Zumiez Inc (ZUMZ) 2010 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Zumiez, Incorporated fiscal 2010 fourth-quarter and full-year earnings call. At this time all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference.

Before we begin, I would like to remind everyone of the Company's Safe Harbor language. The following discussions may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Please note that actual financial results of the Company for the periods being discussed may differ materially from the financial results projected or implied in the forward-looking statements.

Additional information concerning factors that could cause actual financial results to differ materially from projected results is contained in the Company's Annual Report on Form 10-K and other documents filed by the Company with the Securities and Exchange Commission.

The Company disclaims any intent or obligation to update forward-looking statements. No reporting or rebroadcast of this call is permitted without the Company's express written permission.

I would now like to introduce your host for today's conference, Mr. Rick Brooks, CEO of Zumiez.

Thank you. Good afternoon and thanks for joining us to discuss Zumiez' fourth-quarter and fiscal-year 2010 results. Joining me today is Trevor Lang, our Chief Financial and Administrative Officer. Following my opening remarks Trevor will review our financial and operating highlights.

We are very pleased with our strong fourth-quarter and full-year performance. We followed up our record third-quarter results with a very strong holiday season to achieve our most profitable quarter in the Company's history.

Fourth-quarter comps rose 13%, and diluted earnings per share rose 69% to $0.49. This capped off a solid year as same-store sales increased 11.9%, which is our best annual comp result in four years, and earnings grew at a rate 9 times that of sales.

A year ago when we discussed our 2009 results we highlighted the strategies we had implemented and the continued investments we have made during the recession, and stressed that our focus has always remained on the long term, even in the wake of short-term challenges.

While the economy has improved, and this has obviously helped bolster our financial results, we believe our success in 2010 largely stems from our unwavering focus on the long term.

Throughout this period we stayed committed to what has made us great, finding ways we can enhance the customer experience with unique product offerings and not just maintaining, but growing our unique culture.

In 2010 we set ourselves apart by staying true to who we are and consistently providing consumers with the shopping experience they have come to expect from Zumiez, highlighted by a diverse mix of branded apparel, footwear, accessories and hardgoods, superior customer service, that is complemented by a great website, and compelling sales and merchandising strategies, all of which have helped us strengthen our position as the leading branded action-sports lifestyle retailer.

When we conducted our earnings call in March last year, we said that throughout the recession we continued to invest in opportunities to drive future sales, leverage our cost structure and strengthen our balance sheet, and that in 2010 our clear focus was on increasing sales. I believe we have executed extremely well in this regard. And we will remain focused on driving topline sales, which has historically yielded faster profit growth.

We feel good about our prospects as we begin the new year. Momentum we experienced during the holidays has continued, as evidenced by our February sales results.

That said, there are potential headwinds on the horizon. Plus there's pressures from rising costs, the impact on consumers from higher gas and food prices, and tougher comparisons.

The cost pressures are real, and it appears they are here to stay, at least for the foreseeable future. While no one is immune from these cost increases, we believe that as a branded retailer we are in a good position to deal with the increase in input costs, given a lot of what we sell is unique and hard to find elsewhere in the mall.

I'm confident that as long as we stay focused on our mission, as we have three past challenges, we will navigate these new challenges in such a way that will allow us to continue to grow profitably.

These are exciting times at Zumiez, where there will be occasional challenges, like the near-term pressures I have discussed here, our long-term outlook remains bright.

We believe that teen specialty retail is in the midst of a market consolidation phase, a period that will further differentiate strong retailers, and that this is an environment Zumiez will continue to excel in.

Our priorities for long-term growth remain consistent, a relentless focus on sales strategies aimed at increasing same-store sales, opening high return new stores, growing our e-commerce business, and new initiatives. Investments in talented people and infrastructure designed to support our growth. And continued enhancement of our unique culture that ultimately provides a shopping experience for our customers that we believe is second to none.

With that, I would like to turn the call over to Trevor, who will review the financial result in greater detail.

Thanks, Rick. Good afternoon everyone and thank you for joining us. By now you should have access to our press release, which crossed the wire earlier today.

I'm going to touch on some of the highlights, and go in a little bit more detail about some of the key drivers of our results. Thanks to our strong operating performance this past year we are now in an even better position, with nearly $130 million in cash and marketable securities on our balance sheet to further invest in our business and pursue our growth strategies.

We opened 27 new stores in fiscal 2010 and plan to open approximately 44 more in fiscal 2011, including our first stores in Canada. As we have stated, our current expectations are to grow our domestic store count approximately 8% to 10% annually, and still see the potential for total domestic store base between 600 to 700 stores.

On top of this, we will expand into Canada, which we view as an exciting opportunity. And our initial results will ultimately dictate our pace of growth in this new market.

Meanwhile, our e-commerce sales have continued to perform well. Our investments over the past 18 months are paying off with sales growth of 130% during both the fourth quarter and the full year. Our Web now represents about 4.7% of total sales in fiscal 2010, up from 2.5% in fiscal 2009.

In 2011 we will invest further in this important growth engine with continued focus on enhancing and integrating the unique Zumiez brand experience through this channel.

In addition, we made important investments in 2010 that we believe will deliver significant long-term benefits. Earlier in the year we successfully relocated our distribution center to Corona, California, which has resulted in improved inventory turns, a simplified supply chain process, more than double the previous capacity, all at reduced cost as we own our facility.

Throughout the year we made progress towards our new assortment planning solution with the implementation of merchandise business intelligence. These tools, which will allow us to better plan and micromanage our business, should begin to reduce benefits in 2011 and beyond.

Also, we made important infrastructure and talent investments across our organization. As we look into 2011 we plan to follow the same investment principles that facilitated our historical growth strategies.

Looking at the results of the quarter in a bit of detail. Fourth-quarter 2010 net sales increased 17.9% over last year to $156,200,000. This increase was driven by a comp store sales increase of 13% compared to a comp store decrease of 1.7% in the fourth quarter of last year. And the addition of 27 new stores, offset slightly by foreclosures since the end of fiscal fourth-quarter of 2009, which brought our total year-end store count to 400.

To break down these sales a bit further, same-store sales increased in all geographic areas up between 6% to 15%. Sales from our website continued the strong growth increasing 130% in the quarter.

All of our departments had positive comps, with the exception of our boy's, which is less than 2% of our sales. The biggest contributors to the comp store sales gains were accessories, men's and footwear department, which combined represent approximately 70% of our sales.

Comparable store transactions drove our comp store gain, partially offset by a decline in average dollar amount per transaction. Dollars per transaction decreased due to a decline in average unit retail, and to a lesser extent a decrease in units per transaction.

Gross profit in the fourth quarter of 2010 increased $12,800,000 or 26.6% to $60,900,000 compared to $48,100,000 in the fourth quarter of 2009.

