Zumiez Inc (ZUMZ) 2012 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Zumiez Incorporated fourth quarter and full year fiscal 2012 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. Today's conference call includes comments concerning Zumiez Incorporated'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 from the information that will be discussed is available in Zumiez's filings with the SEC.

I would now like to turn the call over to Mr. Rick Brooks, Zumiez's Chief Executive Officer. Please go ahead, sir.

Thank you, and welcome, everyone.

I'm joined today by Chris Work, our Chief Financial Officer. After my remarks, Chris will take you through our financial and operating highlights for the fourth quarter and the full year and then we'll open the call up to your questions.

We delivered a solid fourth quarter with earnings of $0.74 per share. This was above our original projection, and brought our full year earnings to a record $1.35 per share, including significant costs associated with our acquisition of Blue Tomato, and costs for the relocation of our web fulfillment facility and corporate offices. These bottom line results were achieved through the successful execution of the growth strategies outlined at the start of fiscal 2012, combined with partial year of contributions from Blue Tomato operations. Net sales for the fourth quarter increased 22% and for the full year rose 20%. While our comps in the fourth quarter were down 1%, we are proud of our overall execution as we achieved a 5% comp gain for the entire year.

The past 12 months were highlighted by managed, strategic approach to extending our reach, both domestically and abroad. In the US, we opened 43 new stores in both new and existing markets, and continued to build on the positive momentum of Zumiez.com. Through the relocation of our web fulfillment center to Kansas, we provide this business the adequate room to grow and ability to extend our best-in-class customer experience.

Internationally, we doubled our store base in Canada with the opening of 10 new stores. We also took a major step to increase our global presence with the acquisition of Blue Tomato which we believe is a premier operator in the large, but highly fragmented, European action sports market. Importantly, this is an organization that shares the same values as Zumiez, and we believe this cultural match is critical to long-term growth and success of this venture.

As Chris will explain in more detail in a moment, we have decreased our assumptions around the estimated earn-out associated with the Blue Tomato transaction, due primarily to short-term challenges in the face of a difficult European economy. To be clear, though, our confidence in the long-term value this endeavour will create will not change. In addition to the global expansion I've already mentioned, we made progress on initiatives focused on our ability to engage with our customer in a omnichannel retail world, and we moved our home office into a building we own, which we believe will be long-term cost effective.

As a quick recap of the past year, which was significant for us, I think the key take-aways would be that we increased sales and earnings to record levels while taking important steps in further building a sustainable, long-term foundation for growth. Shifting focus to 2013 and how we build on these accomplishments, not a lot is going to change this coming year in terms of our primary growth drivers. We believe the best opportunities for this business continue to be initiatives focused on comparable store sales gains, domestic unit growth, increased e-commerce penetration, and international expansion.

Looking at each of these in more detail, there's still plenty of opportunity for us to grow and further reinforce our leading position in the US market. Our focus on providing highly differentiated product assortments featuring unique apparel, footwear, accessories and hard goods brands has, and continues to, set us apart from our competition. By continuing to offer these unique assortments and providing best-in-class customer service across all channels, we believe we can weather the ups and downs in the economy and gain market share even as new competitors, large and small, enter the space. Further, we will continue to make improvements across all consumer touch points so the same great experience of our -- our customer expects from us is realized regardless of the channel.

One of the keys to our track record of delivering sustainable growth has been consistent improvement in store productivity. During Zumiez's 34-year history, the Company has posted positive annual comparable year sales in all but three years, two of which include the recession years of 2008 and 2009. We believe that much of the success we've enjoyed in growing same store sales is from the direct return on the investments we've made in our people who are the core of our daily operation. This is a huge point of differentiation for Zumiez, and our ability to drive future comp gains will in large part be based upon the continued training, empowerment and opportunities we provide our employees.

We currently operate 472 domestic stores and continue to believe in a long-term model of 600 to 700 stores in the US, a range we evaluate on a regular basis as we aim for an optimal number of units in this market. Internationally, we intend to build out the footprints we've recently established in Europe and Canada. In 2013, we expect to open approximately 60 stores globally. In addition to our store count, the development of our websites, zumiez.com and bluetomato.com are an important element of the multichannel strategies we are developing, and we continue to make investments here in 2013. We made great strides the past you few years developing these channels, but still have a tremendous amount of room to enhance our integrated selling platform to drive future gains.

In Europe, we believe there's tremendous opportunity to gain market share by leveraging the combined strengths of Zumiez and Blue Tomato. Our European business has performed well in light of the economic headwinds and while challenges remain, we are confident there's a great deal of potential to build upon our position as the region recovers. As the second largest action sports market in the world, the opportunity in Europe is integral to our long-term plans. 2013 will mark our third year operating in Canada, and initial results of the 20 stores we have opened thus far have been in line with our expectations. With this opportunity to more than triple our existing store base, Canada represents another growth prospect for our overall business.

