Zumiez Inc (ZUMZ) 2011 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Zumiez Inc. fiscal 2011 fourth-quarter and year-end earnings call. At this time all participants are in listen-only mode. We will conduct a question and answer session toward the end of this conference.

Before I begin I would like to remind everyone of the Company's Safe Harbor language. Today's conference call includes comments concerning Zumiez Inc.'s business outlook and contains forward-looking statements. These particular forward-looking statements and all other statements that 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 I would now like to turn the call over to Rick Brooks, Zumiez' Chief Executive Officer.

Thank you, and welcome everyone. With me today is Marc Stolzman, our Chief Financial Officer, who will review our financial and operating highlights for the fourth quarter and full year in a few moments. After our prepared remarks we will open the call up to your questions.

We are very pleased with the strength of our business demonstrated during the fourth quarter, which completed an overall solid year. Our results in the quarter were highlighted by a 9.7% comparable store sales increase, with our stores achieving mid-single-digit comps complemented by increasing contribution from our growing e-commerce business.

Our comp store sales results for the quarter and the year helped drive a full-year sales increase of 16.1%, which combined with product margin increases and our disciplined approach to managing our cost structure, drove a nice improvement in all key metrics -- gross margins, operating margins and earnings.

Clearly, our product focus with highly differentiated assortments, featuring unique brands across apparel, footwear, accessories and hardgoods, are resonating with consumers. In a quarter where our weather-dependent product was challenged due to a lack of snow across the US, our overall sales remained strong, a testament to our sales and merchandise teams who continue to execute at a very high level.

At the beginning of fiscal 2011 one of the major themes for the year was the uncertainty retail faced surrounding inflationary pressures on product, input costs and the state of the consumer in a delicate macro environment. As the year unfolded the mall became extremely and increasingly promotional. I am proud of our team's ability to navigate through this backdrop to not only drive sales results above our projections, but to do so while achieving record product margin levels.

Fiscal 2012 is off to a strong start with February comparable store sales up 14.2%, on top of a 12.8% of a year ago. While we are not planning a double-digit comp gain for the balance of the quarter or the full year, our plan is to build upon our recent successes by staying loyal to our operating philosophies, namely, offering branded merchandise unlike that carried by our mall competitors, and delivering a superior shopping experience highlighted by best-in-class customer service.

We will also continue to focus on the long-term expansion opportunities that we are confident exist for our unique concept both domestically and abroad. Currently we operate 434 stores in the US after opening 35 in 2011. In 2012 we expect to open approximately 40 new US stores, consistent with our long-term pace of 8% to 10% growth, as we build towards a domestic store count of 600 to 700 stores over the coming years.

We will be opening new markets, including two new states, as well as backfilling existing markets. In 2011 we expanded outside the US for the first time with opening of 10 stores in Canada. As we anticipated, our year one sales results in these stores are trending higher than our new stores in the US. However, it is still too early to meaningfully assess this market. It will be important to see how we perform as stores begin to anniversary and we increase our penetration.

But we expect that our Canadian operations will be meaningful contributor to our overall business in the coming few years. We are currently targeting approximately 10 new stores in the country during 2012, with long-term potential for 60 to 70 stores.

Our e-commerce platform continues to grow and show exceptional promise. This channel represented 7.3% of our overall business in 2011 compared to 4.7% in 2010. And we believe it has the potential to become at least 10% of our overall business in the next few years.

In order to more adequately provide for this expected future growth we recently announced the relocation of our fulfillment center to Edwardsville, Kansas. This new space not only provides more room to expand, it helps in extending our best-in-class customer experience to our e-commerce customer by ensuring order delivery in three days or less in the continental United States.

All in all we continue to stay the course, as we have throughout our 33-year history, focusing on the business fundamentals that have made Zumiez the leading action sports lifestyle retailer.

As we look into 2012 and beyond we look forward to capitalize on the positive momentum we have generated through continued investments in our people, our merchandising capabilities and the expansion of our concept.

Again, I will reiterate the avenues where we pursue growth in our business. First, higher store productivity; domestic new store growth; e-commerce penetration; and lastly other opportunities such as our international expansion into Canada.

While we invest in growth we will further refine our fundamental strengths micromanaging our product assortments, enhancing the customer experience across all channels, and building our culture as we build our business.

Over the past several years retail has experienced headwinds primarily as a result of a challenging macro environment. During this period time we have proven that by staying true to those things that made us successful we have created a long-term, sustainable business with tremendous future potential.

With that I will hand the call over to Marc, who will review our financials in greater detail and discuss our outlook for the coming quarter. Marc.

Thanks, Rick. Good afternoon everyone. I will begin by briefly reviewing the fourth quarter and full year, then we will move onto guidance for fiscal 2012.