Gross margin increased 39% in the quarter from 36.3% in the fourth quarter of last year. The 270 basis points increase in gross margin was driven equally by an increase in product margins and leveraging the sales gain over our store occupancy costs.

Moving to expenses. Total SG&A expenses in the quarter increased $1,800,000, or 5.2% to $36,900,000 from $35,100,000 in the fourth quarter of 2009. However, as a percentage of sales, SG&A decreased 290 basis points year-over-year to 23.6% from 26.5%. This decline is primarily due to leveraging our cost on a 17.9% increase in sales and $1.8 million in impairment charges recognized in the prior-year fourth quarter.

Operating income increased 84.1% to $24 million or 15.4% of sales in the fourth quarter of fiscal 2010, compared to $13 million or 9.8% of sales in last-year's fourth quarter.

Net income in the fourth quarter increased 70.5% to $15 million, or $0.49 per diluted share from $8,800,000 or $0.29 per diluted share in the prior-year period.

Turning to the full-year financial results, for the fiscal year ended January 29, 2011 net sales increased 17.5% to $478,800,000, driven by a comparable store sales increase of 11.9% compared to a decrease of 10% in fiscal 2009, and the opening of 27 new stores in the year, offset slightly by the closing of four stores.

Operating income increased 193.4% to $37,400,000 or 7.8% of sales, driven by an increase in sales, 250 basis points improvement in gross margin, and leveraging SG&A costs during the year.

Our net income for the fiscal 2010 increased 165.1% to $24,200,000 or $0.79 per diluted share from $9,100,000 or $0.30 per diluted share in fiscal 2009.

Our fiscal 2010 full-year results include identifiable cost of $2.4 million or approximately $0.05 per diluted share associated with the relocation of our distribution center in Everett, Washington to Corona, California, as well as a charge of $2.1 million or approximately $400,000 per diluted share -- I'm sorry, $0.04 per diluted share for the settlement of a previously disposed lawsuit.

Our fiscal 2009 full-year results include $2.5 million or $0.05 per diluted share of store impairment charges, and $1,400,000 or $0.03 per diluted share for the settlement of the previously disclosed lawsuit.

Turning to our key balance sheet highlights, as of January 29, 2011, cash and current marketable securities increased 19.2% to $128,800,000 from $108,100,000 as of January 30, 2010. This increase in cash was primarily due to the strength of our results over last year, which produced strong operating cash flow, reflected sound working capital management, partially offset by $29,400,000 of capital expenditures, including $12,900,000 spent on our new distribution center in Corona, California, and $3,300,000 related to the purchases of some land that I will speak to in a moment.

As of January 29, 2011 inventory was $56,300,000 compared to $50,900,000 as of January 30, 2010, a 10.6% increase. On a per square-foot basis inventory increased approximately 4.3% from the end of the last fiscal year. We have continued to do a great job of managing our inventory and growing it at a rate lower than sales.

Also at January 29, 2011, the Company had no debt, including no outstanding balances on its revolving credit facility.

Now let me turn to our guidance. In putting forth this guidance we want to remind everyone of the complexity in assessing sales, product margin and earnings, given the variety of factors that impact performance, including the challenging economic conditions.

For the first quarter we are planning same-store sales to increase in the mid- to high-single-digit range, and total sales to be in the range of $100 million to $102 million. Operating margins are planned to be in the negative 2% to 0% range, and diluted loss per share of $0.03 to breakeven.

Looking out a little further in the second quarter, if we are able to achieve a mid-single-digit comp for the quarter, we would assume a slight profitability compared to a loss per share in the prior-year second quarter.

As most of you know, our business is seasonal, with the majority of our sales and earnings occurring in the back half of the year. Because of this, coupled with inflationary headwinds Rick touched on earlier, there is greater uncertainty about the projections for the full year.

However, here are a few comments we would like to talk about for the year. We are planning our total sales, as well as our same-store sales, to increase in fiscal 2011.

We do expect product cost increases, particularly in the second half of the year. Remember though that about half of our products have no or very little cotton, so we are less affected than the more traditional apparel retailers.

We have been working with our branded partners and our private label manufacturers and are focused on our unique mix to execute merchandising strategies to mitigate these cost increases.

Our current plans are to grow SG&A in the mid- to high-single-digit range, and should be below our sales growth. We believe we can leverage our cost structure with a mid-single-digit comp (inaudible) sales increase.

We believe incremental same-store sales increases above a low- to mid-single-digit range should flow through to operating profit at a 25% to 35% rate, assuming there is not a significant compression in product gross margins.

We plan to open approximately 44 new stores, including our first stores in Canada. We are planning capital expenditures to be in the range of $32 million to $34 million, compared to $29,400,000 in fiscal 2010. This includes incurring buildout costs for a new home office facility in Lynnwood, Washington, 13 miles south of our current home office in Everett, Washington, where we plan to move our corporate staff in the spring of 2012.

We purchased the land in December 2010 and plan to spend $8 million to $10 million in fiscal 2011 on our new home office. We believe this investment will be beneficial in the long term, as it will provide substantially higher capacity and result in planned fixed costs similar to the current facility.

We also expect depreciation and amortization to be about $18 million, in line with fiscal 2010.

As we move beyond 2011 we are focused on growing our topline sales, gaining marketshare, while expanding our operating margins. Our long-term financial plans are built to grow our operating profit at a rate faster than our sales, and ultimately obtain operating margins in the low- to double-digit -- low double-digit to low-teen range.

We believe we can achieve these long-term financial results primarily by focusing on topline strategies designed around driving same-store sales gains, opening new stores, growing our e-commerce and multichannel sales, and executing new initiatives, including our upcoming expansion into Canada.

Operator, I think we will now turn the call over to questions.

(Operator Instructions). The Company requests that you please ask only one question with one follow-up. If you have additional questions, please reenter the queue. (Operator Instructions).

Adrienne Tennant, Janney Capital Markets.

Good afternoon, and congratulations on the year 2010, nice work. My question is on average -- obviously, average unit costs, the topic du jour. What types of percentage increases are you actually seeing from your vendors right now as you buy for fall?

And to the extent that there is any way to mitigate some of that is one of the strategies perhaps to the increase penetration of private label or does that not make sense with regard to the longer-term strategy of the Company?

Thank you for those questions, Adrienne. Let me start and I'm sure Trevor will jump in here as needed. First, you're right, from our -- as you said, the comments, and you intimate here the impact for us as as we can see it today is going to be in Q3 and Q4.

And for the categories that are affected -- and again remember that as Trevor said in his comments, a lot of our categories of business in the departments aren't as heavily affected by these cotton price increases -- some of the wage and price increases we are seeing, as other apparel territories are.

So on the affected categories, as we are seeing it today, we would estimate about an average increase, again in Q3, Q4 timing, of somewhere around 10% to 15%.

So as Trevor said, we have a number of strategies we are looking at in terms of how we might manage that. One of the potentials is that we may see a value consumer in some ways trading down into our private label. But to be honest with you, we don't have any real effective way to measure the potential impact of that.

