Zumiez Inc (ZUMZ) 2012 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen and welcome to the Zumiez Incorporated, fiscal 2012, first quarter earnings conference call. At this time all participants are in a listen-only mode. We will conduct a question and answer session toward the end of this conference. Before we 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 than information that will be discussed, is available in Zumiez's filings with the SEC. Now I would like to turn the call over to Rick Brooks, Zumiez's Chief Executive Officer. You have the floor sir.

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 first quarter, in a few moments. After prepared remarks, we will open the call up to your questions. Our first quarter 2012 results were solid. With sales up 22.7% over the first quarter of last year, driven by a comparable store sales increase of 12.9% on top of a 12.6% comp a year ago. Our top line results are indicative of the continued strength of our business and solid execution by our sales and merchandise teams, whose commitment and passion define the exceptional buying experience our customers have come to expect from Zumiez.

Our strong comp gain, combined with the opening of productive stores over the past year, generate significant leverage. Resulting in a 320 basis point improvement in operating margin. By staying to our product and operating philosophies, namely offering highly differentiated assortments of merchandise, and delivering best in class service, we continue to captivate and engage our core consumer in ways that are meaningful to our bottom line. The same time we've been capitalizing on our successes, driving our business forward through the key growth avenues we've highlighted in recent quarters. Specifically, higher store productivity, domestic new store growth, eCommerce penetration, and other opportunities such as our international expansion into Canada. Our teams energy and focus, along with the investments we continue to make in micro merchandising our product assortments, training our passionate employees, and improving the customer experience across all channels is paying dividends.

As evidenced by our same store sales results over the past few years. We are taking advantage of long-term expansion opportunities both domestically and internationally. We opened 12 new stores in the first quarter, bringing our total store count to 444 in the US, and 11 in Canada. We continue to see growth opportunity in the US, and intend to open new domestic stores at a rate of 8% to 10% in the coming years, with a long-term goal of 600 to 700 domestic locations. Our Canadian operations while still in their early stages, are increasing our confidence level in the market potential for this country. While we intend to be deliberate in our expansion there and are waiting results as our first stores begin to anniversary, we are currently talking approximately 10 new stores in Canada during 2012, with long-term potential for 60 to 70 stores.

Our eCommerce platform proved once again why it is a key growth lever for us in 2012 and beyond. Sales for Zumiez.com increased over 50% and represented 7.7% of our overall business in the first quarter. We believe that this important extension of the Zumiez brand, has potential to succeed 10% of our overall business in the next few years. Fundamental principles that driven our business to date, will serve as a blueprint for building upon our successes. This is nothing new. The same core strengths that have created this strong sustainable business, will pave the way for future growth, and help us navigate any headwinds we may experience along the way.

Finally, I want to comment on the continued strength of the Zumiez culture. Last week with our 20 Zumiez manager's retreat. Where our culture was on full display with managers teaching and learning from their fellow managers. This event reflects our continued investment in our people, and empowers managers to impact their teams on a daily basis. It was a great event, and it showcased our unique ability to scale our culture, over the past 30 plus years. With that I will hand the call over to Marc who will review our financials in greater detail, and discuss the outlook for the coming quarter.

Thanks Rick. Good afternoon, everyone. I will begin by briefly reviewing the first quarter then I will move onto guidance before wrapping up our prepared remarks. Net sales increased 22.7% to $129.9 million in the first quarter compared to $105.9 million in the first quarter of 2011. The increase in net sales was driven by a 12.9% comparable store sales increase, and the addition of 48 new stores, since the first quarter last year. To break down these results further, our men's footwear, juniors, hard goods and accessories departments all comped positive for the quarter, while boys comped negative. ECommerce sales increased 50.9% in the first quarter, and contributed 2.4% to the first quarter comp. As Rick mentioned, eCommerce sales were 7.7% of total net sales for the first quarter of 2012, compared to 6.2% in the same quarter last year.