For the fourth quarter net sales increased 17.7% to $183.9 million from $156.2 million in the prior-year quarter. The increase in net sales was driven by a 9.7% comparable store sales increase and the addition of 45 new stores since the fourth quarter last year.

To break these results down further, our men's, footwear, accessories, juniors and boys departments all comped positively during the quarter, while hardgoods were negative. Our overall snow business, including hardgoods, underwear and accessories, representing approximately 17% of sales in the quarter comped negative, primarily as a result of the lack of snowfall across the US.

E-commerce sales were up 60.3% in the fourth quarter on top of 136.3% growth in the fourth quarter of 2010. Our e-commerce sales contributed nearly 4% to the fourth-quarter comp and represented 9.8% of total net sales for the quarter.

The comparable store sales gain for Q4 was primarily driven by an increase in dollars per transaction, partially offset by a decline in comp store transactions. The increase in dollars per transaction in the quarter was primarily a result of an increase in average unit retail, partially offset by a decrease in units per transaction.

Gross profit for the fourth quarter increased 19.4% to $71.5 million or 38.9% of net sales from gross profit of $59.9 million or 38.3% of net sales in the year-ago period. The 60 basis point improvement in gross margins was driven by a slight product margin improvement in the quarter, as well as leveraging our occupancy and supply chain expenses on the sales gain.

Moving to expenses. SG&A expense for the quarter increased 12.0% to $40.2 million from $35.9 million in the prior-year quarter. As a percentage of net sales SG&A expense decreased to 21.9% from 22.9% in the fourth quarter of 2010, primarily by leveraging these expenses on higher net sales.

Operating profit was $31.3 million or 17.0% of net sales compared to $24.0 million or 15.4% of net sales during the fourth quarter of last year.

Our net income was $18.7 million or $0.60 per diluted share for the fourth quarter of 2011 compared to $15.0 million or $0.49 per diluted share in the fourth quarter last year.

Turning to the full year. Fiscal 2011 net sales were $555.9 million, an increase of 16.1% over $478.8 million in the prior year, driven by a comparable store sales increase of 8.7% on top of 11.9% in fiscal 2010, and the opening of 45 new stores in the year, offset slightly by the closing of one store.

E-commerce sales increased 80.1% over the prior year, and as Rick mentioned, represented 7.3% of total sales for fiscal 2011 compared to 4.7% in fiscal 2010.

Operating income increased 61.2% to $60.2 million or 10.8% of net sales compared to $37.4 million or 7.8% of net sales in the prior-year period. The 300 basis point improvement was driven by the increase in sales, a 130 basis point improvement in gross margin, which includes 50 basis points of improvement due to the prior-year costs related to the relocation of our distribution center, and 170 basis points from leveraging our SG&A costs during the year, which includes 40 basis points of improvement related to a previously disclosed legal settlement in the prior year.

Net income for fiscal 2011 increased 54.3% to $37.4 million or $1.20 per diluted share from $24.2 million or $0.79 per diluted share in fiscal 2010.

Our fiscal 2010 full-year results include identifiable costs of $2.4 million or approximately $0.05 per diluted share associated with the relocation of our distribution center from Everett, Washington to Corona, California, as well as a charge of $2.1 million or approximately $0.04 per diluted share for the settlement of a previously disclosed lawsuit.

Looking now at our key balance sheet highlights. As of January 28, 2012, cash and marketable securities were $172.8 million, an increase of 34.2% from the $128.8 million as of January 29, 2011. The increase in cash was due to the strength of our results over the last year, which produced strong operating cash flow and reflected sound working capital management, partially offset by $25.5 million of capital expenditures primarily related to our new stores and remodels.

As of January 29 -- 28, 2012, inventory was $65.0 million compared to $56.3 million as of January 29, 2011, a 15.5% increase. On a per square foot basis inventory increased approximately 4% from the end of last fiscal year.

We have continued to have strong discipline related to our inventory, growing it at a rate slower than sales. Also, at January 28, 2012, the Company had no debt, including no outstanding balances on its revolving credit facility.

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

For the first quarter, inclusive of our February sales results released on February 29, 2012, we're planning same-store sales to increase in the high-single-digit range and total sales to be in the range of $123 million and $125 million.

We expect operating margins to be in the 2.0% to 3.0% range, with diluted earnings per share between $0.06 and $0.08. As previously disclosed, we plan to relocate our e-commerce fulfillment operations to Edwardsville, Kansas from its current location in Everett, Washington. Additionally, we will be moving our corporate headquarters to a new building in Lynnwood, Washington from our current location also in Everett, Washington.