I think we, as with most every retailer, is going to try to pass these costs on to the consumer. And we, like every other retailer, are trying to figure out whether or not that is going to work based upon what the consumer's reaction to those prices, are they willing to accept it, and additionally, whether or not the competitive situation on some of these key categories of business will allow us to pass the price increases on.

So not probably exactly the clarity you want from us, but I think that is the reality is that a lot of this is going to hinge on the consumer situation and the competitive situation as to how successful we are going to be in passing the prices on.

That is very helpful. And then my follow-up would be, with regard to the Easter shift, it sounds like the quarterly comp guidance suggests a negative low-single-digit March and then a high-single-digit April. Is that about correct?

Yes, I think -- this is Trevor -- our models would suggest to get to the high end of the range we would comp in the month of March and April, the combined comp over that period of time would be in that 7% range. And that is certainly a bit more conservative than we have been posting for the last 13 or 14 months.

The way we have told people to think about Easter historically when we have been asked this question is you pick the trendline that you are going to see for those two months combined. In my example that I just gave you, let's just say 7%.

You will see probably some portion of a 500 basis points degradation in the month of March because the week before Easter is an important week. It is moving from the fifth week of March to the third week of April. And you will pick up probably a little bit more than 500 -- maybe as much a 700 basis points in April because March is a five-week month and April is a four-week month.

So pick the trendline, whatever you think the business is going to do. Again, 500 -- roughly 500 to 700 basis points negative in March and a similar pickup as you move into April.

Okay, thank you very much. Best of luck.

Sharon Zackfia, William Blair.

I actually wanted to talk a little bit about Canada, as you're going into the Canadian market. Can you give us an idea as to the initial strategy there, and what the productivity is likely to look like in Canada versus the US? I understand that for a lot of peers the productivity is actually quite a bit higher in Canada.

Again, I will start, and we will let Trevor add his comments to this. We have some experience with the Canadian consumer, because as you would guess, we have a lot of cross shopping in our border stores, as well as we have a consumer that is buying with us via our website every week -- a portion of our business is Canadian consumer.

As you probably understand, from your question, is the malls in Canada are much more rationalized. In that time, again, the retail per capita is at a simply lower rate -- retail square footage per capita is a significantly lower rate than it is here in the US, just because we have so many more malls. As we all know, we have a lot of malls -- markets that are overbuilt.

The productivity of the centers in Canada tend to be substantially higher than the productivity of the centers -- of the shopping centers here in the US. So as we are looking at our strategy there, we think we've got a good understanding of the consumer. We spent a lot of time in the marketplace, and we believe that we should see stores, relative to again comparing our new stores in the US to new stores in Canada, we believe we should see this new store perform at a higher productivity level on a relevant basis new store to store in Canada versus the US.

Then just a follow-up question, Trevor. When you're guiding to the March/April being around 7% combined, is there a reason why you expect double-digit comps and the going forward?

Well, I think there is no fundamental reason, but I think we are -- our nature is to be a little bit conservative when we give guidance. And we are obviously up against a higher comparison when you look at those two months combined. So there is nothing that we see today that causes us to have that concern. But it is just -- with the higher comparisons we're up against we are going to be a bit more cautious.

As you know, I would add to that, these Q1/Q2 quarters in the scheme of things on our full-year basis -- what we have to do in the full year, they just aren't that significant. So we tend to be a little bit more cautious on these quarters. The small things can make a big difference in results. So these are the low volume times, so they just aren't on a relative basis very significant.

Alright, best of luck.

Mitch Kummetz, Robert Baird.

I just want to follow up on the Easter shift. Rick, it has been -- I think it was 2000 when we had a late Easter like this. It has been a while. I am just curious to get your thoughts on what such a late Easter you think that means for the spring business in general and then maybe leading into summer?

You know, Mitch, I think even for those windows the general numbers that Trevor gave there hold. We have seen this trend for a number of years around this Easter shift. And so I don't think we expect to be much different relative to the patterns Trevor just described.

The dangers of pushing it out later is -- again, in a very competitive environment is that some people may not have the discipline to wait for the sales. That is one thing that would -- on a competitive basis -- might worry us, because the sales are just going to appear to come later than a year ago.

As you know, we tend to be very disciplined. We plan for these shifts. And so we are prepared to manage, I think, how we will get through this cycle. But I don't think we see a big difference relative to the lateness of the shift mentioned, not in any significant way from the numbers Trevor put out there.

Then I was hoping to get maybe a little more color on how are generally thinking about gross margins this year. Trevor, you're talking about leveraging off of a mid-single-digit comp. Obviously, some costs cropping up in the back half, some of which hopefully you will be able to pass through.

Is there any way to think about how you would expect your gross margin to come in for the year? If you could do a mid-single-digit comp, would you expect gross margin to be up or down or flat, or is there any help you can provide us on that?

I think the first point is the one that you mentioned is, if you assume you can hold products gross margins, which as we have said will be more challenging and more difficult in the back half of the year, I think our expectation is that, yes, if we are comping in the mid-single-digit range that we would be able to get some gross margin leverage out of the year.

Okay, great, thanks. Good luck.

Christine Chen, Needham & Company.

Thank you, and congratulations on a great year. I wanted to ask you, based on your comments it sounds like you feel like there is more pricing power and the ability to take price points up on the branded part of your business versus your private label. I'm wondering if that means that you might distort the mix in one direction or the other?

And then wondering the back half of the year what some of the missed product opportunities were. It is hard to find any fault with the result that you just had, but I am wondering what some of the opportunities are there. Thanks.

Okay, you know, as it relates to the first part of your question there, obviously, it is a complicated question, Christine, as you know it our business relative to our ability to pass on price increases, like it is for anyone.

But in our business it is even a bit more complicated. Because we have to assess the ability to do that on a brand by brand basis. We have some brands that we are confident that because the demand for the brand that if we need to we can pass the pricing pieces on.

We have other brands where maybe demand is not as great, where it is going to be tougher to pass the price increases on. And those are cases then where, again, we want to work closely with our branded partners as to how we manage through those situations, and still buy enough of their products in terms of managing the margin impact overall on our business.

So it is -- again, as for all these questions relative to our business, the wide diversity of categories, the wide diversity of brands -- and we model this, as you might imagine, 1 billion different ways to try to understand the impact, but it is very complicated.

And again, even at that the end result all comes down to will the consumer accept the price increases, both from what they have to spend, as well as from their alternatives relative to the competitive pressures on them all.

As we kind of commented on earlier, relative to what does that mean relative to our private label, will we see some shift down from branded products to private label? We don't know. And, again, that is a very difficult thing to predict what that shift may be, if it does occur at all.

That assumes a number of things there. First, we have to get our private label exactly right from a fashion perspective. That is again some brands we know have demand that we don't believe there is a trade down. So those are very hard things to predict from that perspective.