The comparable same store sales game, was primarily driven by an increase in dollars per transaction, partially offset by 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 first quarter increased 26.8% to $42.1 million or 32.4% of net sales. From $33.2 million or 31.3% of net sales in the year ago period. The 110 basis point improvement in gross margin was primarily driven leveraging our occupancy and supply chain expenses on the 22.7% sales gain. Included in gross profit for the quarter our $0.3 million in costs associated with the upcoming relocation over eCommerce fulfillment operation to Edwardsville, Kansas. SG&A expenses for the quarter increased 13.7% to $34.8 million from $30.6 million in the prior year quarter.

As a percentage of net sales, SG&A expense decreased to 26.8% from 28.9% in the first quarter of 2011. Driven primarily by leveraging these expenses on higher net sales, and the timing of certain expenses, most notably a national training event that moved into the second quarter this year. Operating profit was $7.3 million or 5.6% of net sales, compared to $2.6 million or 2.4% of net sales, during the first quarter of last year. Our net income was $4.5 million or $0.14 per diluted share for the first quarter of 2012, compared to $1.9 million or $0.06 per diluted share in the first quarter last year. Looking all of our key balance sheet highlights. As of April 28, 2012, cash and current marketable securities were $171.2 million, an increase of 31% from $130.7 million as of April 30, 2011. The increase in cash was primarily 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 $31.5 million of capital expenditures primarily related to our new stores and remodels.

As of April 28, 2012, inventory was $70.4 million, compared to $63.1 million as of April 30, 2011. An increase of 11.5%. On a per square foot basis, inventory was essentially flat compared to the end of the prior year first quarter. Also, at April 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 second quarter we are planning same store sales to increase in the mid single-digit range and total sales to be in the range of $128 million to $130 million. We expect operating margins to be in the 1.0% percent to 2.0% range, with diluted earnings per share between $0.04 and $0.06.

As previously disclosed, costs in the second quarter associated with the relocation of our eCommerce fulfillment operation to Edwardsville, Kansas and our corporate headquarters to Lynnwood, Washington, are expected to be approximately $1.8 million or $0.03 per diluted share. Excluding these costs our projected earnings per share range is $0.07 to $0.09 for the quarter. I'd also like to point out, the second quarter guidance I just laid out includes the impact of expense timing. Primarily our national training event which benefited the first quarter by approximately $0.01 per diluted share. With the seasonality of our business and the lack of the back half of the year -- lack of visibility in the back half of the year, due in part to an unpredictable macroeconomic environment, it is difficult to project the full year with a reasonable amount of certainty. However, I will reiterate our general thoughts about the year. We are planning our comparable store sales to increase in fiscal 2012. Product input cost pressures should 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. This apparent tailwind 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 balance of 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 will grow at a slower rate than our sales growth. There will be an extra week in fiscal 2012, resulting in a 14 week fourth quarter and 53 week fiscal year. The 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 improvement with a mid single digit comp increase. To the extent we are able to exceed a mid single digit comp, we expect incremental sales to 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 historical openings of two thirds prior to back-to-school, and one third after. We expect capital 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 build out of our new home office facility in Lynnwood, Washington. We also expect depreciation and amortization to be approximately $22 million, an estimated increase of 10% over fiscal 2011. And with that, we are ready for some questions.

(Operator Instructions) Sharon Zackfia with William Blair.

So I guess Rick, I will ask you about Stash, because I know you have that in beta in several markets, and I think it has been around now for maybe two or three months and it is still early, but are you seeing anything there that's encouraging, how are customers responding to that? And should we expect further tests or will you think about rolling it out across the system this year?

All right. Thank you for the question, Sharon and it is good to have you first, Sharon. I like to have a first.

Thanks.

So everyone is clear on Stash, as Sharon is commenting, we have a loyalty program that we've been testing since the beginning of this fiscal year. It has been in the beta test mode in about 60 stores, central part of the country. So Sharon, we did that just special for you. You could see that.

Thank you.