Costs associated with these relocations are expected to be approximately $0.4 million or $0.01 per diluted share in the first quarter of 2012, and approximately $1.8 million or $0.03 per diluted share in the second quarter.

As many of you know, our business is seasonal with the majority of our sales and earnings occurring in the back half of the year. While consumer sentiment seems to be improving, there still is uncertainty about the sustainability of an economic recovery. Because of all of this it is difficult to project the full year with a reasonable amount of certainty; however, there are a few comments we are thinking about for the year.

First, we are planning our comparable store sales to increase for fiscal 2012. Product input cost pressures will subside relative to the prior year. Cotton prices are currently expected to be down in the second half of the year, although this will be partially offset by increases in labor costs and other raw material costs.

These apparent tailwinds notwithstanding, we achieved record product margins in fiscal 2011, and our product margins could be impacted by a variety of factors, most notably shifts in product mix.

That said, while it is our goal to maintain product margins we are planning them conservatively for the year.

We plan to continue making investments in people and infrastructure to support our growth in 2012; however, we also expect SG&A expenses to grow at a slower rate than our sales growth.

There will be an additional sales week -- an additional extra week in fiscal 2012 resulting in a 14-week fourth quarter and a 53-week fiscal year. This extra week will benefit sales and earnings growth in fiscal 2012 and will be a detriment to sales and earnings growth rates in fiscal 2013.

Consistent with prior statements, we believe we can leverage our cost structure and achieve operating margin improvements with a mid-single-digit comp increase. To the extent we are able (technical difficulty) we expect incremental sales will flow through at a rate of 25% to 35%.

We are planning to open approximately 50 new stores in 2012, including up to 10 in Canada, with a cadence similar to our historic openings of two-thirds prior to back-to-school and one-third after.

We expect capitols expenditures for the year to be between $42 million and $44 million, compared to $25.5 million in 2011. The major capital projects being the new store openings, planned remodels, and the buildout of our new home office facility in Lynnwood, Washington.

We also expect depreciation and amortization to be approximately $22 million, an increase estimated at 10% over fiscal 2011. And with that we are ready for some questions.

(Operator Instructions). Edward Yruma, KeyBanc.

Thanks very much for taking my question. Thank you very much for providing some of color on the contribution margins. I guess, I am just trying to think conceptually, you are basically back to peak operating margins on an annual basis. Are there any other levers you can pull on, particularly on the gross margin front, from a longer-term perspective that can help you extend that operating margin? Thank you.

Ed, you know, we -- I think we have consistently said that we expect that we can drive our operating margin into the low- and mid-teens range overlooking our five-year model. I will let Marc talk a little bit about how we incrementally we expect that to fall between (technical difficulty) margin and the operating margin line.

But what I will just at the top is we only need incremental improvement. As you know, we are good at controlling the cost side of what we do, and we have been able to demonstrate that for over a very long period of time. And so our business has always has been, and I think any great retail business is, is leveraged to the top line (technical difficulty) driving the topline sales.

We are all about driving those growth initiatives forward. And so if we can drive topline, I am confident that over that five-year window we can get to our lot- to mid-teens operating margin. Marc, do you want to add anything to that?

I think -- as Rick said, I think the first and most important lever is sales growth, making sure that we can extend that mid-single-digit comp and be able to leverage our fixed expenses.

We do believe that with the type of growth and type of brand strategy we have in merchandising that we are able to improve our product costs on an annual basis, and this is fundamentally over a multiyear horizon. And that additionally the occupancy and distribution costs for the Company can be leveraged. So we do expect our gross margin to be able to expand.

And then, as Rick said, controlling the cost side underneath that in SG&A. The combination of SG&A leverage plus that product and gross margin leverage will lead us to that mid-teen figure that we are targeting.

Great, and one follow-up, if I might. Your Canadian stores, the 10 that you are planning to open in 2012, how should we think about the economic model there? Is the store profile materially different, and how will that impact the P&L? Thank you.

I think in terms of a profile, Canadian businesses -- Canadian retail businesses relative to their US counterparts tend to have a higher sales figure based on the market structure and the cost structure, but they also tend to carry higher costs.

And so it is our expectation that when you take the higher sales into account and then the cross-border transaction costs and the transportation costs that we should see a profile, at least to the product cost, that looks very similar to what we have here as a percent of sales.

Overall, higher occupancy is very relevant in Canada as are labor costs. And at least in the near term that can lead to operating margins being below the US proxy. But I think over time as we figure out how we look at that cost and market structure, how our business has moved towards maturity from their early, not even one year average date today, I think we will begin to see that -- the bottom line move towards the US counterpart. And whether it gets all the way there is going to be a factor of the entire US to Canadian economy, including foreign exchange.