Your last part of your question relative to opportunities in the back half of the year, obviously, we do have some, where we think we probably, as I think any retailer would say, we have opportunities where we didn't do things as well as we could have. And there is opportunity from a product perspective or an operations perspective to do things better.

But it was a pretty great quarter here, both third and fourth quarter of 2010. So I wouldn't say the opportunities are huge, but they do exist. And as far as telling you what they are, I'm not going to do that, because that is just tipping my hand a little bit too much in areas where I think we probably -- some of the hot areas where we probably left some opportunity on the table.

This is Trevor. The other thing I would say is we look at it from a merchant's point of view. And what I mean by that is we are obviously analyzing the business. We are seeing what is being successful every day. What is turning faster? Where we are getting higher margins?

What turns exist out there? I would say there is no huge fashion trends out there that are going to be huge drivers, based on what we see today.

But one of the benefits that people forget about us, or a lump us in, is we actually have a pretty wide diversity of brands that are consistently changing throughout the system, and 2010 was no different than 2009.

If you look at over the last two years we have had over 50% turnover in our top 10 brands and our top 20 brands. Again, we view that as a very good thing, because that means there is change in the marketplace. There is something fresh and new that is hard to get elsewhere in the mall.

And I think that is part of the momentum we have, because the consumer comes in. They see some new brand or some new silhouette or something that is an expression of a brand that they haven't sold in the past.

And that is something we have done very well for a long period of time. And I think that is where we feel like if someone who is not a price point player, we certainly have commodity items, but it is not the majority of our business. As someone who is more of a fashion retailer and a lifestyle retailer, we have opportunity to pass along some of that increased value to our consumers.

So our merchants are working hard with our private label manufacturers, our branded partners, and as well of the mix within categories where we see margin opportunities to drive that.

One thing that I will probably get asked later, so I'll just give the number now. Our private label business increase this last year to 18% of sales from 15.7% of sales in the previous year. And the product margins also went up within the private label business.

And so those were margin accretive things. I think we feel like hopefully we can continue to build on some of the private-label strength that we have had last year. And if that works for us that will also be a bit of a margin builder.

Then, finally, I can't over emphasize enough that roughly half of our products have very little or no cotton in them. So we don't have the same obstacles and shouldn't be lumped in with the same folks who are selling nothing but cotton.

Great. And if you could maybe give ending square footage?

Yes, same as last quarter. I think it was 1.174 million.

Thank you and good luck.

Jeff Klinefelter, with Piper Jaffray.

Thank you guys for the great detail today. Two quick questions. One is on the new stores. Trevor, you said 44 new stores,including a few in Canada. Could you give us a couple of things.

One, would the flow of the new stores generally follow the cadence of this prior year? And also what would be the timing of the Canadian stores? Are they going to be concentrated to one particular quarter?

Then, more generally, Rick, on the competitive environment it has been very promotional. You have generated strong comps despite that. I think you have talked about some strategic sort of bundling -- price bundling to drive your conversion.

Today as it stands still very promotional. Any differences between apparel and footwear that you are observing? And then is your strategy to continue with strategic bundling or strategic promotions to make sure you maintain your share?

That is a lot. I'll take a shot in the first few and then Rick can also jump in what he wants. Traditionally we have added about two-thirds of our stores in the first one-third of the year. And then the other one-third comes in between back-to-school and holiday. That is the plan this year.

Last year we actually did a slightly higher number before back-to-school, but that was because that was the fewest number of new stores we have ever opened, but now that -- we are opening a higher number of stores.

So our current projection would be about 16% of our stores would be open in Q1. We would have as much as cumulatively 61% of our stores in Q2, and then all of the rest of them opened essentially by the end of Q3.

As far as Canada goes, we are going to start opening some stores in April. And then we will open a few more throughout the summer. And then I think goal is to get to as many as 10 by the end of the year.

And we are doing some in British Columbia and we are doing some and the Greater Ontario area, as well as our current thinking there.

Does that cover Canada and new stores for you, Jeff?

Yes, thank you.

Then moving on to your question relative to promotional environment. We anticipate the environment is going to remain promotional. One of the things that I think is going to stay with us from the coming-out of the recession -- I don't see this trend. This is the one trend that I think stays with us over the next few years, and that is the importance of value, and how people are conveying value.

I think that is something that is very important to wide ranges of consumers. In some cases, I think many income demographics, value continues to be an important element of how they are shopping today.

So we are going to do, I think, a lot of things. And you're right, we have competed pretty effectively against the heavy promotional environment over the last few quarters. So we are going to try to weather this next round in the same way we have in the past.

And when I say the same way, I don't mean there will be the same -- necessarily the same strategies, because those strategies are going to be adapting and changing all the time. So as you guess, we are going to layer in new things and new ways of thinking that we believe are the right ways to approach what we -- as we look into spring and look into back-to-school. What we believe are the right way to approach it based upon our assessment of what are going to be the important trends, the important categories of business and how we can connect them together to provide value for the customer.

And again, value expressed in both the sense of multiple price points, as well as value from the perspective of uniqueness of selection, styles and brands.

So our model, as I said earlier, is complicated. And so we're going to try to layer, again, new levels in to our thinking about how we drive sales. Nothing -- I am saying there will be different things we'll do this year, again, based upon how we perceive what the trends are and how that is going to work.

The new element though is the impact of cost increases. I think that provides a whole new potential financial impact to other people's discounting. And that is what makes this particular back half of the year very difficult to forecast.

Does that mean we are going to see some unit declines in key categories of business relative to sales? Those are all things as we have modeled and tried to anticipate what is going to happen are very complicated, and, again, get down to a category by category type of assessment. I might say category by category, brand by brand.

Okay, that is helpful. Then just in terms of footwear versus apparel, just with the competitive landscape having changed a couple of times here in footwear in the last couple of years, anything you would note there specifically?

No, I don't think so. Again, on an overall basis it is about executing our long-term strategies about unique brands, whether it is footwear, whether it is apparel. The category doesn't -- or department doesn't matter from that perspective. And, again, about providing range of values for the consumer.

David Griffith, ROTH Capital Partners.

Just following up on new stores, could you talk about your expectations for new store productivity? And that also what you see in terms of mix, in terms of new stores going into A malls, B malls, as well as geography, new geographies versus existing? Thanks.

This is Trevor. I will take a shot at that. So we will open a continued mix within the four -- what we call the West, the South, the Midwest and the Northeast. We will have our highest concentration in the South, which is also where we are doing the best probably as of the last year.

If you look at our new store and new store productivity over the last few years, 2007 and 2008 were tough years for us. 2009 bounced back quickly, both from a sales perspective -- maybe not so much from a sales perspective, but a productivity perspective -- because of how our business performed toward the end of '09. And obviously 2010 was a tremendous year for us.