It is a relatively new approach, I think to loyalty. It is not based on delivering volume discounts to customers, it's based upon delivering great experiences and unique product, in exchange for customers sharing more information with us as how they interact with us across all of our channels of business. Whether it's online, in stores or across our social networks or at our events. Or even participating in the sports themselves, the skateboarding and snowboarding. So, it is an interesting new program for us. It is always tough to measure how you measure the success of something you've never tried before. But as the measures -- the targets we've established, we are exceeding at this point. And our current plan Sharon, is that we will be rolling out the program hopefully before back-to-school and if not, it will be immediately after the back-to-school window on an all store basis.

Okay. And then I think Marc, you commented on volatility and your comp trends actually haven't been then volatile over the past four or five months. I guess probably the question we get asked the most is what is Zumiez doing? Why are their sales trends so good? I know you guys don't like to talk about brands or categories, but can you help us understand if what was driving the business in April is the same as what was driving the business during the holidays? Or if it is just a matter of your merchant being really on top of trends in categories and within brands?

Thanks for the question Sharon. I will take the first part Rick can certainly add onto it. As you heard in Rick's comments, one of the real strengths that we have, beyond our people in the stores our employees there, is our merchant's ability to micro merchandise the product assortment. As a multi-branded retailer, that really is trying to capture each of the micro trends as they are occurring, it really takes a dedicated, very hard focus on the data, and really trying to keep everyone of those hot products in stock. Unlike a lot of our competition, we have purchase orders going back and forth with our vendors on a constant basis, and product coming into our warehouse constantly, instead of having more of an upfront purchase and then working through that inventory or replenishing it. So I know that it is not sexy or some incredible secret sauce, but it really is just about a lot of hard work. A lot of really close attention to detail, and then having that empowered workforce in the stores that just can be unleashed to connect with the customers, relate to them and on an authentic level, support their sales desires.

And Sharon, I will add a few comments just relative to again, brands and categories. Of course, Spring there are different categories driving the business, than there are in the winter season as you know. But I think it is just as Marc is saying, the benefit of our whole system is what you see is taking place here. With great job by our product team, great job by our sales teams on the web and in stores. And what you're seeing is, us being able to rack quickly, move to what customers want, still being incredibly well diversified in our brands. I think last year our largest brand was about 6% of sales. So that's a huge advantage for us. We have a great partnership with our branded partners, and that's a huge part of our success too is the close working relationships we have there. So, it is basically Sharon, is just following where the trends lead us, with what brands are wanted in each market and making sure we're delivering for our customers.

All right, great. Thank you.

Mitch Kummetz with Robert Baird.

First Rick, can you talk a little bit about the impact of weather on your business on the quarter, did you see stronger than expected trends in warmer weather merchandise then what was maybe anticipated in your original comp guidance on the quarter? Was that where you saw the upside on the comp?

All right. Thanks again, Mitch, for the question. I guess we think of it like this, Mitch. We delivered pretty consistent results over the last few quarters, and we like to believe that we can take advantage of whatever the circumstances are for the situation, the time of year when the customers are walking in our store. It is true that we have some because of the strength in February and March of the warm weather across the country, seasonally warm, unseasonably warm weather that we did see some of our spring categories performed very, very well. As I commented at the beginning, Mitch, I'd like to think that if we didn't have the warm weather, we still would have had what kids wanted when they walked in the store.

So I feel confident about that we can present, because of diversity of brands, diversity of categories, dry results, independent of what the weather is. When we get that seasonal weather we are certainly going to run with it, certainly try to take advantage of it. And I might add it wasn't the performance in the summer categories wasn't true in all of our spring and summer categories. Some of them didn't perform that well. But there's enough, I think to drive the business and again with the selection of brands and again the diversity of categories, that made that business work for us.

Okay. That's helpful, Rick. And then Marc, on the guidance I'm just trying to maybe get a little color on the margin guidance. If I back out the $0.03 relocation costs and then I guess it sounds like there's $0.01 also there, in terms of the timing of this training. What kind of operating margin are you looking at is it somewhere in like the 2.5% to 3.5% range? I was trying to do some quick math, but could you maybe give us some sense as to how to think about the operating margin excluding those two items and then maybe think a little bit or help us out a little bit more about how we should be thinking about the gross margin and SG&A to get to that range once you adjust?