Chris will take you through the first quarter guidance in a bit, and we'll again refrain from giving full year earnings guidance. However, I would like to comment briefly on our thinking for the year. We got off to a slow start in February with comps down 9% and believe some of the factors weighing on the recent monthly comps are temporary. With that backdrop, we'll also be cautious as we project earnings.

That said, we continue to believe we are in a period of market consolidation where the best operators will win share. With this in mind, we plan to continue making investments in 2013 to support the strategic growth that we believe will serve us optimally for the long term. All in all, we remain dedicated to the principles that have allowed us to build and maintain our leading position in action sports. We believe our unique approach to the marketplace, offering a highly differentiated shopping experience through a deep and diverse product offering and exceptional buying experience will continue to separate us from our competition and serve our customers and shareholders well for many years to come.

With that, I'll hand the call over to Chris.

Thanks, Rick. Good afternoon, everybody.

I will begin by reviewing our fourth quarter and full year results, then I'll move on to guidance before opening up the call for your questions. Fourth quarter net sales were $224.4 million, up 22.1% over the comparable period last year. Europe added $19.4 million to our top line in the quarter. North America net sales for the quarter were up $21.2 million, or 11.5% over the prior year fourth quarter.

Our fourth quarter benefited from the addition of 56 net new stores since the end of last year, offset by a 1% comparable store decrease in the quarter compared to a 9.7% comparable store increase in the fourth quarter of last year. As a reminder, the fourth quarter of 2012 was 14 weeks compared to 13 weeks in the fourth quarter of 2011. The extra week was worth $7.6 million in sales.

Breaking down the category performance, our men's and junior's apparel both comped positive while all other departments comped negative. Comparable store transactions declined for the quarter, partially offset by an increase in dollars per transaction. Dollars per transaction benefited from higher average unit retail prices and increase in units per transaction year-over-year. Comparable e-commerce sales increased 22% in the fourth quarter, which is included in our reported comparable store sales results.

Gross profit for the fourth quarter was $85.7 million, or 38.2% of net sales in the fourth quarter compared to $71.5 million, or 38.9% of net sales in the fourth quarter last year. The 70 basis point decline in gross margin was primarily driven by web fulfillment and shipping costs as a percent of total sales, including Blue Tomato e-commerce operation, partially offset by occupancy cost leverage. Excluding the impact of Blue Tomato, product margins improved slightly in the quarter.

SG&A expenses for the quarter were $49.6 million, or 22.1% of net sales compared to $40.2 million, or 21.9% of net sales in the prior year quarter. The increase in SG&A as a percent of sales was due to an increase in web operations as a percent of total sales, including Blue Tomato web operations, partially offset by the leveraging fixed costs.

Fourth quarter operating profit was $36.1 million, or 16.1% of net sales compared to $31.3 million, or 17% of net sales during the fourth quarter of last year. Net income in the quarter was $22.9 million, or $0.74 per diluted share compared to $18.7 million, or $0.60 per diluted share during the fourth quarter of 2011.

During the fourth quarter, we updated our long-term forecast for Blue Tomato. Based on current results and the outlook for the European marketplace, we revised the future expectations for this business and as a result, adjusted the estimate for the potential earn-out. Therefore, the total impact on fourth quarter 2012 earnings from costs associated with the acquisition were a detriment to earnings of $0.5 million, or $0.01 per diluted share compared to our original projection of $3.0 million, or $0.08 per diluted share. These costs consisted of $0.3 million in inventory step-up and $0.6 million of intangible amortization, partially offset by the benefit of the net earn-out adjustment of $0.4 million.

Turning to the full year. Fiscal 2012 net sales were $669.4 million, up 20.4% over 2011, driven by positive comparable store sales of 5%, $29.0 million in revenue from our European operations and the additional stores opened in North America. North American net sales were up $84.5 million over last year, or 15.2%. During the year, we added or acquired 56 net new stores, including 10 in Canada and 8 in Europe. There were 53 weeks in fiscal 2012 compared to 52 weeks in fiscal 2011.

Comparable e-commerce sales increased 32% in 2012 compared to 2011, which is included in our reported comparable store sales result. For the year, our men's, junior's, footwear and hard goods departments all comped positive while accessories and boys comped negative.

Operating income increased 13.8% to $68.5 million, or 10.2% of net sales compared to $60.2 million, or 10.8% of net sales in the prior year. The 60 basis point decline was driven by a 30 basis point decline in gross margin and a 30 basis points from deleverage on our SG&A costs during the year. Gross margin includes a 30 basis point impact from the step-up in inventory related to the Blue Tomato acquisition, and SG&A as a percent of sales includes an 80 basis point impact from costs associated with the Blue Tomato acquisition. Net income for fiscal 2012 increased 12.9% to $42.2 million, or $1.35 per share -- per diluted share, compared to $37.4 million, or $1.20 per diluted share during 2011.

