Zumiez Inc (ZUMZ) 2008 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the first quarter fiscal 2008 Zumiez Incorporated earnings conference call. I'll be your coordinator for today. At this time, all participants are in a listen only mode. We will conduct a question and answer session at the end of this conference. (OPERATOR INSTRUCTIONS) As a reminder, this call is being are recorded for replay purposes. I'd knew like to turn the call over to Mr. Brendon Frey of ICR. Please proceed, sir.

Thank you. Today's conference call includes comments concerning Zumiez business outlook and contains forward-looking statements. These particular forward-looking statements and all other statements that may 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 and the information that will be discussed is available in Zumiez filings with the SEC. And now I'd like to turn the call over to Rick Brooks, Zumiez's President and CEO.

All right, thank you. Good afternoon and thanks for joining us to discuss the Zumiez's first quarter fiscal 2008 results. Joining me today is Trevor Lang, our Chief Financial Officer. Following my opening remarks Trevor will review our financial and operating highlights and then I'll provide closing comments before we turn the call over to the the Operator to conduct a question and answer portion of the call.

There's no secret that the environment we find ourselves operating in continues to be difficult. While we believe the teen customer has slightly more discretionary income than their parents, they're still impacted by the sluggish economy. We're obviously not happy that the comps were negative, however we are proud of our team and their efforts to maximize every sales opportunity, and as important, control our costs and inventory in such a way that allowed us to modestly exceed earnings expectations.

Our store team and Home Office continue to focus on managing discretionary spending while ensuring that we do not sacrifice customer service. I'm particularly proud of our ability to increase units per transactions and dollars per transactions which helps us offset a decline in transactions. There may be fewer customers coming through our doors relative to last year but we are doing what we can to make sure their experience is distinctly unique by giving them the best selling experience and having products and brands they're looking for. We have an experienced management team that is focused on maximizing sales while managing our expenses and inventory prudently during these difficult times. For example, we lowered our inventory per square foot by 8% at quarter end. Our teams have done a good job of keeping the inventory fresh and relevant. We will continue to manage our inventory and expenses carefully.

We remain committed to the strategies we outlined in March. First, we'll fin use to focus our energies around motivating, hiring, training and retaining great retailers. We believe the techniques and skill sets we give our salespeople, merchants and Home Office staff is second to none and will allow us to grow sales even if at more moderate levels during 2008. We believe we will continue to be a destination shopping experience for the action sports oriented consumer and will continue to focus on delivering a diverse product offering. We plan to continue to grow our store count because we believe our growth feeds our success, allows our employees opportunity and keeps the most talented employees engaged and provides them with a career path. In prior economic downturns we've been able to acquire great talent and locations and believe this may occur again during the current cycle we are operating under. In our opinion, the stronger disciplined and well financed companies like Zumiez benefit longer term in these periods of shake-out.

These strategies have paid off and with the strong culture that's delivered growth for 30 years. To that point we recently held one of our three national events where we bring all of our store managers and leadership together here in Washington State. I came away energized and confident that the talent, training, and execution is in place for us to execute our 800 store strategy. In looking out at the rest of the year, we're planning our business and operating under the assumption that the environment will remain challenging. Traffic continues to be our main issue. Therefore, we believe it's prudent to remain relatively conservative at this time so we are not changing our earnings guidance for the year. Now I'll turn the call over to Trevor to discuss financials in more detail.

Thanks, Rick and good afternoon, everyone. For the first quarter net sales totaled 78.7 million, an increase of 9.9 million, or 14.4% compared to 68.800 million, in last years first quarter. The increase in net sales reflected the opening of 52 new stores since the first quarter of last year, offset by a decline in same-store sales of 0.8 of 1 percentage point.