So our new stores are averaging about just under $900,000 in sales. For the class of '09, who have now all finished their first year of operations, they are now back to roughly 20% four wall contribution margin. And we are getting our cash-on-cash payback at around -- we expect to be about 19 months. So that is pretty good. That is getting pretty close to our historicals back in the class of '06 and '07.

So we are very pleased. And one of the other things we have talked about publicly, and I will reiterate again, is our new store cost, the gross cost of our new stores has come down from about just under $440,000 to closer to $350,000. That is obviously helping the returns on the new stores as well.

It is still a very productive model. It continues to be very productive. In 2011 we will have a -- it will be -- we will only have one new market we are entering into, which again is a bit unique. We traditionally had more new markets -- slightly less new markets. I don't think that has a large impact, but that is, I guess, interesting more than anything else.

And we will have a slightly higher mix of outlet stores than we have traditionally had as well. It is just how the deals fell. There was no real intention to that, it is just how the deals worked out for us.

So we have been very pleased with the performance, the class of '09, the preliminary performance of the class of 2010. And that is one of the things in the last three years I think we have gotten better at is predicting how our new stores will perform. And again, assuming the macro economy holds up and things, we feel good about not only the class of 2010, but what we know about the class of 2011.

Then, A and B mall mix?

We will have a slightly higher proportion of -- or just slightly lower value malls this year. But those are in markets that we feel reasonably comfortable in, so we will not be doing a higher mix of A malls and B malls this year.

Randy Konik, Jefferies.

Trevor, did you say something about the 2Q outlook? Did you give a specific -- I don't know -- guidance on EPS? Could you just repeat to us what you said regarding the 2Q outlook? That is my first question.

Sure, the exact quote I gave was looking further into the second quarter, if we are able to achieve a mid-single-digit comp for the quarter, we would assume slightly profitable compared to a loss per share in the second quarter.

So we are not going to give detailed quarter guidance out that far. We just wanted to give a little bit a view of what we are thinking out there.

Slightly different than the loss per share in the first quarter? Is that what you're saying?

No, we had a loss per share in the second quarter of last year, so I am comparing Q2 of last year (multiple speakers).

I got it.

So if we do above a mid-single-digit, obviously we are going to be driving an EPS -- and I think one of the key things we have said for, I guess, going on four or five quarters now is that, to the extent we exceed our sales plan -- and you have certainly seen this this last year -- to the extent we are going to exceed our sales plans, there is a pretty high flow through. That comment about 25% to 35% flow-through is an important comment.

So if we are -- if people are suggesting that our trend continues and we can continue to see the nice same-store sales gains that we are getting in the second quarter that we have gotten throughout most of the last year, than obviously, our profitability will grow at a much faster rate than that, because again you're flowing through that incremental sales at a 25% to 35% rate.

The last year sales in the second quarter were $97.7 million. So to the extent you think we are going to exceed a mid-single-digit comp, it is pretty easy to say -- hey, that is $1 million in sales. At 25% to 35%, and you can do the math on there as to what that incremental EPS benefit would be.

Got you. Then in terms of thinking about the action-sports industry these days, how do you guys feel about that? And then any particular sports categories or categories that really feel that have turned really a positive way for you? Obviously, you had a great ski season. Just give us a little color on that.

Sure. We continue to be -- let's say this at the beginning of our comments relative to the action-sports industry. We really like our position where we are at within the action-sports industry. We have great partnerships with great brands. We love the scale that we have been able to achieve with our business with maintaining the cultural integrity of the way we have done it.

For those reasons, the strength of our brand partnerships, the way we have been able to scale the business, maintain the integrity of the culture, we like how we are positioned. So that is the first thing I would say about our -- again, because I think within all of retail we are going to continue to see consolidation take place. Not just action-sports retail, all of retail, specially retail I still think it has to see some consolidation, whether that is downsizing by other retailers or just gaining share as we go across-the-board by executing well.

So you have to overlay some of those macro trends, I think, on the action-sports relative to our position, because I think we gain share in this kind of environment based upon the strength and quality of our operations.

The industry now more broadly, I still love where we are at an industry. I think we have opportunity to grow yet domestically, particularly with some of these young brands, I think are really exciting -- really exciting products.

I think that -- and I'm hopeful that we are going to see as the recovery continues, that we are going to see some innovation -- even more innovation within the industry and the creation of brands that are going to -- that could potentially grow into big partners for us as a retailer.

And we certainly want to encourage that within the industry and be supportive of those young brands. If we can help them we are glad to do so.

So I continue to be optimistic about the industry. I continue -- again, I hope that we are going to see some more innovation in both product as well as brand innovation. I think that is all going to be part of the recoveries that come through this cycle.

And then layered over the top of that is our unique position, I think, relative to scale, the quality of our brand partnerships and the quality of our culture and what we are doing out there relative to marketshare gains.

One last question, sorry. Is there any particular product category or action-sports category right now were you feel that you have -- consumers is really -- there is no price resistance at all -- there is no resistance at all, you don't get any real big promotion?

And in contrast are there any product categories or particular action-sports category where you think that there is a real need for just to be promotional to get that product to turn?

You know, and I'm going to -- again as always, I'm going to step back and say, I think our strategy is always going to have multitiered price strategy for almost every significant category of business.

So we certainly think that virtually every category of business you need to offer multiple price points, so that you're covering the kid who needs the value associated with the product. And again, approach it on a brand by brand strategy basis, as well as you're covering the kid who -- obviously, we are not going to promote stuff that is our best-selling brands.

So it is a mix -- always a mix in virtually every category of business, I would say that is absolutely true.

Fair enough, thanks guys.

Jeff Van Sinderen, B. Riley.

I guess my question is, as you look out to the second half of the year, how are you thinking about newness or freshness of merchandise and demand elasticity related to that versus demand elasticity related to price itself?

And does your thinking on that mean that you might approach floor sets and timing of new merchandise receipts and/or even concentration of new brands differently?

Then the second part of my question is any color you can give us on outlet stores versus regular stores? Thanks.

I will take a quick crack at that, and that I am sure Rick will have something. Part of this ties back into Randy's comment. The teen sector is a cyclical sector. And I think part of what you are seeing today is the teen fashion trends have played into our strength in four -- during the Great Recession years really cheap stuff was more in vogue, but now that we have made it through that, and you look at -- you dissect where the income has come back at the moderate level and at the higher income level, I think those things are somewhat benefiting us.

You add to that that we've got a website that is performing at a much higher level, but still not nearly as big and robust as it is at other companies, so we've got some momentum there.

You look at the investments we made from an infrastructure perspective -- a distribution center that is getting inventory to our stores faster and less expensive, and has massively higher capacity during the peak volume times, that is a benefit to us.

Our peak sales per square foot were close to $500 a few years back. And even with a great year we've had we are still slightly under $400 in sales per square foot. We've got this great bench strength of team not only here at the home office, but in the field team, that is executing and we are making promotions there.