Let me lay out the impact on the year of certain expenses that should be taken into consideration when looking at our results. One time costs associated with the acquisition of Blue Tomato were $3.6 million, impacting diluted earnings per share by approximately $0.10, and include $2.2 million in inventory step-up and $1.9 million in acquisition costs that were offset by a $0.5 million foreign currency gain on the transaction.

Costs associated with the acquisition that are considered ongoing charges were $3.7 million in 2012, impacting diluted earnings per share by approximately $0.09 and included $2.3 million of estimated earn-outs and $1.4 million in intangible amortization. During 2012, we recognized $2.1 million of exit costs associated with the relocation of our web fulfillment center to Edwardsville, Kansas and our corporate offices to Lynnwood, Washington, impacting diluted earnings per share by approximately $0.04.

Moving on to key balance sheet highlights. We ended the quarter with cash and current marketable securities of $103.2 million, down from $172.8 million at the end of our fiscal 2011. This decline was driven by cash paid for the acquisition of Blue Tomato, capital expenditures related to our new store growth and cash paid to repurchase our common shares, partially offset by cash generated by operations.

As of the end of the quarter, we had $2.3 million in outstanding debt assumed from Blue Tomato, and no outstanding balances on our revolving credit facility. Capital expenditures for the year were $41.1 million, driven by the addition of 53 new stores in North America and the buildout of our corporate offices. Inventory was $77.6 million at February 2, 2013, up 19.3% from $65.0 million. In North America, on a per square foot basis, inventory was down slightly at the end of 2012 compared to the end of 2011.

During the fourth quarter, we repurchased approximately 1.3 million shares of our common stock at an average cost per share of $20.43 for a total of $25.8 million. During December, we completed the November 2012, $22 million repurchase program and announced a new program which authorized an additional $20 million in repurchase funds. As of February 2, 2013, we had $16 million remaining from the announced December 2012 stock repurchase program.

Now let me outline our guidance. As always, 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 result released on March 6, 2013, we are planning same store sales to decrease in the mid single-digit range and total sales to be in the range of $141 million to $144 million. We expect consolidated operating margins to be in the 1.5% to 2.5% range, with diluted earnings per share between $0.04 and $0.07. Included in our first quarter guidance is an estimated $1.6 million, or approximately $0.04 per diluted share in costs associated with the Blue Tomato acquisition, consisting of $1.0 million in estimated earn-out costs and $0.6 million in intangible amortization.

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 our quarterly guidance suggests sales results will improve relative to the February results, consumer sentiment is tough to gauge, and there's still uncertainty about the sustainability of an economic recovery. Because of this, it is difficult to project the full year with a reasonable amount of certainty. However, here are a few comments on how we are thinking about the year.

We are planning our comparable store sales to increase in fiscal 2013, although we are cautious in our outlook and believe this could be lower than comparable store sales in 2012. We achieved record product margins in North America during fiscal 2012. Our product margins can be impacted by a variety of factors, most notably shifts in product mix, both domestically and internationally. Looking forward to 2013, we expect our consolidated product margins, excluding the impact of the inventory step-up, to be down slightly.

We plan to continue making strategic investments that we believe will reap long-term benefits focused on enhancing the customer experience across multiple channels, growing our international footprint and investing in our people and infrastructure to support our domestic and international growth in 2013 and beyond. We expect these investments to slightly deleverage our overall gross margin as well as SG&A for 2013. However, we expect operating profit to increase.

As a reminder, fiscal 2012 included an extra week, resulting in a 53rd week fiscal year. While this was a benefit to sales and earnings growth in fiscal 2012, it will be a detriment to sales and earnings growth rates in fiscal 2013. Additionally, the calendar shift will impact sales results by period and quarter throughout the year. Notably, we expect the second quarter to be benefited by the shift of a back-to-school week into the quarter out of the third quarter, while the third quarter will be negatively impacted. The impact to each quarter's sales is projected to be approximately $5 million to $6 million.

Estimated earn-out expense related to the Blue Tomato acquisition is projected to be approximately $4.0 million in fiscal 2013, and the amortization of intangible assets associated with the transaction is expected to be approximately $2.4 million in fiscal 2013.

We are planning to open approximately 60 new stores in fiscal 2013, including up to 10 in Canada and 6 in Europe, with a cadence similar to our historical openings of two-thirds back-to-school and one-third after. We expect capital expenditures for the year to be between $42 million and $44 million compared to $41 million in 2012. The major capital projects are the new store openings and planned remodels. We also expect depreciation and amortization to be approximately $28 million, an estimated 22% increase over fiscal 2012. We anticipate our annual effective tax rate to be consistent with our fiscal 2012 result.