Our first quarter comps were in line with the guidance we gave you in March and were driven by negative transactions offset by higher average unit retail. We opened 21 stores since the end of the the year and believe we can open 57 new stores this fiscal year. As we have discussed for a few calls now our stores in California, Arizona, Florida, and Nevada continue to be particularly challenging for both new and comping stores. However, other markets such as Washington, Texas, Illinois, Wisconsin, and New Jersey performed very nicely for us this quarter. From a product perspective our best performing departments were our skate, hard goods, boys apparel and shoes. Our toughest performing departments were men's and women's apparel.

Turning to gross profit for the first quarter gross profit increased 2.9 million or 13% to 24.6 million or 31.2% of net sales compared to gross profit of 21.7 million or 31.6% of net sales in the first quarter last year. The slight decrease in gross profit margin was driven entirely by an increase in store occupancy cost as a percentage of sales. As Rick mentioned our team a good job of managing inventory and because of that we have not seen much erosion in our product margins and ended with less inventory per square foot than last year.

Moving on to expenses in total our SG&A expenses increased 3.4 million or 17% to [22.9] million or 29.1% of net sales compared to 19.5 million, or 28.4% of net sales in the first quarter last year. The slight percentage increase was driven primarily by negative leverage on store costs due to the decline in same-store sales and our desire to make sure that the customers in store experience was a good one. Operating income was 1.6 million or 2.1% of net sales compared to 2.2 million or 3.2% of net sales in last years first quarter. Net income for the first quarter was 1.4 million or $0.05 per diluted share compared to 1.6 million, or $0.06 per diluted share in last year's first quarter.

Now turning to key Balance Sheet highlights. On May 3, 2008, cash and marketable securities increased to 68.2 million from 38 million at May 5, 2007, an increase of almost 80%. Inventory was 58.7 million at May 3, 2008, versus 50.3 million at May 5, 2007. Average inventory during the quarter on a comp store basis increased about 1% from the same time last year. However inventory at the per square foot at the end of the quarter was $72 versus $78 last year down 8%. We remain comfortable with our current inventory position. Also at May 3, 2008, the Company had no long term debt including no outstanding balances on its revolving credit facility.

Now to our guidance. For fiscal 2008 we are reiterating our previous guidance of sales in the range of 430 to 445 million, again, this is based on our target of adding 20% square footage and opening 57 new stores. This also assumes a flat to low single digit comp for the year. We are also reiterating our diluted earnings per share guidance of approximately $0.90 to $0.93 for fiscal 2008. Our current expectation is that 2008 operating margins will be in the mid to low 9% range driven primarily by lower gross margin due to higher occupancy cost as a percentage of sales. For the first half we continue to expect EPS will be down based on a low single digit negative comp, while EPS in the back half of the year will increase in the mid to high teen range based on a low single digit positive comp. Weighted average diluted shares for fiscal 2008 are expected to be approximately 29.7 million, and now I'd like to turn the call back over to Rick.

Thank you, Trevor. As we look out to the back half of the year we continue to focus on being the best action sports retailer as we head into the key back-to-school and holiday seasons. We will continue to plan our sales and inventory conservatively. Our great salespeople, unique branded product offering, distinctive in store experience continues to differentiate us from the competition and provides our target consumers with compelling reasons to visit and shop at Zumiez. Over the long term, these same attributes will propel us towards our goal of 800 stores. I'd now like to open the call to your questions. Operator?

(OPERATOR INSTRUCTIONS) Our first question comes from the line of Mitch Kummetz with Robert W. Baird. Please proceed.

Yes, thanks, and congratulations on a good quarter in a tough environment. First question has to do with the guidance. I know you're maintaining it for the full year but I think Trevor as I recall, you were saying previously for the back half I think kind of high teens to low 20s earnings growth and now you're saying mid to high teens. Is that just a reflection of Q1 coming in a little bit better than expected and wanting to stay conservative on the year so you're being more conservative on the back half?