We are opening new stores, and new stores generally comp at a higher rate than mature stories. So I think the point I am trying to say is we are in a cyclical nature. The consumer is behind us a bit. We've got the momentum that we need and we have invested for that future growth.

So I think to the extent that there is no big fashion trend changes in the next 12 to 18 months, there is no reason to believe that momentum will not come behind [us].

The other thing I will point out, I went back and looked before the call, in my 3.5 years here we have had -- I should say at least the last three years, we have had average unit retail declines in all but three quarters of those last three years. And those average unit retails naturally were starting to compare against their decreases in the past, so they were starting flatten out. And we said this on the last call, we only had a slight decrease in average unit retail losses last month.

As I think, as Rick touched on earlier, as we move to the back part of the year, and if we are successful in strategically raising prices, we've got average unit retail opportunities in the back part of the year. That is a whole other conversation about how you leverage cost structure, because if you're starting to have average unit retails it is easier to leverage the components of your cost structure when you have those things as well.

So long answer to a simple question. And I do think for certain components of our business, the noncommodity-based components of our business, there is a little bit more price elasticity. But we play -- as Rick said, we played at all price points. There is less, obviously, price elasticity in basic denim and things like that. But there's a lot of other things that we have that are unique and hard to find where we have more price elasticity.

What was your question on outlets?

I was just curious to know if there was any color you could share in terms of performance of the outlets versus regular stores?

Our outlets comped at a slightly higher rate than our overall mature stores. And our outlets as a general rule are slightly higher from a sales perspective than our stores as a whole as well.

Okay, interesting. Thanks very much, and good luck for the rest of the quarter.

Edward Yruma, KeyBanc.

Thanks very much for taking my question. Your comments about the second quarter being I think modestly profitable, I am just trying to reconcile that with second quarter 2010, where I know that you were a loss position from a GAAP basis, but I believe you had a number of extraordinary charges. It seems to imply you'd be kind of flat on an apples-to-apples basis. Is that correct? And why don't we see the improvement in second quarter that we will see in the first quarter?

Last year I think on a GAAP basis we lost $0.04 a share. And then if you exclude the charge associated with the lawsuit, and if you exclude charges associated with the exiting of our very distribution center up up here and grew closer to a $0.02 range.

I think as we said, we think this year we are going to need some portion of a mid-single-digit comp to leverage components of our cost. So for comping at that level we are going to have a harder time leveraging -- growing, getting that sort of 3% to 5% comp.

And so I think the ability for us to then flow through incremental profit at 25% to 35%, that is where we are going to get profit growing at a faster rate than sales.

So I think the big question will be to the extent we comp at a rate higher than mid-single-digit, that's when you're going to see the traditional flow-through that you have seen from us in the past, but at this rate we are not ready to call that.

Got you. But just to be clear, you are showing some improvement in the first quarter on a year-over-year basis, so are there incremental costs in the second quarter that causes that flattening out of that improvement? Thank you.

Nothing significant that comes to mind at this point.

Linda Tsai, MKM Partners.

I'm interested in your Canadian stores. I know you already micromerchandise by region, but will the inventory composition of your Canadian stores versus US stories vary much? Will you flow inventory any differently?

And then maybe based on your Internet sales from Canada, are you expecting any differences in the demographics of your Canadian customer versus US?

So let me make sure I got all that. That has to do with basically the makeup of the floor set and the mix and then the demographics -- do we expect any demographic differences. Right? Okay.

We are going to do what we always do relative to the product mix, which is we are going to adjust. So we are going to start with a base level based upon what we have done from looking at the competitive set in Canada, looking at where we think the opportunities are there, and looking at where -- trying to leverage our knowledge of the market that we have today through cross-border shopping and our Internet business. And taking all that, and again combining in there and making our best assessment of what those initial floor sets are going to look like.

But we, as you know, are pretty good at then adjusting, and adjusting pretty quickly to meet the need of what is working up there with the consumer, and adjust to what -- to get them what they want more of.

So we are going to have a base start and then we are going to adjust like crazy. And we are going to find what is going to work for that consumer within each of the marketplaces.

We understand that, again, Vancouver is different than the Toronto marketplace, so we will have some -- just like it is different here in the US by region. We've got to learn some of the subtleties there that we don't have a perfect understanding of today.

So expect us to do an initial floor set based on the knowledge we have from the competitor set, from our base understanding of the marketplace and then adjust significantly.

Then the next part of your question related to -- pardon me?

Was it flow?

Yes, inventory flow.

Again, I think I probably already addressed that in the first part. We are going to do that set and we are going to flow it in. We are working with a third -- a distribution partner up there. So we are working through all that relative to how we are approaching the marketplace with our vendor base, as well as working through our private label strategies with that piece. So I don't have a lot to say to that at this stage of the game.

Then just to follow-up, could you talk about the strength of your Internet business? I know it is still lower than you would like, and you put in new leadership a while back, but what have been some of the strategies that have led to its phenomenal growth?

And then just please remind us what the margin differential is between the products sold in stores versus online.

Okay, so I will let Trevor take the margin differential piece of this, and I will talk about strategies that we've employed. The first thing I want to do is to say how much I appreciate the hard work and effort of all of our teams in growing the Internet business here over the last really 18 months, two years since we added the new leadership back there.

They are doing a great job. And, again, it is a team effort right across the entire system. And I am really proud of all the good work we have done there.

And from the perspective of -- I would tell you that one of the things you're seeing is prior to getting the right knowledgeable leadership in place, we just weren't very good at doing this. So some of what you're seeing is simply that, is we are doing basics in the Internet world at this point and we are catching up.

And I think and catching up rapidly in doing just the basics better. We still have a ways to go on that, learning the right way to merchandise and assort this channel. We are learning everyday about that. The right way to market in this channel, which at this point not doing a lot of marketing -- pure Internet-based marketing. We are still, again, going into those opportunities.

So we are to a large extent taking a great effort with people who by improving the talent of the system -- we are making up for a lack previously in how -- in what we are doing, and we are gaining ground.

And again, we are doing a great job, I think, team-wise on doing that. But we have a long ways to go. We are still doing the basics and we have a ways to go before we are going to get into really driving Internet business through the opportunities that exist there in marketing and search and optimization that we are still letting our way on.

Trevor, do you want to address the margin impact?

So the gross margins on the businesses are not meaningfully different, they are pretty close. When you look at the four wall contribution, again, you can look at it against total stores or you can look at it against our mature stories, they are all pretty close today.

We are making some investments in 2011 to accelerate long-term growth, where we actually are planning our operating margin down a bit in the Web business. But, again, we think that is something that will allow us to accelerate our growth into the future.

Again, that is all contemplated as we have given out some of that guidance. But there is no meaningful difference in either gross margin or operating margin at the Web business and the store business.