Finally, our estimated weighted average shares used in the calculation of diluted earnings per share for the full year is projected to be approximately 30.3 million shares, which includes the impact of $3 million of share repurchases, subsequent to February 2, 2013. Any additional share repurchases during the year from the $13 million remaining in our authorized repurchase program will further reduce our shares used in this calculation.

With that, we will now open up the call for some questions.

(Operator Instructions)

Gentlemen, your first question comes from the line of Mr. Dave King with ROTH Capital. Please proceed, sir.

Thanks. Good afternoon, guys.

Hey, Dave.

Rick, I think you've talked in the past about the e-commerce business kind of owning the low volume weeks, generally, and how you may have left some money on the table in the past as a result of not having as much of a robust business there and I guess to what extent -- particularly in the context of the 22% increase we saw this quarter, but to what extent do you think that's weighed on your recent comp results? Can you talk about some of the investments you're making to help turn that around and then -- or made and how it helped turn that around and how we should think about how you'll benefit going forward.

Sure, Dave. I'm happy to give you a little more color around our -- how we're thinking about e-commerce. Clearly for both the quarter and the year, the e-commerce results were a positive to our comp because those are rates of gains clearly above our mature stores, our comp store results, so. And I always like to make sure that when we talk about e-commerce and stores that I back us all up for a moment and make sure that we're thinking about the idea of omnichannel. And because what we're really doing, and as you've said, we've talked about e-commerce in the past and -- but what I really want to get everyone focused on this idea of what we're really trying to do, which is build an omnichannel model, which is an integrated multichannel selling platform where you can release the power of what we're doing with inventory and the brand experience for consumers as well as our salespeople in every touch point of the business.

So Dave, that's really been, as I would harken back to, that is really what we're trying to build. Yes, we're also putting a strengths of a pure e-commerce operation, but we still have a long ways to go in that front. We don't do a lot of advertising here in the US with our e-commerce business. I think those are opportunities for us going forward. But the primary opportunity is going to continuing to look and build -- continuing to look how we build this integrated multichannel selling platform across the organization. And that's really where our growth has been coming from, will continue to come from as I see it over the next year or so. And we're going to continue on some of the pure e-commerce strategies, but the real focus is going to be on this omnichannel platform. As you think about what we're doing, that's number one on the list.

Sure. And that helps in -- do you care to provide any more color in terms of what you're specifically doing now, today, as you look forward in terms of this omnichannel concept and how that should benefit you going forward. Because I know when we've talked in the past, you've talked about leaving some money on the table there just because it did take you guys arguably a little bit longer to start building that kind of stuff because you were methodical in your approach to doing it.

There's no doubt that we -- if you look back -- again, if you just go back to five years ago, our e-commerce business was 1% of our revenue mix and this year, Chris, it finished at --

8.3.

8.3%.

In North America.

In North America, the revenue mix. So, progress, Dave, has been the last three years. I will talk a little bit about how we're thinking about investments going forward, and I'm not going to talk about specifically the omnichannel efforts we're driving out, because that's where it gets to be a bit of a competitive issue, the exact things we're doing. But in both -- to talk about some of the investments Chris talked about in his comments we're making, and my comments also. We're looking to launch a new web platform in both the US and Europe this spring. We will be making continued investments in, not just the infrastructure, the technology infrastructure in the business, but also in human capital, in both of our web operations and our IT operations to make sure that we can facilitate the successful launch of more omnichannel efforts. So, when we talk about investments we're making, those are really the biggest areas we're looking at. And then there are a number of projects that are currently underway and will be getting underway relative -- that are scheduled for this year to drive forward those omnichannel initiatives.

All right. Sounds great. Thanks so much.

Your next question comes from the line of Jeff Van Sinderen with B. Riley. Please proceed.

Good afternoon. Rick, maybe you can talk a little bit more about the period of market consolidation that you mentioned in your prepared comments, how you feel that's evolving and what you think are the remaining key elements that will unfold going forward.

Sure, I'll give it a shot, Jeff. Again, as you know, this is nothing new in terms of the way we've been talking, we've been saying this for a number of years now that we think that the game is a share of consolidation game. And we have been making the argument for a while that we think that in many cases there, based upon the change in consumer behavior, the adoption of smart devices, both smartphones and tablets, the always-on connections of high speed Internet connections and social networks, the ability to communicate easily with friends, that these macro forces have been -- is really the driving forces behind this idea, our idea of share consolidation. It gets a part of it, which is that consumers simply have a new way to shop, new ways to access information, new ways to comparative shop, to comparative shop for prices, to know where the location is closest to them to buy the product, as well as the websites to choose from. It's definitely a world where the consumer has the power. We've been, for the last four or five years saying, this is a world that's a great world for us to work in. It's a world that we can embrace and I think we can do great things with.