Yes, I think that's mostly right, Mitch. Nothing has really changed in our outlook for the back half of the year. We've obviously got just a tad bit more visibility than we did before but if you just do the math in respreading those earnings that has more to do with how we change the guidance than we're seeing anything materially different than what we said when we talked with you guy a couple months ago.

And where did Q1 come in a little better than expected? Was it primarily the comp? You guys came in I think negative 0.8 and I know the first half guidance was negative low single digits which that would encompass that, but were you expecting a worse comp in the first quarter and then it came in a little bit better than expected or was it more on the margins or where did you see the upside to your expectations?

I'd say in a number of categories, Mitch. Obviously when we had the call with you guys in early March we reported our February sales I believe the comp was down negative 2.6 and so we did come in slightly better than what we were trending at the time but the vast majority, the upside came in spending and even if you look at our spending again, we built a plan and we continually evaluate it with the management team here. As we're projecting the comps coming in closer to 3 we really reigned in spending. We looked at things like Home Office spending, consulting, new hires, training, travel, anything we could affect that was not going to impact the in store customer experience are the things we focused on. We also did slightly better in our shrink. We really focused on that as you remember we had a slight uptick in shrink towards the last part of the end of last year and we put in some new processes, some new tools and a renewed emphasis and so our shrink results were slightly better. And then finally as we mentioned again on both the third quarter and fourth quarter earnings call last year, our stock based incentive comp was an expensive component in the previous year and we've done things slightly different there that we think is going to help our employees to understand better and also to incent them to drive our business in the future, so it's a number of areas that we focused on that helped our spending.

Okay. And then again your negative 0.8 for the first quarter. Your outlook still assumes negative low single digits in the first half, the last two months combined I think were flat. Are you expecting a worse comp in the second quarter than the first quarter or something comparable? Negative low single digits can be a bit of a wide range. So I was just curious, do you think the trend in the last couple months could continue or do you think that just given where the environment is and maybe how your business is trending month to date that something below what the last couple months is more prudent?

I think our current expectation is that the comps we did say low single digits. I think it would be hopefully somewhere around what we did in the first quarter.

Okay, and then just two last quick questions. One, on the footwear. Footwear was a category that comped positively for you for the quarter and it had been a tough category prior to that as I recall. Do you feel like you've turned the corner there and how much of that might be the trend or kids buying shoes after delaying that purchase over the prior period and how much is factored into that and is that a category that you think is going to comp positively going forward?

Mitch, first off just to be clear for the quarter, our footwear categories actually comped slightly negative.

Okay.

For the entire quarter. The last two months I think it was slightly positive, combining March and April with the switch in Easter was slightly positive in that window but it was negative, just slightly negative for the quarter itself. Now, as we look beyond this quarter, Mitch, here is what I would tell you about our footwear business. As typical, there's multiple things going on, it's never quite easy saying it's just one thing and the first thing I'd tell you is that if you look at our walls, our wall of footwear today, I think you're going to, it reflects well the current trend cycle, particularly as it relates to our customer and what we believe our customer wants for the trend cycle. I think our team has done a really good job of interpreting what we, how we view the trend cycle into our product presentation so that's the first thing I'd tell you.

The second thing and you kind of addressed this in your question is that we definitely have some easier comparisons to prior years in the footwear category or footwear department. So that's in play too. And then lastly, I think we will get a benefit from Pac Sun dropping footwear and we should, and based on those locations we cross over with them I think we'll be one of the beneficiaries from them dropping the business.

Okay, and then one last question. Trevor you mentioned the Markets that California, Arizona, Nevada, Florida being a drag on the comp in the quarter. Could you quantify that? Could you talk about how you expect those markets to play out over the course of the year? At some point you will begin to anniversary that slowdown, I'm just kind of wondering how you're thinking about those markets as you are going forward?