The last part of your question, Ed, in terms of how does it affect it. In the near term -- last year, this year -- it is a pretty small portion of our business. I think as we start building out towards something that could be more maturity focused, you know, 60 to 70 stores in nature, I think then we will see something pretty meaningful. And by then I think we'll see something that shows a good profit (technical difficulty) sustainable over a longer horizon.

Great, thanks so much.

Adrienne Tennant, Janney Capital Markets.

Good afternoon, congratulations on a great quarter. Rick, my first question is for you. Can you talk a little bit about the -- a little bit of the change in strategy, sort of having a clearer break between fall season and then spring season. I think you're setting it a little bit -- a couple weeks later than perhaps you have in the past -- what the thought behind that is.

And then if that is the case, why you would see a drop-off in the comps even though you were sort of pulling -- pushing forward some of the product? And then if that same shift, if we should expect that same transition from spring into fall in the back half of the year? And I have a follow-up for Marc, if I can.

Well, thanks, first, for paying attention to what we are doing. I always appreciate that from our analyst community. So now I have to clarify one of your comments, in general, in many markets we did shift the setting of spring out a bit later, but that is not true in all markets. In fact, in some markets we might have moved setting up spring up slightly, depending on the market. Again, as you know, we're very focused on doing what is right for each store in each geographic region.

So, first, it does vary is what I would want to make sure I weren't as clear on.

Okay.

Second, why did we do it? The why is pretty clear, which is as we go back and we evaluate what the selling is relative to setting spring and the floor space it takes, and how much we think it -- and again, we don't do any of this without testing it, I might add, too -- is we felt that we could incrementally gain in sales by shifting it out and dedicating more floor space to the product we had on hand earlier. Because we weren't seeing the kinds of rates of sales in -- particularly in those later markets, those later spring markets, that justified the earlier setting of the spring floor set.

So in our role everything is sales driven and it is supported by -- our strategies are built around that idea -- what is going to drive the most results. So now I don't (technical difficulty) the weather is such that, right, it is getting cold in a lot of part of the west out here now, so the weather certainly had a major user impact upon our thinking.

So in terms of how it affects comps, moving comps around, I don't see that as a significant mover either way. I think we have plenty of product, plenty of selection or brands across that to react to whether it is spring or carry-over winter product is selling. So I don't see a comp shift necessarily related to that.

As to whether or not, Adrienne, we will continue this strategy going forward, I think that is something, again, that will be -- we will evaluate how this shift worked this time. And then we will make those decisions over the next few months as to whether that would impact any of our floor sets, again, regionally based, back-to-school or for the fall season.

Well, by your February comp, it looks like you are indeed optimizing the transition.

For Marc, I have a question on the SG&A dollars. They were up low-double-digit, sort of in the back half of the year. And I am just wondering if we should expect that type of growth in Q1/Q2 with some of the headquarter and DC things are going on and maybe it could trail off in the back half of the year?

And then you had made a comment about potential mix shift impacting the strong product margins that you have. At this point in time do we know of, or should we know of any strategy to mix shift product that would result in pressure on the margins? Thank you very much.

Sure, so I think there is things in your questions. I think the first thing in terms of SG&A growth in the first half of the year, certainly the direct costs associated with both the e-commerce fulfillment relocation and the home office on a year-over-year basis will create cost, and that is why we will start to try to speak to the business across the year, both in an apples-to-apples basis and also in a total bases.

You know, the second part of that is we continue to make investments and we try to balance the speed of the topline growth with the investments we're making it, not so much for the current fiscal year impact, but for a multi-year impact, and really making sure that we are fueling a sustainable multi-year achievement of sales growth.

So I don't know that you will see as much drop-off in the first half to the second half in a dollar basis. You certainly will see it in terms of growth as the second half of the year represents so much more of our sales. So I think those two elements, I don't think you will see a material change in the way that we are timing the investments in our business growth.

And in terms of the product mix, it is not so much a strategy shift, as it is just -- really this is a consumer-driven shift. We will chase the consumer to see what items that they're looking for and that is what will generate the mix shift.

Our merchant team is very close to that and certainly they have signaled a few areas where, if those items continue with high consumer demand it will affect our business. But it is not so much a strategy shift on our (technical difficulty) just as the consumer makes their way into buying patterns it will impact the business. And right now we think that could be somewhat of a product margin headwind.

Okay, wonderful. Well, great work, and best of luck for spring.

Christian Buss, Credit Suisse.

Congratulations on a nice quarter, first of all. And I was wondering if you could draw provide some perspective on your plans for use of cash? Cash balances are rising pretty significantly here. If you can walk us through how you think about capital allocation and cash allocation going forward that would be helpful.