I say that partly, again, because as we talked about, the power of our sales culture, the cross-organization, we, I think, are going to live in this new world well. But in that world, when you talk about the power of the consumer, the integration of their ability to shop in any time of the day, anyplace, anytime, through these new smart devices, I think it simply means that more volume moves toward the direct channel in whatever form that may take. And I think that's been the case over the last few years, not just for us, but for all of retail and -- including specialty retailers or pure play e-commerce players.

I think what it highlights is that there's simply too much physical retail space. When we talk about share consolidation, Jeff, that's the underlying reason as we see it for the consolidation that's taking place. And we see, again, that we're in -- our perception is that we're in the early stages of this idea of omnichannel retail, of integrated multichannel selling. And we're in the early stages, not in the late stages, so this has a ways to go. It's going to take a number of years yet for this fully to play out. And that's why in our comments you hear us talk about, again, striving to make the right investments, continuing to invest in our people throughout the organization as key things that are going to drive our ability to perform well in this kind of environment. So again, finish that out, the thoughts out with that. Again, it's an evolving world. I think we're adjusting well to it and I think we have a long ways to go.

Okay. That's helpful. And then maybe if we can switch to Blue Tomato for a minute. Can you update us on what you're seeing in Blue Tomato and their business early this year? And then any key initiatives that you're focusing on for Blue Tomato that maybe aren't ones that of you've really talked about yet? The one thing that is sort of in the back of my mind, if you could give us any thoughts on when you think that division will begin to be accretive.

All right. I'm not sure -- I'll let Chris deal with the latter part there. I'm not sure we're going to be prepared there. We're still -- we've got a number of things we're working on and building out the long-term models for Blue Tomato and integrating with our five year planning process, Jeff, but let me start at the high level. We're not going to comment first on how they're doing any time in the current year, so I'm clear about that. But let me just say that since the time we've acquired Blue Tomato in what's been a very tough European economic environment, that we have continued to run gains in our Blue Tomato operation; both on a comp level as well as larger gain relative to new stores and gains in their web operations.

I'd just like the to make that clear to everybody, that this is a business that is still growing. And again, I think that makes sense relative to quality of the operation and the quality of the people in the Blue Tomato business, as I said in my comments. These guys are a great cultural match with the way we think and the way we operate, and they're working incredibly hard. And so we're -- we feel good again about the situation there in terms of the quality of our partner, the fact they continue to grow in a tough environment over there, both comp and in total volume and again, in a very large action sports market that is clearly in a consolidating mode because of a difficult economic environment. I think we're positioned well.

Now, I also want to say that the key thing about Blue Tomato is not what happened in the last seven months or what's going to happen between now and the earn-out provision. The key thing is about the next 5 and 10 years because Europe is a huge action sports market. When we think about our business, I know you appreciate this and I know our investors do, we're thinking about planning for the long-term. As we think about building a big business in Europe, it's going to take us a 5 to 10 year window to do that. We'll have clear plans for what we need to do to get there, Jeff. And key things for 2013 in terms of investments we're going to make in Blue Tomato, as I mentioned one already which is we're launching a new web platform this spring to help scale the business there. And that's been underway for a while in terms of development, just like ours has been here in the US.

The other things that we're really trying to help our Blue Tomato team with is the roll-out of stores because they believe in an omnichannel model as strongly as we do. And we -- they are great at what they do. We do bring some expertise around what it takes to roll out new stores. So, we're working with them and helping them in their economic models and skill sets it takes to build out the stores, and we're going to do both of those this year in Europe. Both launch the new website. We expect to see growth in revenue, both from new stores as well as the launch of the new website.

Okay, great. Thanks very much. Thanks for taking my questions, and best of luck for the rest of the quarter.

Your next question comes from the line of Mitch Kummentz with RW Baird. Please proceed.

Yes. Actually, Chris, just a couple quick housekeeping items. You mentioned -- well, let me -- on the 53rd week, you mentioned the sales impact on the quarter. Could you tell us what the earnings impact was?

Yes, we had estimated about $0.05.

Okay. So, $0.05 on the earnings impact. And then on the guidance, well, kind of the loose 2013 outlook, you mentioned that you expect your operating profit to be up. Is that versus a 2012 that includes that $0.05 impact from the 53rd week? Are you adjusting that out in terms of saying operating profit up?

That includes the 53rd week. That's on a GAAP basis.

Okay. And then as far as thinking about Blue Tomato year-over-year in terms of that operating profit up, you mentioned, sounds like about $6.4 million in terms of negative impact this year, $4 million on the earn-out, $2.4 million on the amortization of intangibles. When we compare that to 2012, what was -- what's the impact on Blue Tomato for 2012 that goes into that loose guidance of operating profit that's up?

Yes. The full year of 2012 is impacted by -- we had one-time costs of Blue Tomato of $3.6 million and then the ongoing charges were $3.7 million.

So, you're looking at about $7.3 million combined. And again, it's the $7.3 million that you're using last year versus the $6.4 million this year that's baked into that outlook of operating profit up. Is that correct?