Yes. Mitch, just to break those out for you so those markets which represent about 31% of our sales and 29% of our stores , they obviously comped negative. If those stores had just comped flat, our comps would have been positive 2.5% comp for the first quarter. Looking out for the rest of the year, we are assuming we certainly have read nothing that the housing issues in those markets are going to abate any time soon. Those markets performed very nicely through really the end of September, those markets were very productive for us. As you know, especially California is a big piece of our business and so we've really got no relenting coming in until we get to late September and we've been reading the same stuff you have been reading. I've not read any good news coming out of those housing markets so I would suspect that they're going to continue to be challenging for us for sure until the end of

Okay, great. Thanks and good luck.

Thanks.

Our next question comes from the line of Jim Duffy with Thomas Weisel Partners. Please proceed.

Thanks, hello, everyone.

Hi, Jim.

Trevor, a couple quick questions on the margin. On the gross margin, was part of the health there based on contribution from vendors? Were you able to go back to vendors and get any concessions and if so--?

Jim, just to be clear, well go ahead.

I said if so, could you quantify that.

Yes, so just to be clear, our margins were down 40 basis points for the quarter. The product margins were pretty similar to last year, and that is a, the vendors giving us money at the end of the season is a pretty small piece of what we do, so I would not consider that to be any material amount of money, but as you would suspect, when products don't perform and we have to take markdowns we expect that our vendors re going to step up and be there with us. So I wouldn't characterize that as a material component of our gross margin either going up or going down in the first quarter.

Okay, very good. And then what was the stock based comp number?

So for the quarter it was about $970,000 and 93% of that hits in the SG&A, the other 7% hits in the cost of goods sold.

Thanks, that's helpful. And then on SG&A, that line item came in a good bit lower than I had expected. Beyond the things that you mentioned was there anything, kind of a timing of planned investments or anything like that that got pushed out until later in the year?

Nothing that wasn't planned for. I mean, we did have a few small things, but for the most part, people just, we just tightened the budget strings and people just really didn't spend things that we had planned on as we saw the comps coming in at that low single digit for the first two months of the year so it's not like we pushed something material out of Q1 into Q2. It really just was people were very focused throughout the quarter, the store team did a really good job of managing their expenses and we just kept things really tight and close to the vest. So no I wouldn't expect something that was planned for the first quarter is going to have a material impact on the second quarter.

Great. You guys did a very nice job with that. Good luck.

Thanks, Jim.

Our next question comes from the line of Stephanie Wissink with Piper Jaffray. Please proceed.

Hi, thanks for taking my question. I just want to focus in on the second quarter guidance. Looking at a low single digit positive which would imply a 3 to 4% swing, what are the factors, Rick, that are driving that reversal in your plan? Is it merchandise? Is it a traffic assumed improvement or footwear? Can you just give us a little color, thanks.

Well, first let me ask Trevor to comment because I think we, you may have misunderstood what we said.

Hi, Stephanie this is Trevor. Yes, we are expecting a low negative single digit comp for the second quarter.

Sorry, I am looking at the second half.

Oh, I'm sorry, the second half.

Yes, thank you.

Okay, well, second half that's a different question. Stephanie so again, can you give us your question one more time.

Sure, when you're looking at the first half relative to the second half, you're calling for an improvement, sequential improvement half to half in your comp and I'm just wondering what's driving that confidence in improvement ? Is it merchandise related or traffic? What metric within comp do you expect to turn, thank

All right. I can tell you from our internal thought process, this is how we're thinking about why we're expecting talking about low single digit comps in the back half of the year. The first is that we think we're on trend, Stephanie, and when people come to shop, when we get in a volume period where we get customers out to come around the Easter holiday or President's Day, any of those periods we tend to do very well, so we still think back-to-school is going to happen. We still think holiday is going to happen to some degree and we look at that and say we believe we're going to get our fair share during those cycles when kids come out to buy. So we're basing that upon our experience through last holiday and so far to date this year that we think we'll probably get a good result relative in those two peak periods when kids come out to shop. Second, we do think we're going to get a benefit as we just talked about earlier from the footwear category, footwear department, where we think do we have an opportunity there, particularly at back-to-school and to a lesser degree at the holiday season in the footwear area.