Yes. Thanks for the question and you have the moving parts correct in terms of the one time cost of the relocation and also just the timing of Q1 to Q2. I think at the high end of our range when you back those items out, you're at a number that's around 3.5%. I think that, that's pretty good. It will obviously move where we are in the range, that would be the high end. And for us, it is really between gross margin and SG&A, I think the general comments on the year also apply within the quarter. Our expectation is to try to hold our product margin, really strong results last year, and in the face of a pretty difficult cost market, it will begin to come up again starting back-to-school, but we also have impactful product shifts and just which brands and which items are moving.

SG&A, it will always fluctuate slightly the quarter-by-quarter, based on the investments we're making. But our goal is quarter in and quarter out, we want to grow SG&A at a rate slower than sales, so as you take the top line I think it is really looking at the SG&A exclusive of these large items we are talking about. Growing that number slower than the sales rate.

Okay. Got it. Thanks and good luck.

Erinn Murphy with Piper Jaffray.

This is Erinn on be half of Jeff Klinefelter. Just a quick question, actually as you step back and think about the overall action sport base, it says here that the space is growing, there's a lot of new categories and also it seems that there is a little bit more of an urban flair in the category. One of your lines that you guys launched this year it seems the Little Wayne's Truckfit brand. Just curious if you think about the evolution, are you seeing a wider demographic whether it is an age demographic or more of a bias towards women or an urban customer? Just how are you thinking about the consumer who is walking through your stores right now?

Okay, great question, Erinn. We obviously do think about this topic quite a bit so some of this will sound familiar to those analysts that have been following our business for a while. We still view action sports as a maturing but growing market. One of the things when you look at the action sports industry, why I think we do have opportunity within the industry is to continue to penetrate ethnic groups, gender in a way that has only been achieved in Southern California at this point. So as we look at one of the things, one of the growth areas we think it's going to go from action sports is ability for us to see that beyond expand beyond Southern California and across the nation.

So I think what you see reflected there in our business and brands like Trukfit and other brands, what we consider to be streetscape crossover brands, is exactly that. Where that look is appealing to many ethnic groups and is adding to the market for action sports products. So that's a really great thing. I think it again speaks to the nature of the industry where we are at is that it is a maturing industry, but still a growing industry.

Great. Thank you very much.

Edward Yruma with KeyBanc.

You guys obviously have been putting up some really impressive eCommerce growth numbers. I know that you've been more focused on it as of late, can you talk about how we should think about eComm growth the remainder of the year? Particularly as it relates to contribution to comp? And then I guess how does the new DC change the economics of the business? Thank you.

All right I'll take the first part and ask Marc to comment on the economics of the new fulfillment center. You know Ed, we have a simple thing here and that we want to maximize results of every channel in every possible way we can. So we are going to stick to the general annual guidance directions that Marc put out there for annual guidance, I'm not going to get into details about how we're thinking about any particular aspect of our business or how we are driving it for that matter. But suffice it to say that we have specific things we're doing in our eCommerce area, just as we do when we look at how we are going to drive comp store results. We have specific things we're doing that we believe can drive the business forward. So we have aggressive plans for our eCommerce business.

As you look at it over the last three years it's really been pushing forward, also we have huge growth rates and we still have huge growth rates like this quarter up 50%. But you will see those moderate over time. But that doesn't mean that dollars are getting less significant, it just means the growth rate themselves are moderating. So we expect big things and because we are going to continue to invest in this business and we're going to invest in how we interconnect all the channels in our business deliver great results for our customers. So while not specific Ed, it's generally how we're thinking about it and trust me that our goal is to maximize results in every channel of our business.