That's correct. Those are the numbers that would be included in that concept.

Got it. All right. I just wanted to be clear on that. Thanks, and good luck.

Thanks, Mitch.

Your next question comes from the line of Edward Yruma with KeyBanc Capital Markets. Please proceed.

Hi, thanks for taking my question. Rick, you mentioned, I think once in your script, that you viewed the pressures on your comp as kind of being more transitory. And obviously, given your guidance for the year, at least the rough guidance, you would imply that comps should get better in the back half. Are you taking this as a view that the pressure on the consumer is temporary, or is this due to things like e-com and other levers you might be pulling throughout the course of the year that should allow you to achieve a positive comp for the year?

Again, you're right, Ed, we did comment that -- what we said, really, was that we felt there were temporary impacts on February, to be clear, and I think most of those are well -- have been -- you commented, others have commented on the tax refund transition timing and weather, particularly for us, relative to a year ago. So, those are the kinds of things that we were trying to say there because obviously, our first quarter comp guidance implies that we're going to do better than a negative 9, right, for this quarter.

On a full year basis, I think it's -- the answer to your question regarding how we're thinking about it is all of the above. And I think Chris was right in his comments, we need to see continued sustained improvement in our macroeconomic environment generally to make sure we're continuing to feel good about the positive comp we think we can drive and we have to do the things that -- we have to execute, which I commented on earlier here. Which is we have a lot of tasks to drive our comp results through better planning, more detailed assortment planning. We have our new website launch. We have many omnichannel projects underway that we hope can impact 2013, and we're going to do all the important long-term things in our business like continuing to develop and commitment to training of our staff and employees.

These are things that are long-term in structure that we have yet to do, too. The list is big, the things we want to accomplish in 2013, so we need both aspects, I think, to make sure we can drive a gain relative to the direction we provided, which is continued macroeconomic improvement. And then we need to execute at a high level, and I'm confident that we've done that historically. I'm confident we can do it here in 2013.

Great. Thanks so much.

Your next question comes from the line of Brian Senzack with Janney Capital Markets. Please proceed.

Hi, guys, good afternoon. This is Brian on for Adrian today. I was wondering if you guys could comment a little bit or talk on what categories you guys see that are working well right now and perhaps more importantly, where you see the greatest opportunity and greatest potential for growth in 2013 throughout the year here.

All right, Brian, thanks for the question. And we're not going to do that, so we just typically don't want to comment on categories. We'll talk about general direction for the years, but in terms of the high level, what we expect in terms of our thinking, as Chris has done, but we're not getting into category thinking at this point. And again, the primary reason is for us for that is that we have a very, very broad, diverse set of categories, as we do with brands.

Our strength is diversity of all those and our history for many years as we -- as you look again in our comments about how we said we've been able to drive comps, it's not only the great -- our long-term investment in our people, but it's a product strategy too; diversity of brands, diversity of categories, that allow us to react quickly to the marketplace as the market changes. Your question presumed I know what those changes will be. I don't. But I tell you, I have great confidence, again, that our teams will stay on top of it, that we have good plans in place to drive volume, and we'll react to the markets as necessary.

Definitely. I was thinking specifically on, I think across the sector now we're seeing a little bit of an up-trend in juniors. I know you guys have been positive comping for a while now in your juniors business. Particularly, I was wondering if there's -- if you have any kind of idea, if you're seeing that as well, or if you think that's kind of a potential to optimize on that trend and maybe build a little bit more penetration into that side of the business.

Well, again, as you saw from our February results and the fourth quarter results, our junior category, junior department has comped positive, and I think you know that we generally deliver those in the order that -- of magnitude of how they're performing. So, you can certainly draw that our juniors business has been doing well. I think it's been on an up-trend, we've talked -- as we've talked over the years about the changes we've made in juniors. I feel that we have built a more sustainable juniors business in terms of the strategies we're executing in our juniors operation now. We built a bigger, stronger team there in our juniors business and at the peak, I think mix of juniors apparel historically has been as high as 15% of our revenue. And last year, Chris, it ended at -- do you have that?

I do, our junior was about 11%.

That was up, right, over the previous year. Now, the last part of your question, Brian, is are we going to try to maximize? That's our job, and you will certainly see us run at those opportunities.

Definitely. I appreciate it. And then Chris, if I could ask you just one more housekeeping question, if you could provide the ending square footage here at the end of fourth quarter, that would be great.

Yes, sure. Ending square footage was 1.480 million square feet.

Okay, great. Thank you very much, guys, and best of luck in 2013 year.

Thanks.

Your next question comes from the line of Richard Jaffe with Stifel Nicolaus. Please proceed, sir.

Thanks very much, guys. Just two thoughts. One is about the sneaker business, it's been a challenge, and wondering if you have any visibility on that business becoming more robust in 2013.