All right. Thank you for the question, Christian. Yes, we are accumulating some cash, which is obviously, I think, fundamentally what great businesses do in terms of delivering earnings and covering the sales into cash.

So I will tell you that we regularly discuss this with our Board, and having these conversations about what the Board's best thinking is about the use of cash. But we also fundamentally see tremendous growth opportunity in front of us.

So as we -- I think as most of you know, we are good planners. We have a good vision of what we think we can achieve over the next five years. I think a good roadmap for what it is going to take to get there. So, of course, as part of doing that we are looking at what the investments we are going to make, as Marc just commented on earlier about those investments we need to continue to make in our business. And I think the way you deliver consistent sales and earnings growth (technical difficulty) and very structured in our thinking about it.

So I do want to first say that we see ourselves as a growth company. And our Board will ideally look at, and regularly does assess whether or not we have excess cash in terms of supporting the needs of the growth of the business.

And where do you stand on that right now?

Again, I can't -- I'm not going to comment any more than that. Again, obviously our Board is in the process of evaluating that. But, again, fundamentally, we see ourselves as a growth business and having a healthy amount of cash is a positive thing for a growth business.

Absolutely, thank you very much and best of luck.

Stacy Pak, Barclays.

So a couple of questions. Rick, I was hoping you could comment just on what is happening in terms of the share of teen wallet that Zumiez is clearly gaining, what do you think is driving it beyond your awesome execution? Do you think there is a fashion trend? What do you think is going on, especially with the young male teen?

And then second of all, I was hoping you guys could comment on the actual level of AUC pressure Zumiez has experienced in the second half of 2012. How much the AUR was up in Q4, and how we think about AUR for 2012, like how are you thinking about pricing?

All right, thank you, Stacy. I will take the first part and let probably Marc chime in a bit on the second part regarding the average unit cost and average unit retail part of that.

So the first question is -- I think, is really interesting question relative to what is going on and share consolidation in the marketplace. And, Stacy, I guess I would make the argument, and we have been making this argument as many of you have heard us over the last number of years, that because of a number of trends, some are driven by the difficult recessionary experience we just all went through. Some of the trends that are driving consolidation in retail I think is driven by what is going on in technology -- the Internet, mobile devices.

I think all of these kinds of trends, the difficult times economically, the way consumers are using technology, have been driving in every segment of retail, including our segment of specialty retail consolidation and market share consolidation.

So our view has been that we need to be -- that to survive in that world you need to continue to make investments in how you connect with your consumer, how you think about integrating yourself into your consumers lives in new ways from a technology perspective.

And you have heard us talk about this from the point of view of omnichannel retail, or channel-less retail. We've been making progress on that front over the last three years in terms of our efforts, in terms of trying to think about our business differently and approach it differently. And you have seen that in the number of ways and what we do, and the most obvious way is what you are seeing relative to the penetration of our e-commerce business.

And we are not going to share all of the things we do on that front, because so many of them are proprietary and competitive in nature. But we have been living and practicing under this philosophy that there is going to be share consolidation, because of these two trends, difficult macroeconomic times and the changing impact of technology on consumer behavior.

We think, Stacy, those two trends are going to continue because we're going to have a slow, painful recovery yet, and that consumers are going to continue to adapt and use technology differently over the next few years. So we are trying to execute against those trends in terms of how we think about our long-term business planning and investments we need to make, and how we have to interact with our consumer (technical difficulty).

Okay, thank you.

The last part of your question, I did want to address those fashion cycles. And, you know, there are so many things going on in our business because it is so diverse, and brands and categories of business, that I would tell you that our ability to capture share again is -- while there are fashion cycles, it greatly hinges upon the ability of our great merchants to execute well. So it gets back to the idea of great execution.

And I think our teams have done a terrific job there of identifying the cycles, being right on top of the cycles, and that is obviously reflected in the results.

Okay, thanks.

On the other side of your question, first on the average unit cost. We have seen in our cotton-based products coming into back-to-school last year and really carrying through the second half a wide range of different input costs, but in general between 10% and 15% increases.

As we entered the fourth quarter, and certainly hardgoods in the outerwear changes some of the cotton total percentage of our business, that number was a bit lower for the fourth quarter.

I think what is most relevant about --.

The number overall was or just because of the hardgoods?

Because of the mix of business, the hardgoods.

Okay, yes, yes, yes, okay.

And, certainly, all retailers had a basic philosophy of trying to capture or absorb that cost increase with retail. And unlike many of our competitors, because of our product we were able to maintain our margins instead of having to sacrifice that. So we were able to pass a fair amount of that cost on.