On the second side of that in terms of the new facility in Edwardsville and how it affects the business model. The first thing I would say is, this is being done from a customer service perspective. Being able to locate their to get speed of the product to the customer, is the best way that we can affect the economics of that business and it really just improves the value proposition we have on our website. There are other savings that we do get in most notably from shipping costs since we are more centrally located we don't cover as many -- or cross as many zones from a shipping rate perspective. But that's not insignificant, but it is really the trailing factor behind trying to improve service speed and ultimately enabling the top line being the two primary first goals.

Great, thank you.

Dorothy Lakner with Caris & Company.

You talked a little bit about the opportunity to penetrate more in terms of gender, but it seems like your juniors business has been on a nice role since you brought in new talent, you brought in I think some new brands so I just wondered if you could give us a little bit more color on the progress that you've made there? Then secondly, just update us on how things are in Canada, how your feeling that business and if you are seeing anything different in Canada from what you see here in the US?

All right, thank you, Dorothy. And thank you for recognizing the improvement in our juniors business. Our team has worked very, very hard over the last few years to reposition what we are doing in juniors and identify a niche that we can play in the juniors market while still being true to our action sports lifestyle business that Zumiez does so well. For us that's a very important piece of what we are trying to do in juniors is that we're not doing something disconnected from what Zumiez is about, we're doing something very connected and integrated into Zumiez's lifestyle approach to retailing. So you basically answered the question for me, thank you, Dorothy. We have added some new brands --.

Feel free to add anything.

What was that?

Feel free to add anything to what I said.

You know, I don't like to talk about brands --.

I know.

I'm certainly not going to do that, but we have looked at how we can interact with more brands and how we can work with these brands in a way that we can help them sell juniors product. So that's one of the very important things for us is the exclusivity of what we are doing with those brands on the junior side of the business. And working one of the comments made earlier, very closely with our branded partners to help them expand their business too in this juniors arena. And of course, we have used private label very effectively to support those brands and how we position our juniors marketplace.

So our new talent what you're seeing is the results is a reflection of our new talent over the last few years we really started saying let's find a new direction, let's get margin right in the business first and then let's grow the business. That's exactly what we are doing as we work with lifestyle orientation and finding the right mix between what we do with our private label brands value and then with the premium priced branded partners. As related to Canada, we have learned a lot, is what I would tell you, in the last year and again, I want to make sure I recognize the hard work across all our teams, our product teams relative to Canada. Our real estate team, as well as our field teams up there in Canada living and serving our customers every day. So we've learned a lot. I guess I'd characterize Dorothy that part of what we learned is that is not while there are definitely differences in Canada, their aren't as many significant differences in product, I think as we first thought their were.

So those things that are strong for us in the US are also strong for us and Canada. So that's been a very important learning for us and then we are working very closely with our teams up there, to find the right balance of how we train, develop and reflect the Zumiez culture in the Canadian culture. And we are very sensitive to that and wanting to do it the right way that's right for our Canadian employees.

Great, thank you.

Christian Buss with Credit Suisse.

I was wondering if you could provide some color on how you're thinking about your inventory planning. It looks like you are planning or managing your inventories pretty tightly. What's the planning as you get towards back-to-school? I'd love a little color there?

Great, thank you Christian. We do manage inventories very tightly, it is one of the hallmarks I think of how we've managed our business for many, many years. We want to, again, create -- help our brands, create demand for their product but yet make sure we are trying to capture every sale we can. And make sure that we have inventory well in line no matter what the trends are. So a couple things I would tell you about where we are positioned currently for inventory and then I will talk a little about how we think about the balance of the year. First we are in a very good position, we feel very good about the quality of our inventory position, relative to the aging of our inventory. In spite of the fact that we are carrying over more winter product, particularly on a unit basis than we did a year ago. We feel good about how our plans with that carry over, particularly in the hard goods part of our winter business. But we have good plans and combined with our winter -- our plans for winter buy to come out clean, post this next upcoming winter season.