And Stephanie this is Trevor. Just to give you a couple other things as we think about them, our current expectation is that Q3 and Q4 will sort of get into positive comps with Q4 doing better than Q3. As you'll remember we did over a 13% comp last year in the third quarter during back-to-school and we did just over I think a 4% comp in the fourth quarter so as you think about your model we don't like to get into specifics by quarter, we want you to think about first half, second half and the full year but we do see our comps getting slightly better as we progress through the rest of the year, and the last time the Company had a 4% positive comp, I think goes back to 2003, so with the number of new stores and then our new stores that are less than three years old are performing, we would expect that again as long as things in the macro environment don't get more challenging and things get a lot more difficult, we would, based on history, we would suspect that we can continue to grow those same-store sales in the back half of the year.

Okay, Trevor, can you just comment a little bit more, elaborate on that statement you made around your stock comp plan, and then remind us again how it factors through the year in terms of the impact per quarter?

Yes, so, last year, the Company had some pretty large charges in the stock based compensation based on a much higher stock price and really a very volatile calculation which you can get into a lot of minutia under the FAS 123R calculation that we have to follow so we are not going to get into specifics more for competitive reasons but we've gone to a much more predictive expense, we think it actually incents our employees better and we're actually going to see based on ur current expectations that that expense is going to decline. So last year, our total expense for stock based compensation was about $5.2 million. We would actually see that expense being lower under our current expectations so it's really just moving from a model that we had in the past to a, what we consider to be a better model and a less expensive model.

Okay, last one for me. Rick, this is just from your perspective given several years in the business, you hinted a little bit at a change in the footwear category but I'm curious if you're seeing that traditional action sports consumer converge with the street wear urban consumer and where you feel you're positioned if that's happening to take advantage of that trend? Thanks.

All right, Stephanie again, that's a cycle for us, the street wear, the street -- skate meets street cycle has been going on for probably the last 18 months and I think many areas have reflected that in our business, the rise of selected brands that are significant in that marketplace, so footwear is no different in that sense where I do think that's an aspect of it, but that's not entirely what's going on either and I think part of it is just the trend cycle with color, how color is being reflected in footwear broadly we're seeing the skate companies doing a very good job of that and I think our team has done a terrific job of positioning our footwear that way so it's partly yes, the skate meets street crossover in terms of business but it's just a general trend cycle also.

Thanks, guys, good luck.

Thanks.

(OPERATOR INSTRUCTIONS) Our next question comes from the line of Brad Stephens with Morgan Keegan. Please proceed.

Hi, guys, good afternoon. Given what you've talked about in the states that have been impacted by housing, how does that change your real estate outlook for '09 and maybe exploring new markets versus fill in markets?

Okay, I'll start off and Trevor will probably want to add in too, Brad. As we look into '09, we're still thinking about building the business for the long term, right? And we remain confident that these markets, California is a very important market to us even in the downtrending cycle, we still are performing in terms of results in those stores in terms of the contribution, yes, it's obviously declining but they're significantly high performing stores for us in terms of store contribution dollars. Likewise, Arizona and Florida is a bit different case in the new markets so we believe as we think about this on a long term basis that these markets are still going to be very important markets for us, so while we may adjust some portion of the mix, we're trying to keep focused on what we believe is the long term result here. So Trevor do you have anything to add ?