As we look forward to 2012, and in my comments I mentioned that we do think cotton prices will pull back and have a better environment. What that should lead to is a similar trend in the first half of the year that you saw in the second half of last year, that being the comp store gains driven primarily by AUR increases.

And as we meet the middle part of the year and we begin to enter back-to-school, notwithstanding other economic or mix factors, we expect that the business will pull more towards -- AURs will pull back and the business will shift more towards a transaction game.

But, certainly, that is very much driven by the consumer pattern of which products are really moving and of interest at that point in time. But I think sitting here today that is how we would think about the year as we look at it.

Right, okay. Thanks guys.

Jeff Van Sinderen, B. Riley & Co.

Good afternoon. This is [Arteth] in for Jeff. So one of my questions has already been answered as far as what will drive the comp metrics once we get beyond the anniversary of the mix. But, so what needs to happen for you to start running the increase in the number of transactions? And how do you see PSUN store closures impacting your business this year? Do you think that your stores will perform better in markets where PSUN has already closed stores or have you seen that?

All right, thanks for the questions. Let me take the PSUN question first. And I am -- we obviously are monitoring where they have closed stores and how many stories we had that overlapped, and so the first thing I would tell you is that shareholders will be glad to know that we had a minority of stores that overlapped with their approximately 90 closings. So it is a relatively small sample of stores that we are monitoring through the liquidation phase and here post.

I am reluctant to give any specifics why we are looking at it on a regular basis, any specifics at this point in time. Because you really need to get through the peak season to have any meaningful read. I mean consumers have to have a time to adapt and respond to the changes in market.

So I am not going to really answer specific as to what we have seen. I guess I will answer -- give you something to think about in a broader space, which is, as I think -- as we responded to Stacy's question a moment ago talking about share consolidation over the last three years, we have certainly outperformed the -- I think, most of the action sports retail market for that timeframe.

So I don't know what we're going to see across the full year in terms of what those closures mean, but I might ask you to just think about whether or not some of those gains have been achieved through share consolidation over the last three years of business. So just food for thought on that front.

Relative to the first part of your question, or to what is it going to take to see that mix shift take place, and when do transaction gains start to kick in again. That is all consumer driven. Those mixes, I think, Marc kind of laid it out for you there relative to the first six -- first two quarters in the back half of the year. That is kind of our expectations now, but that is just what they are, they are expectations at this point. So we're seeing the trends towards that direction but we have a ways to go.

Okay, understood. And how are you thinking about your spring break business this year versus last in terms of the calendar, and how this season will build over the next couple of months? And do you feel like that lack of the cold weather in some of those regions may have pulled in some of the water warmer weather business forward?

You know, I don't feel that way. Honestly at this stage of the game that we've seen -- particularly coming out of a February time -- the February sales results. I don't think that is the case at all that we saw. I think we saw consumers -- our consumer in the mall, they loved the product we have and they bought what we had. That was appropriate for what the conditions were then.

But I don't think -- we don't have any -- clearly don't have any significant read in February on spring selling at this point. It is just not that -- in most cases it is not that significant to give you any read on the spring -- seasonal spring categories.

So, no, I don't think that is the case. We do have a bit of a shift in Easter. Marc, do you want to comment at all on that?

Yes, I mean, year-over-year Easter, and then obviously those schools that follow Easter for their spring break, moves about a week, but predominantly still remains in April in terms of both the lead into that spring break and spring break itself.

So, you know, we could see some end of March impact, and then the combined March and April periods we don't see any impact. But I think as we come out of our March sales call we will certainly highlight just how much we felt that could've been associated with it, if it is meaningful.

But, really, not a lot of impact in the month of April as compared to some years where it has moved so significantly between those two periods.

Okay, that is helpful. And then my final question. How much carryover inventory do you have from the winter sports hardgoods, such as snowboards, et cetera?

You know that is -- that is actually a great question and I'm pretty happy to report that the activity that both our store teams and our merchants were able to do leaves us far cleaner than I think many of our competitors. And really we are pretty pleased with how we will enter -- exit this year and enter next year.

You know, although all selling is not done of that product, for the most part we're pretty comparable year-over-year in our soft good side of the snow and winter business. And on the hardgoods side, we are only carrying over a small percentage higher than we did the previous year. Obviously, the previous year was one of the best snow years we have had in decades and this year one of the worst.

So to be able to move that product and selectively market down where needed, we were really happy with the type of results that we were just reviewing earlier this week.

Okay, thanks for the color, guys.

Dorothy Lakner, Caris & Company.

I just wanted to ask about where private-label ended up for you in 2011. And also just, I guess, more generally if you could give a little bit of color on your systems initiatives. What happened last year? Were your -- what is happening this year kind of a timeline? Thanks.