So as we look into the back-to-school window, we are constantly adjusting in our targets by category, by brand, where we want to be positioned as we enter the back-to-school cycle. So we are really not doing anything Christian, that we've done year after year after year in our business. The inventory will scale up to meet the needs of the larger sales base that we believe we will have in the back-to-school window. You'll see us scale back down a bit again as we sell through the product and then scale up for the fall and winter season and our holiday business. Again, for us as Marc commented earlier with our assortment planning and micro merchandising, this is a very dynamic effort that our team goes through here. So it is not so much that yes, we have a plan for a season, but that plan then morphs and begins to change the moment we lock it and say okay, this the plan for the season. It then develops constantly literally on a day by day basis as to how we are going to target business, really make sure that whatever the trends are telling us, we're reacting in real-time to have the right product in the right location in the right channel to serve our customers.

That's helpful. Thank you very much. Good luck.

Jeff Van Sinderen with B. Riley.

I wonder if you could just speak to us a little bit about some of the benefits of your new eCommerce center, and maybe how that supports your omnichannel initiatives? And then also the same thing in terms of your new headquarters move, when you start reaping the benefits from those moves and I guess is there anything quantifiable to share there?

All right, I will start and then let Marc follow-up if he has any comments. The main thing about our eCommerce fulfillment center move, it's just the fulfillment center that's moving to Edwardsville, Kansas. The front end of our web operations stays here in the Northwest. It is really about serving customers. That is the most important thing about that move. We are very pleased that we've got a good portion of our management team from here making that transition for us. As well as adding new talent in that Kansas market place.

Again, we want to thank all those people that are willing to make that move for us to Edwardsville, we appreciate that. That's part of transferring that's helping us transfer the Zumiez culture as we move that fulfillment center. The main thing Jeff, is really about just serving customers. When you are located up here with your eCommerce fulfillment center in Everett, Washington, it just really doesn't make any sense, and we are actually at a disadvantage relative to our competitive marketplace. Because it just takes longer to get product to where our customers are, when you're located up in the corner. We're going to solve that problem to a large extent by putting this center in place in the center of the country. We also have planned here with the ability to scale up this center to meet the future needs of the business here over the next few years. So we will be able to expand the square footage as needed over the next few years.

The home office move, it is a bit of a different case. For those of you that have visited our home office, you know that we are incredibly cramped for space. So our intent with our home office and I want to be clear with people about this is not to build some big fancy home office building. It is the exact opposite of that. What we are trying to get is a bigger place so we can continue to grow our team, but give people a little bit of room to move at the same time. We are just so cramped in the space today.

Our financial metrics for building this new home office was that we want the income statement impact to be neutral, as we made this move. So the real advantage for us going forward then, Jeff, is that the income impact is going to be neutral at this point in time, but neutral also as we move forward from here, even with our ability to significantly add headcount to the home office as necessary. So we won't see -- we basically are fixing this cost, as opposed to needing to lease more space in the next five years for a home office facility. So it is financially about keeping a neutral perspective on the cost structure, but about giving us the capacity to expand and hopefully provide a bit more room so that people aren't just so literally jammed together so tightly here in our current building.

Okay, that's helpful. Just relevant to your guidance, any specific changes in terms of your overall promotional level in Q2 planned this year versus last year? Any color you can share there?

Yes. I'd say no significant change in the cadence that you've seen coming from us. I think what we are seeing generally at least as we see at this time of year, is that the retail environment itself is a bit less promotional. Which we certainly rode through that challenge last year and had great results and we think if the environment is showing itself to be less promotional that can also be very good benefit to us.

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

Linda Tsai with ITG.

I know in the past you have talked about utilizing your private label as a way to fill the void flux by what the product categories don't offer. Is this philosophy still current and has private label played a bigger part in the success of the juniors business?

Thank you, Linda, for the question. The philosophy of private label hasn't changed one bit which is that it is designed to supplement and complement our branded strategy. And while I'm not going to be talk -- we actually don't like to talk about private label performance seasonally, quarter by quarter, it is really something you have to look at on an annual basis. I'm also not going to talk about relative to what it means to men's or women's individually. I will tell you that last year our private label, as a percent of our total sales, actually declined slightly from the previous year. So I think it was just under 18% last year in terms of sales mix. That was a slight decline from just a few I think basis points maybe 10 or 20 basis points from the previous year.