Yes, just a few things, Brad. It is a key question because it's a strong piece of our strategy and I just want to remind investors and analysts what that real estate strategy is. So there's three things we focus on opening stores. First we want to do a mix of A malls, B malls and C malls. Second we want to do a mix of existing markets and new markets, right? We think we have a national chain that can be rolled out across the United States. We want to do that in such a way that we do it equally again across the A, B, and C malls to the extent possible, sometimes it's difficult, (inaudible) so it's not a perfect science. We also want to open a good amount of new markets and existing markets and if you talk about those environments, again Rick spoke about that, some of our markets especially in Arizona, California, and Nevada have been historically very highly productive, highly profitable stores for us, so if you look at the 57 stores we talked about opening this year, we're going to open 20 of those stores or 35% of our stores are going to open in those markets , right? And Rick spoke a bit about this at the last earnings call. We're actually for the first time in probably 10 to 12 years seeing some rents where they aren't as difficult to negotiate, and so when we see those markets return to normalcy, whatever that is, we think we're going to have some very productive deals with some better rent deals in there as well. And so our expectation is that even though we are in a tough environment, we think that managing this business for the long term we can get some good deals done that are going to help

Got it, got it. Best of luck, guys, and talk to you next quarter.

Thank you, Brad.

Our next question comes from the line of Sara Hasan with McAdams Wright Ragen.

Hi, guys.

Hi, Sara.

Just following-up on the last question. Are you seeing any opportunities to acquire groups of locations at this point from other retailers that maybe are not fairing so well?

No, our strategy there, Sarah, is not really to work on kind of the liquidation side of other retailers struggles. We believe it's much better to work in partnership with the landlords and our experience has taught us that that's a better strategy is to work in partnership with the landlords and let the landlords address the issue and then we work with the landlords as sort of step two of that and we work very closely with our landlords I might add, because there's situations where we both can come out stronger and better, so we don't really deal directly in terms of buying locations out of bankruptcies and things like that. Our preferred position is to work as a partner with our landlords.

Great. And then any thoughts on share repurchase?

Yes, so we obviously believe that long term, our share is an attractive. We have done the math of it. We will talk about it with our Board, but we currently have nothing to announce at this time.

Okay, thank you.

(OPERATOR INSTRUCTIONS) Our next question comes from the line of [Tya Baconin]. Please proceed.

Tyler, we were just wondering is the 38.5% tax rate something we should model going forward or still keep it closer to 38?

It's going to be somewhere in between that. We are accruing a very modest amount of interest. There's some new accounting rules out that came out last year on how you account for potential settlements with the IRS, so we accrued a very modest amount of interest. You obviously know that the first quarters earnings are by far the lowest. I think they represent about 5% of our annual earnings so you accrue that interest on a straight line basis, but when you're accruing that on the very low volume quarter it's higher as a percent so that's a long way around of saying it will be below 38.5 but it will be above 38.

Great. Thanks.

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

Hi, good afternoon. Great quarter. I was wondering if you can, and I apologize if you mentioned this earlier, but Trevor I was wondering if you can speak a little bit to the inventory control. Looks like you came out of the first quarter very clean. Wondering if you can speak to how you feel about the current inventory competition and going forward, should we continue to expect a similar I guess inventory decrease at the end of Q2 for 2008? Thanks.

This is Trevor. I'll take the first part and I think Rick is going to take the second part of that. So I think the team did do a good job and this is kudos to both Lynn and Ford and their teams and things they've done to make sure they have managed inventory and we do have a disciplined approach. When we first started seeing our comps not being the double digit after running that path for two, three years, Lynn and her team immediately started taking actions to lower their open to buy for future months. So we started taking proactive measures back really in November last year knowing what we saw to make sure that we have taken again what measures we thought were appropriate, so one of the other benefits that we had, not only just that we have a great management team that was watching that closely is one of the benefits of having a branded business is you have the ability to work with your vendors to do things. You can maybe not take the last order of the five deliveries, or you can cancel other orders, you can have them help you participate in markdowns. There's a number of things you can do. In some cases we have the ability to return goods, so we also are benefited in the down times by our business model but I think it's just a good, strong discipline from the top and making sure that the buying team is is staying close to it which again they just did a tremendous job managing during this difficult environment.