Sure, so overall private label was very close to where we were the previous year, so down 0.3 -- and so last year 18%, this year just under 18%. So I think that given the type of branded focus we had, and it really where a lot of the strong product sales were coming in and some really strong consumer-facing branded products, our private label really held its own growth across the business.

And to be clear, we grew private label in sales. It just didn't grow as fast as our branded --.

Right.

Components of our business. So I think that is a great -- that is obviously our outcome we shoot for all the time, which is to grow both sides.

Yes.

Right, grow the brand business and grow the -- some years private label will grow faster, other years based on the brand cycle, brands might grow faster.

Yes, exactly.

I am sorry, your second piece was focused on --?

Was focused on systems to -- just technology, what is happening this year in terms of your systems initiatives?

Sure. Well, I think prior to giving any color on that I think first and foremost we are a retail-driven, consumer-driven organization and the systems support that, but they are not the driver of how we build the business.

I think as we think of ourselves in a multi-channel an omnichannel perspective we continue to focus our systems energies into gaining a more consistent look at the way that we manage the customer, regardless of what place they enter the business, e-commerce or in the stores. So I think we will continue to put some energy behind outside of our systems integration. The platform side of our e-commerce, and obviously just getting our e-commerce fulfillment relocated has some system implications, as does -- we have been already prepping our systems, getting ready for the new home office.

I think beyond that, we always have a series of system initiatives. Rick has historically talked about our micro assortment mentality, and that puts a lot of energy into business intelligence and really making sure our merchant tool set is continually refined and made more robust to make our decision-making more thorough. But I don't know that I would comment much further than that in terms of any major call out.

Great, thanks, and good luck.

(Operator Instructions). [Linda Tassey], IPG.

Thanks for taking my call. Can you give us an update on your brands? Historically I know no brand has represented more than 7% of your sales. Was this true for 2011? And what kind of shift did you see in terms of different brands moving up or down the ladder in terms of being the most popular?

And then are the number of brands you are carrying still as varied as in the past or is there more concentration?

I will start, and then let Marc talk a bit specifically about the numbers. So our strategies here with our branded partners has not changed one bit. We work very hard and very closely with our brands to deliver the right product that our consumer wants, to work with young brands, to help nurture and bring them along.

And as, again, many of you know, small brands don't go from zero to all stores, that just doesn't happen in our world. They may start in 10 doors, because those are the doors that make sense for that brand. So that gets back to the micro merchandising initiatives that we always try to put in place, and micro assorting locations. And I think we are one of the few retailers that can actually do this kind of business, with particularly as small a team. For those of you have seen our home office, it is pretty amazing we can do that at the level that we are operating.

So we continue to be very brand diverse across our system. We continue to work with a lot of these small brands. We continue to see terrific growth with a lot of the brands. And we certainly want to encourage more of that, because there are some great young brands out there and we want to be supportive of their efforts. So with that, I will let Marc talk a little bit more about the numbers.

Sure, so, overall you're correct. Our largest vendor still only represents a small single-digit percentage of our total sales. Yeah, this year we did see both the growth of -- or concentration of sales within our top 10 vendors and concentration within our top 20. But as Rick said, the breadth of total brands that we carry did not diminish. And so really just as we have had a few brands that really resonated with the customer and drove some increased sales.

But I think it is important to note that we only have a handful of brands that exceed even 3% of our total sales. So we really -- the brand concentration reflects what you see in the stores and that is one of a lot of breadth and less about style depth. So it is hard for one of the brands to really take over a dominant position because of the way that we merchandise and assort the store.

Great, thank you.

Betty Chen, Wedbush Securities.

Thank you. Good afternoon and congratulations on a great quarter. I was wondering if, Rick or Marc, if one of you can comment a little bit about new store performances? I know that in the past you had talked about maybe year one stores performing at 70% of a mature store, and maybe taking roughly 3 years to get to maturity. Can you talk a little bit about if you are seeing any differences in some of the recent classes, any variances by region?

And then my second question was regarding the direct business, Rick. I know you mentioned that is a focus area and certainly has been growing very nicely. From our perspective, the e-mail messages seem to be so much more of a call to action, much more compelling. What other areas of improvement or initiatives is the team working on to further drive the growth in the direct business? Thank you.

Sure. Let me take the first half of that and then Rick can comment on e-commerce. Yes, I think there is not a lot of call outs about the new store. It operates very similar in 2011 as it did in prior years. Still operating at about 70% of the mature capacity. This will not be a shock, but newer markets have a long ramp and start a bit lower than a more mature market where we already have existing store presence.

And then, I think, we mentioned a little bit earlier, our Canadian stores just because of Canadian retail economics start with a higher sales number. But we -- it will be multiple years from now before we really get a sense of how did those stores start compared to what they will ultimately reach in terms of a mature volume.