Okay. Richard, again, I typically don't comment on individual categories. But because we have in this case, because it's been a bit tougher business for us, we always like to be as transparent as we can about our thinking in those areas. We, as you know, our men's -- it's really, as we've identified, it's been men's that's really been the tougher one here through really October forward, I believe and through February. And so we're just not standing pat, right? We're trying to take the efforts, drive some initiatives that we believe can improve the business.

We have some things that we think we can do that relative to making sure we have the optimum brand presentation at each location, the right mix of products in terms of styles, those are all things that we have worked and our footwear team has worked hard on, Richard, over the last -- particularly the last you few months as we head into spring. We see some signs of encouragement there, but we are, I think after a four year positive footwear cycle, that we're going to have some headwinds here in footwear. I think we can minimize the impact of those headwinds, but I would expect that we're going to, again, let our results speak.

Fair enough. Any thoughts on bricks and mortar in Europe in terms of building stores over there, or is it pretty mature?

No, we think there's an opportunity there to build some new stores. And our intent, Chris, in terms of store growth in Europe this year?

We'll open -- we plan to open up to six stores in 2013.

And again, stores mean something a bit different there, Richard. But we think the opportunity there in Europe is the same one as in the US, which is in mature -- more mature markets. There's the opportunity to really leverage cross-channel selling platforms. And again, it would be a bit different in Europe in terms of the store formats, and they're just different markets country by country. But it's a good opportunity. And I think that's again, that's where our strength with Blue Tomato, we're going to both lever each other's strengths in terms of how we put that all together.

I totally agree with the opportunity. I just didn't know the sense of timing and how big. Thank you.

Your next question comes from the line of Dorothy Lakner with Topeka Capital Markets. Please proceed.

Thanks, and good afternoon, everyone. Just to follow up on the last question, wondering Rick, if you could give a little bit more color on where those stores are going to be opening. Obviously, you've had some of the Blue Tomato stores open, and just how are you proceeding with these new ones? And then secondly, if you could talk a little bit about what you've learned with the loyalty program launched last year at Zumiez and how that's going. Thanks.

Thank you, Dorothy. Again, this won't be surprising about how we're thinking about the stores we're adding in Europe. We're going to be adding those stores in Austria and Germany will be where the new stores will be focused. Those are the two strongest markets for Blue Tomato in terms of their web performance. And so naturally, we're leveraging our expertise and knowledge about where those stores will go based upon the web performance in markets in both countries. So you'll see us, I think we have a great opportunity just between those two countries initially, and then again, we'll -- as time goes by, we'll be able to lay out longer term plans for our thinking.

But again, I want to make sure I remind everyone that Blue Tomato, it's a great opportunity, but it's going to take a while of before it really moves the needle here because it's a small business at this point, and -- but that is the great opportunity that exists for us. Loyalty is the Stash program. We are now just about seven, eight months into it, Dorothy, and our primary focus is over these last few months, and I think it will continue through the next five to eight months, nine months, is going to focus on really acquisition of members for the program. We -- that's the key point right now, because we need to have a significant enough database of members that we can really draw conclusions from the data that we're getting from the program. It's -- I would characterize it as too early yet to really use -- to be in there data mining, the data that we are learning. Not that we're not., we are at very high levels. But the real focus is on working, again, across all our platforms, stores and the web, to drive people to sign up for the program. And you'll see that being the primary focus because it's about getting critical mass and involving kids are involved in it. I can tell you that kids are involved in it, they're having a great time with it, and we're -- we have lots of redemptions here over the last few months, and that just shows that kids are using the program.

Great. Thanks so much, and good luck.

Thank you.

Your next question comes from the line of Simeon Siegal with JPMorgan. Please proceed.

Thanks. Good afternoon, guys. So, just given the calendar shifts this quarter, can you help us with any assumptions for March and April to get to that negative mid single Q1 guide? And then Rick, your brand turnover and product offerings have clearly been impressive. Are you seeing anything new out there in terms of new brands?

I'll start, Simeon, on the brand side then let Chris follow up on whatever further he'd like to say to talk about the quarter. We are -- as you would guess, we are always working closely with our young brands, and we have a lot of brands that are just in a handful of stores because that's where it's relevant for them. And again, our mission is always to be a great partner for our brands, no matter what their size. We want to do what's right for them. We want to grow them smartly in our world, and we're not the Company that's going to say, let's go into 100 doors when they should be in 25. We want to make sure they work in 25 first, or 10 first, because that's what's in the best interest of the brand in making sure that their product never gets marked down, right? That we have enough product in the right markets to meet demand that they have for their product. As you know, we want to sell product at full price.