I would add to that that we really believe in having universal pricing across our channels. So we don't price differently in the online world than we do in stores. That is why, again, you think you see the consistency of the margin because so much is made up of the pure product margin, that is why you're seeing that kind of consistency there.

So we are big believers that we have a universal price structure for the consumer. And that we work carefully with our brands to make sure we execute it properly.

Thanks very much and good luck.

Stacy Pak, Barclays Capital.

Just a few things. Have you been testing some higher prices now? And can you share with us what you are seeing there?

If you're not able to pass along the price increases in the second half, are there other things that you can do to offset the cost increases, and can you talk about that?

And two other things, Rick, accessories were great, and I'm wondering if you could comment on those, and particularly watches?

Then lastly, just on the assortment planning and the faster leadtimes and micromerchandising, what is the timing on that in terms of the impact -- what quarters?

I'll take the first couple there and we will ask Trevor to jump in on the assortment planning piece. So your first question was, are we testing higher prices? And the answer to your question is, yes, we are. And I'm not going to share with you -- in fact, you probably -- you can do your own research on figuring out where we are testing the higher prices.

But in terms of the impact of whether or not we could at this point raise prices and see what the impact is, we are too early for me to be able to answer that question for you at this point as to what that looks like at this stage of the game.

But even if I was to tell you that we have successfully done it, and we haven't seen a big impact or here we have seen -- we garnered the benefit of the higher average unit retail where we have repriced, I would be very cautious about drawing a line that that means anything relative to the peaks of back-to-school or holiday, because in the peaks the competitive environment greatly increases.

So now about dealing conclusion I say you could draw from our test of higher prices, when we have enough data to answer that question, is if you could successfully do it now then you really know you can't do it at a peak. So that is really the point of doing it at this stage of the game. Not to really draw any conclusions, so I'm clear, about the ability to do it relative to the peak season.

All right, your second part of your question about what happens if we can't pass on the price increases. Again, my answer to you on that is I don't know -- and again, I am confident in some areas, in some brands we can pass on the price increases, because demand is there. The brands have done a great job of managing their distribution, of managing the quality of their product. I am quite confident of that.

I don't know what the interaction is going to be between trade down into private label, which will be higher-margin product, even on a relative basis, if prices don't hold.

So a long way of saying that I'm not ready to talk about what the impact may or may not be. Because it is just too -- it is very complicated and it is too hard at this point to model. I know that doesn't help all of you as analysts, but that is what reality is. So that is what I'm going to tell you at this point.

Accessories, I'm not going to talk about what we are doing in accessories. I appreciate the fact that, obviously, you have a good eye for what we are doing there. But we don't like to get in and talk about individual brand performance within accessories or detailed category performance within accessories. It doesn't do us any good from a competitive perspective, so we are not getting into the details of that.

Trevor, you want to talk about the assortment planning.

Yes, and I was just going to say, one thing on the cost side too, and we had not going to get -- like Rick said -- talking exact revenue margin implications. But we do have a heavily pay-for-performance model.

And if things were tougher in the back half of the year, which again, we are not suggesting they will be, but if they were, we do have variable costs that become can come down, and would come down if we are not hitting earnings targets.

So, yes, if things were to be tough in the back half of the year, we do have both investments and variable compensation and other components of our cost structure that would help mitigate some of those changes should they happen.

In assortment planning.

Assortment planning, yes.

The impact of benefits.

Assortment planning is a forward-looking solution. It is a planning solution by its definition. We will be using it to plan certain key components of our business as we get into holiday and spring -- holiday of this year and spring of next year.

So the assortment planning component of the solution will not have huge ramifications, other than the fact that we will start using the tools in planning in the very near future, and we will hopefully see some little benefits in the back half of the year.

The other side of that investment was a business intelligence tool, and we are getting benefits out of that today. Things like we have taken processes that took days and hours down to seconds. We are allowing the merchants to analyze the business in ways that were not as easily done in the past.

So we are getting some benefits today, because it is helping the merchants do their jobs better. And so we would say the big improvement from assortment planning are probably more in 2012 and beyond, but we will garner some small benefits this year.

And I would just will add to that again. I want to make sure -- we put these kind of investments on scale. We had been trying to micromerchandise the stores locally for about 30 some years now. How long we have been in business. Because our goal is to have unique brands that resonate in market places. And as we have said many times, we carry some brands only in 10 doors.

So, again, we have been doing this for a long time, so as you talk about this next evolution in assortment planning, that is exactly what it is for us. It is to make sure that as we continue to grow our business in news stores, as we continue to grow our stores' comp store gains, as we continue to grow our business in new channels, these are new tools to meet the new needs of where our business needs to do to be able to do dynamically grouip assortment planning on literally a brand and category combination.

So this is very complicated stuff, and it is an evolution for us of where we had been to the kind of where we need to be over the next few years. And again, you have to think about this as a step-by-step basis. You need to implement the new tools, and then you have to evaluate how you did against those plans and start making incremental adjustments. Just as Trevor said, the benefit should be over a multiyear period.

Okay, great. Thank you.

Betty Chen, Wedbush Morgan.

Congrats on a great Q4. I have a follow-up question to the earlier answer you had. I know you mentioned that you have universal pricing across all channels. Looking at the e-commerce business for a moment, are you seeing that customer purchase any differently than your in-store customer?

And also, I was wondering longer-term looking at the pace of growth in the channel, where do you that business as a percent of sales mix longer-term, and when you think you might be able to hit that number?

Then, also, I had a question regarding the juniors business. I believe it has turned positive now over the last five months. I know you don't want to get into too much color, but do you feel like that is a big opportunity going into 2011, especially in the first half of this year? And what you can see also happening in that category? Thanks.

Well, again, that was a lot. We will take our best shot at trying to get you the answers to those questions. Again, as we think about our business we are thinking about being a really great action-sports lifestyle retailer, a great partners for our brands, and doing it culturally the right way, again, for how we do that. That includes what we do in the online world.

And by definition then, as you think about that, we are always adjusting, always adapting. We are learning about the online world. And, again, to a large extent gaining share that we just should've had previously but are now going out and getting.

And so your first part of your question is, are there different purchase patterns in the online world? The answer is yes, there are. And that consumer -- and, again, I think you have to segment that also on is that a parent, is it the young man, is it the young woman? I think we would say there is probably different buying patterns for each of those. As we learn this business better we will probably begin to segment that more and more and more to determine how those buying patterns work.

So the answer is yes. They do buy different categories of product differently online. I am not going to get into great detail about what that -- how that works, but that is part of it. I think we're learning that rapidly.

I was reading about the long-term growth potential for the online world. We clearly continue, even though we have made great strides, getting up to 4.7% of sales last year, we have a long ways to go. And many of our competitors are way ahead of us in terms of their penetration of sales.

So where we end up, we are not exactly sure yet. What we know is we have a long ways to go. We still have a lot of basic things to do and implement. And then we've got to do even the harder things after that.

