December and January?

I will do that for you. It works, it jumps all over the place. For the quarter the way you want to think about it is $6 million negative because you're obviously going from 13 weeks, sorry, going from 14 weeks down to 13 weeks.

As you get into how it works out each of the individual months, it is a benefit to November, you give that back in December and then there's a slight detriment in the month of January. So when you hear our sales calls, we have started because of this confusion of the 53rd week, we started giving not only the comp store sales growth, we give the total sales growth on both a fiscal basis, which is when it shifted a week, so I know that can be confusing to people, but we've also started disclosing what the total sales were for the same number of weeks that the comp store sales were.

So when you listen to the sales calls, you'll be able to say, okay, if the comps were up, let's say, some great number like 10%, we will also disclose what the total sales were up for that same four or five-week period of time.

All right. Thanks a lot. Congrats on a nice quarter.

Thank you.

Your next question comes as a follow-up from the line of Sharon Zackfia with William Blair. Please proceed.

Hi. You already answered it. Thanks.

The next question comes from the line of John Morris with Wachovia. Please proceed.

Hey, guys. Congratulations on a great quarter. I don't think this one was asked, but if it was, I apologize.

In terms of the fourth quarter SG&A philosophically, would we have any of the kind, same kind of or any kind of one-time items to consider the way that we did in the third quarter that we should be thinking about or is it more of a normalized approach to how we should be thinking about SG&A in Q4?

The answer is there is a one-time but it's a good guy this time meaning the timing of the bonus accrual that negatively impacted the third quarter, that obviously positively impacts the fourth quarter. So we are currently expecting our SG&A as a percentage of sales to decline in the fourth quarter by about 100 basis points which is not too different than what the negative impact was for the third quarter.

So as you think about the timing of this bonus expense, it is just that, timing. For the year, there's not going to be a material difference in what it is. It's just because of the way the earnings have fallen and we've accrued that as a percentage of sales, it has just had a timing effect between Q3 and Q4. But other than that, there should be no material adjustments.

Thanks, Trevor. Thanks, Rick.

Thanks, John.

Thanks, John.

At this time, we do not have any more questions in queue and I would like to turn the call back over to Mr. Brooks for closing remarks.

All right. Thank you.

Again, we just want to thank everyone for their interest in Zumiez and in your time today and we'll look forward to speaking to you again when we report our full-year results in March. Thanks, everybody.

Thank you for your participation in today's conference. This concludes the presentation and you may now disconnect. Good day.