And Betty as we look forward to the rest of the year, I mean, as I said in the prepared comments, we're going to try to manage inventory very carefully and why I say that, we're always talking about the rooms to go both directions, right. If it gets tougher how do we manage the downside, if we have opportunity how do we manage the upside and again, Trevor just commented, that's one of the strengths of our business model and close brand partnerships and in terms of being able to chase on the upside and work inventory down on the back side, so as we look forward, I again, we're going to be very -- we're going to start our from a conservative perspective in managing the inventory but we certainly expect and our experience has taught us that we can adjust to go after things if they're working and to trim inventory if we need to if things aren't working.

And just to answer your last part of your question, Betty, the guidance we've given historically even though we've done better than this is we have done a lot things to get the low hanging fruit so we have suggested investors should think about us increasing our inventory on a per square foot basis in the low single digit range. Hopefully we'll continue to beat that but we would say it would be prudent for people to think about that increasing slightly as they model our inventory going forward.

That's very helpful and then I was wondering, certainly a lot of retailers are facing very challenging trends in California, Arizona, Nevada and Florida, like things like you're also seeing. What can we do to kind of maneuver through this? Is it possible that it's a slightly maybe different merchandising strategy or really it's just the fact that traffic is so challenging in those markets, how are you thinking about tackling that because it really sounds like the other markets are doing very well and I was just curious on your thoughts?

Well, I mean, just so we're clear too, Betty, all markets relative to where we were for most of last year have suffered some. In some respects to the trend cycles, now those markets clearly have been tougher and as we look at those markets, I definitely feel that the issues are macroeconomic issues, so we are constantly looking at how we're selling through at different price points and as you know, we strategize and merchandise our store to cover different price point groupings of products by almost in every major category and we're not seeing, still we don't continue to see a huge difference in sell-through. So that would be the most obvious thing you would think about well, is price going to sell differently for us and as you know, we're not, that's not our gig. We're about the lifestyle, not about being a price driven merchant. So and again, the data hasn't told us that those particular products are sell-throughs any better than on our mid and higher tier prices. So basically, we've tried things but I think fundamentally, it's a traffic, it's traffic and macroeconomic issues.

Well, that's very helpful. Thank you very much and good luck.

Thank you.

(OPERATOR INSTRUCTIONS) We have a question from the line of [Maurice Zion] with [General Management]. Please proceed.

Hi, thanks. You attributed the change in gross margin pretty entirely to the change in occupancy, so the implication obviously is merchandise margin was stable or flat and I was curious how, are you still seeing leverage in buying costs from your greater purchasing volume or history with your vendors and how does that compare to markdowns actually for the quarter?

Yes, so our margins were very similar to last year if you're talking about just the product margin component of our sales. I think with everything, our teams are doing things slightly better and there are components of managing the inventory, timing it correctly, getting it pushed through, increasing your turns, having lower markdowns, I think there's a lot of things that go into that so I guess there's not one specific thing I would attribute it to as to why we're able to hold our margins. I just think the discipline that, again, Lynn and her organization have and the way they manage the process as well as Ford's team out there selling the product as soon as it gets in has continued to help us turn our inventory faster and as you know in retail, any time you're turning that inventory faster you have got less cadence for markdown that you're going to need to take. So just slightly better management than the previous year, even during tough times.

Are you getting better turns or quotes from your vendors or are you happy just to hold the price per item flat given commodity price pressures?

Again, in this environment, I would characterize it that our margin reflects pretty much a stable environment, and stable in terms of relationship of what we do with our vendors.

Great. Thanks. Any comment on new brands that you've introduced in the stores or that you continue to bring in that we'll be seeing shortly?

We don't comment on individual brand performance so no.

Thanks.

Okay, this concludes the Q&A session for this call. I would now like to turn the call over to Rick Brooks for closing remarks.

Thank you, again, we just really appreciate everyone's interest in Zumiez and we are going to look forward to talking to you about our results for the second quarter when we get together in August so thank you, everybody.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Everyone have a great day.