So again, to be clear, that's evidence for us in here that we are okay with private label declining a bit. If the brands are what customers want. So again, design our strategy in private label was designed to supplement and complement what our brands do. So, at price points they don't want to play, a great example of that would be the value priced denim business, that's not a place brands want to play, but we need to be there. We do it in private label. At other places in our business where they may not fit a fashion niche the way we see it, then that's the way we'll do it and a different private label we'll do it at a higher price point to try to make the fashion need that we think our customers have. So summarize that, no changes to the strategy, we are okay with it dropping a bit last year, that's fine with us. If that's what the customer demands.

Thanks and good luck.

Paul Alexander with Bank of America Merrill Lynch.

Just looking historically, for the last five years at least I think you've always achieve higher sales and also always higher EPS in the second quarter than first quarter. But that's not exactly what you're guiding to here so are you seeing anything that leads you to believe that, that kind of seasonality pattern might be changing this year?

Thanks for the question and that is something that we looked at, we always look at as we plan is the business and we evaluate the business. I don't think you are seeing anything as a significant shift or a change in the cadence quarter-to-quarter. I do think you are looking at a first quarter that honestly was just great performance and that changes the bar at least of how Q1 performed and then as you roll to Q2 coming off of such a high figure. The guidance is a mid single digit comp, but we are coming off nearly 13, and the flow through, if I just think about that sequentially, impacts that quite a bit. So I think it is something that we're always looking to keep adding as Rick said earlier. We want to fight for every sale, fight for every dollar on the bottom line. And I don't think the guidance being lower than that very strong Q1, is something that should be really an indicator of a shift in trend.

Okay. Great. And then I noted you guys mentioned that there's a little lack of visibility because you could potentially have macroeconomic challenges, how sensitive is your customer to bad news flow and the equity markets, et cetera?

I think our customers and generally I think the consumer today is very sensitive to that information. And an example for a recent example in Q2 last year, Paul, is what happened to our business when we had this big discussion in the country about the debt ceiling. And we saw almost an immediate drop off in our business in the last couple weeks of July and of course, I think August was one of our lowest comp performance months of the year last year. So not just our consumers, but the consumer in general, today which our consumer is certainly part of, is very sensitive to these yet uncertain times. And the uncertainty is created in lots of different ways for macroeconomic reasons.

That's great and then just one last question. Rick, you were just talking about denim, have you been able to pull back on any promotions in denim given the better than expected sales trend in first quarter?

You know, we always have a certain set of promotions that we're going to run in denim Paul. And again, when we think about what we're trying -- how we are trying to serve customers, we are selling a lifestyle. So I like to remind people that when we talk about serving a lifestyle we're trying to serve not just gender, not just different targeted groups within our demographic, we are also trying to serve different levels of socio-economic stratus within the lifestyle. So we want to provide different, particularly in the key categories of business, T-shirts, denim, hoodies, those really big important categories of our business, men's and women's, we've always executed a multi-tiered promotional and price structure on these key categories in the business. So you are going to see us as in prior years, we're going to have that denim package at the two for package at the lower prices and then we're going to move up to higher prices all the way up to very expensive denim for our consumer. We are going to continue that strategy in almost every portion of the business. So we will play with it relative again, to demand for product things like that. What's working, what's not working. But you're going to continue to see us execute a multi-tiered strategy like that.

That's great, thank you very much.

Ladies and gentlemen, that does conclude the Q&A portion of our event. I'd now like to turn the presentation back over to management for closing remarks.

All right, again, thank you, everyone for your time today. It was a very good first quarter of the year for us. Now the big work is ahead of us, particularly in Q3 and Q4. While we are confident with where our business is, we have a long ways to go in terms of delivering those results. So we appreciate your interest and we'll look forward to talking to you about Q2, in August. Thanks, everybody.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a wonderful day.