But I think, we are glad to say that there is very little change in the way a store opens, ramps and heads towards maturity. And the classes of stores, 2011, 2010, 2009, backwards in time have performed very consistently to how their peers did in the past.

Right. And then your -- the second part of your question, Betty, regarding what we were thinking about our strategies relative to our direct channel. Well, we obviously have a lot of things that we have in the works. And again, we have a multiyear plan that we have established for our direct channel business. And, obviously, we have made as -- and thank you for recognizing that, a lot of progress over the last few years in this channel.

And I am not going to share all the specifics about what we're going to do, but let's just say we have a long ways to go. Because we started just -- I think we are at a 1% mix on our e-commerce business. So to where we are at today, we have made a lot of progress. And I tell you that we made a lot of that progress through doing the nuts and bolts of basic e-commerce.

So we have a lot of levers yet to pull on our e-commerce operation. We also have a lot of investment to make. And I think Marc commented on that earlier relative to our capital plans or some this year in e-commerce, make those investments in talent, and in acquiring the kind of talent we're going to need to drive that business forward. And that is a very competitive marketplace. That is not necessarily an easy thing to do.

So I'm not going to share our specific strategies, outside of exactly what we're going to do to drive the next levels of e-commerce, but we have them and we have a detailed plan that extends over a multiple year period. And I also been talking about e-commerce, while we do have the strategies that are independent standalone e-commerce strategies, we also have those omnichannel strategies.

And that is part of what we are looking for too is using our website and our -- as a hub for how we interconnect all channels of our business. And it is going to get harder and harder as we look out over the next three and five years to determine -- always to determine exactly what drove the sale. And whether that sale happened in stores because of what happened on the Internet or vice versa.

Those things are going to get harder and harder to tell, and that is why you need to have an integrated view of your consumer, how they are working, and how they are working with you across channels.

So we are not going to share specifics, but we have a detailed plan. We have a long ways to go. And as I think we said in the comments, we think that over the next few years we can get our e-commerce business up to into the range of 10% of our sales mix.

That is helpful, Rick. And, Marc, I would follow-up. I know you mentioned earlier that the 53rd week will be beneficial. Is there any way you can help us by quantifying what sort of EPS benefit that would be to the fourth quarter?

Not in specifics. I think when you look at the month of February, and really you're talking about it is one quarter of the month of February based on the volume. And then just our standard business, a fair amount of leverage, probably more so than you would normally have because of the fixed cost side of the business. But it is nothing to call out in terms of a specific EPS impact.

Great, thank you and best of luck.

Lee Giordano, Imperial Capital.

Could you talk a little bit more about the juniors business? It seems like it has been improving. What have you been doing there, and what do you see as long-term opportunity in juniors? Thanks.

All right, thank you, Lee. Again, I don't have really a lot new to say here than what, I think you have heard us say in previous calls. Our junior business and overall relative mix of our business is actually on a full-year basis pretty level with what it was in the prior years. And our margins have been better in our juniors area of our business, just like they have been broadly across all of our business.

What you are seeing us do are, again at a high level, what we're trying to do is reflect exactly -- we translate what we're doing as an action sports lifestyle retailer into the women's side of our business. So you see a lot of emphasis on brands and what we're doing. And a lot of emphasis on how private-label complements what we're trying to do with those -- with the position of our branded partners.

So not a lot new for you, Lee, on that front in terms of how we are thinking about it. I guess, the greater thing, and most important thing from my perspective is that we are making progress, particularly not just on a sales perspective but on a gross margin (technical difficulty).

We feel pretty good about what we are doing there. I think our team has done a really good job. And we have done a good job of, I think, repositioning the business from where it was just three years ago.

Thanks a lot.

And this concludes the question and answer portion for today. I would like to turn the call back to Rick Brooks for closing remarks.

Thank you very much. You know, as this kind of completes our fiscal 2011 conversations, I always like to take this opportunity to make sure I say thank you to all of our branded partners out there, our brands that support our business, we greatly appreciate it.

I also want to take the time to make sure that I say to our teams, our sales teams across the Company, whether they be in stores, on our e-commerce business, our merchants and our support staff, thank you for all your efforts. We had a great year.

And, of course, lastly, and with just as much importance, our shareholders, for your belief in what we're doing. The way you hung in there with us through those tough recessionary years and here into what have been some pretty strong years for us in terms of our new record results and nearly recapturing that high operating margin level. So we appreciate all your support and dedication.

And we look forward to coming back to you in May when we talk about our first-quarter results. So thank you everybody.

And thank you once again for your participation. You may now disconnect. And have a great day.