But the numbers can be much bigger than the 4.7% mix of sales. And I think as you look out over five years and 10 years and the use of handheld devices, I think the number is going up significantly. I am not clairvoyant. I don't know where that number is going to be.

Our job, as always, is to react and manage and push on every single thing we can to drive sales forward. So we are going to do our best to maximize it every single year with what our tools and skill sets are as we mature our online business.

Lastly, the juniors piece. We are, again, very proud that we have been able to get our juniors business stabilized. And, you're right, we have been able to say that we have achieved some positive comps. In fact, I think for all of last year we were slightly positive. Isn't that right, Trevor, within the juniors department?

Correct.

We just had a small slight positive comp for the entire year. So, again, congratulations to our entire team on the buying side and what we do out there in the field on getting that business turned around.

I would tell you that, again, I am not going to share a lot of color about what is working, what is not working in juniors. Again, you are pretty good at getting out there and seeing that for yourself. So what I will tell you is that what we are going to do in juniors is going to be consistent with being an action-sports lifestyle retailer.

That is very important to us, because we need to have a consistent brand message, whether it is young man or young woman. So we have to find the right mix of fashion, value, brands, that works to create that environment for our female customer.

I will you again, we don't have the exact answer for that at this point. And juniors is now -- our juniors apparel business now in terms of mix of sales, Trevor, about 10% of our business. So I think at our peak it was about 14%, 15% of the business.

So, again we found -- hopefully what we found now that is the base, and now we are going to be going back and reinventing and rebuilding and again experimenting and trying new things all the time to find that mix that is consistent with our brand identification at Zumiez.

So I hope that helps. We still have work to do there, and we have to do the work the right way for us.

Thanks, and best of luck.

Janet Kloppenburg, JJK Research.

Congratulations on a great quarter and year. I had a couple of questions. Rick, Urban Outfitters has been talking now for a couple of us about a major fashion shift going on. Trevor, you mentioned that there wasn't a lot of fashion change going on, but I was wondering if you could address any changes that you see or anything significant going on, particularly in the apparel business?

Secondly, I was wondering if you felt that perhaps you are making marketshare gains, because some of your head-on competitors maybe are not concentrating on the action-sports niche the way that you are with the intensity that you are. Perhaps they have defused their focus a bit. I was wondering what your viewpoint was there.

Also, I was wondering if you were going to be considering any pricing differences in Canada versus the United States? We are seeing some other retailers or brands as they move internationally be able to win some higher or premium prices. Thanks so much.

This is Trevor. I'll take the first one. Urban is a different customer than us. And I would characterize that they are more female and I think they are an older demographic. If you look at our business, probably 85% of our business is male. And you're right, we are more in the action-sports consumer.

And they are, I think, more a women's fashion retailer. They have a much higher penetration of private-label than we do. So I think they are different businesses.

So from our perspective we just -- I don't think we have seen anything that is going to be huge new fashion trend that is going to change the business in a meaningful way. And value are probably are a little less affected by huge fashion trends anyway.

As far as Canada and pricing, it is a different market. It is a different country, obviously, a different currency. And so our pricing will be what we think is appropriate and competitive for that market.

And in a number of cases it will be higher, just because again you've got a completely different country with different taxing and currency and other things. So, yes, there will be disparity in pricing between Canada and the US.

And from the competitors' perspective, to address your topic there, is as I look at what is successful for us, and as we have talked about in our script, is what we've been doing is executing our long-term strategies for many, many, many years now, and we really good. We have a clear identity of what we are doing and who we are, and why we do the things we do.

As you know from, I think, our conversations, we [can't] tell people why we choose to do things a certain way. And sometimes people think we are crazy. But there is always logic behind the kind of things we do, the way we approach it.

So I don't want to focus on a competitor's perspective. What I think is happening is these broad trends in retail that I think there is just too much capacity in every sector of retail. And I think that needs to be -- is going to be addressed. Particularly put in terms of what I think is going to be a slow economic recovery and a lot of economic uncertainty around oil prices and unemployment.

So I think these are, again, longer-term trends driven by macroeconomic environments, driven by again the uncertainty around the environment. And the excess capacity, I think, there's too many retailers, too many stores, and the stores are too big. I think those things need to be adjusted.

I think we are in a really good position, because we are smaller. We have taken our time. We focus on quality. We focused on doing this with cultural integrity in our business. And it is our time now to earn that share. And we are earning the share in what we are doing here through our efforts and executing well.

Well, the stores look great. Good luck.

Carla White, Jennifer Black & Associates.

Congratulations on a great quarter and year. You have done a lot of research on your hardgoods business. Can you talk about your learnings and are you better positioned to compete?

This is Trevor. So the hardgoods business has actually been, I think, -- skate is by far the largest part of our hardgoods. Snow starting in October becomes material, but then by mid February it is immaterial. So skate is the largest component of our hardgoods business.

It has been our most difficult component of our business all year. Our view -- we think we are probably the largest branded skate seller in the United States, so we have deep roots to see what is going on within the industry.

We think it has been tough in a number of places. I think you're right in the most difficult part of the demographic shift with less young teenagers today. And that probably has more to do with it than anything. That sort of changes in the next two years or so. I think that has more to do with it than anything. You just got less of those people coming in every year.

I think we have components of it. Our older -- some portions of our business are performing well, but for the most part that has been the most difficult component of our business. I think our hardgoods businesses last year was about 12% of the sales. So it has actually gone down slightly as a percentage of sales as well. I think at the peak it was probably 15% of sales.

I'll just comment briefly on snow is we entered this year with new strategies, new tactics on snow. Again, I'm not going into the detail what those were. We had a good snow year. In fact, again, our first good snow year as a department in a number of years.

Now I would like to take credit and say -- and I will take partial credit by saying a lot of things we did worked. But I will tell you it also helps when it snows widely and a lot throughout the United States.

So we can't take full credit for it. Mother nature helped us with dropping a lot of snow. So it was a decent snow year for us, and the first in many years that we had a good snow year.

Great, thank you very much.

Ladies and gentlemen, this concludes today's question and answer session. I would now like to turn the call back over to the management team for closing remarks.

All right, again, I appreciate everyone's time today. Since this is our annual call reporting for the last year, I just really want to take the time here to make sure I say thank you to all of our branded vendor partners. We really appreciate your support as we have navigated over the last few years.

I want to make sure I say thanks to all of our teams at Zumiez, from our sales kids and our store managers and all of our field teams to e-commerce and distribution and home office teams. We appreciate all their hard work and effort.

Lastly, I want to say thanks as we navigate over these last couple of years to our very patient long-term investors. And we appreciate your interest in Zumiez and your passion with what we are doing. And we look forward to coming back and reporting to you again in May when we have a chance to talk about first-quarter results. Thank you everybody.

Ladies and gentlemen, we thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.