Doing it right and being a great partner for these young brands is really important part of what we do. That's why you have to have a long-term view on these brands too. As you know, we have brands that are top brands today that we sold for -- have been in our -- in part of Zumiez brand family for 10, 12 years, but really the first probably 8 years of that, we were just working together in a quality way. What we're trying to do with young brands is just foster and help and assist and listen to what their interest and needs are. And I feel pretty good about the young brand pool at this point, Simeon. But as you know, it will be up to everyone doing the job right, young brands to execute highly on their part in terms of their great product, to make sure they have great marketing to go with a great product and that they manage distribution well.

Because as you know, where a brand is as much where you see it and what other brands you see it with as it is the great product and the great marketing. These young brands can take a long time to work with and develop, and we want to do what's right for them. So, I feel good about the pipeline. That being said, though, right, it all has to work over a period of years. I feel good about where we're at today. I think we have some really interesting things going on, and we're doing a number of tests in how we even group brands as collections across the country, and we'll see how those brands play out and not just this year, but beyond.

Great, and Simeon, to get back to your other question on the calendar shift, I think the most important thing to think about is to really look at March and April together, right? And maybe the shift of Easter is not unusual to any given year. However, this year is even a little more challenging because of the calendar shift as well, because of the 53rd week in 2012 and 52 weeks in 2013. From a comp perspective, we expect the shift to be a detriment to March and a benefit to April as the important week before Easter falls in March during each year. However, Easter day falls into April, and that is typically a lower volume day. From a GAAP perspective, we expect the Easter shift to be a benefit to March and detriment to April as the week before Easter is in April in 2012 and it's in March in 2013. So, just a few items there, but again, I'd go back to the longer term view of really looking at the two months together when considering the comp.

And then just quickly, I think I missed. How much did you say the North American e-com sales were this past quarter?

Past quarter, we said it was up 22%.

I think you gave a penetration rate. I just missed it. Did you say what the -- what it was as a percent of sales?

For the year, it was 8.3% in North America.

Got it. Okay, thanks. Good luck, guys.

Thanks.

Your next question comes from the line of Christian Buss with Credit Suisse. Please proceed.

Yes, hello. With respect to the balance sheet, can you talk about what your desired minimum levels of cash are? And have you considered taking on some leverage in order to be able to repurchase shares?

All right. Thanks, Christian. Again, our board on a regular basis takes a look at our look at future cash flows and considers what we need to do relative to managing our cash positions. So, a lot of that's left at the board. We give them direction and guidance, and we've been a good cash generator for many, many years. So, you know what the plan is at this point as our Board hasn't made any other plans that what we've put forth in terms of the buyback program that's in place today. As far as would we take leverage on? Again, I think our perspective today is that as a retailer, we actually have a lot of leverage. It's just off-balance sheet relative to our commitment, our future cash commitments on leases. At this stage of the game, I don't believe it's something the board has considered an option in our world, that we would lever for the purpose of buybacks. That's not something I think the board has considered because in our world, we really think we have a levered business relative to the amount of future cash commitments we have with our long-term leases.

That's very helpful. Thank you, and best of luck.

Thanks.

Your next question comes from the line of Linda Tsai with ITG. Please proceed.

Yes. Hi, what's the historical percentage of sales during new stores have opened at relative to mature ones? And how do the stores that opened in 2012 compare to this?

Our -- historically, our new stores have opened around 70% to 75% of mature store base, and our 2012 stores have been consistent with our historical pattern.

Thanks. And then could you give us an update on footwear? I think in the last call you spoke about how the athletic trend is overshadowing the skate trend. What are your strategies to still capture the audience that's interested in skate and how can you, if possible, limit your down side risk to the trend?

Sure, Linda. And first, let's just remind everyone, we have a really big footwear business as relative to the size of our business, and last year we were at roughly, Chris, about 23%, is that right?

23%.

23% of our business is footwear business, and the significant portion of that is our men's footwear business, Linda. I don't want you to think that this -- this is an important part of what we do, and we are very focused on it. Now, as you said, it's clear that there is a performance athletic trend, a basketball footwear trend just from a fashion point of view cycle going on that, as we said, is a bit of a headwind for us. But there are things we can do in terms of trying to minimize the impact of that. It's clearly about getting the right presentation, the right location with the right brand mix for each location. Now -- and we are certainly doing that. Again, our proof of that will be how we do here over the next few months and the first six months of this year and then into back-to-school. So, that will prove whether our opportunities to minimize those trends work out. At this point, that's kind of where we stand.

Thanks. And then what's your outlook for AUR in Q1 and in 2013?

I don't think we give specific direction on that, Linda, but let me just say that I'm -- I've been pleased over the last few quarters, and particularly in February about the fact that our dollars per trans have been driven by both AUR and units per transaction. Again, I think that reflects the quality of our sales teams out there in the stores to finally see that UPT number be part of the driver of what's going on with driving dollars per trans higher. I would expect generally that the trends you've seen the last few months will be similar to the trends we'll see here over this next quarter.

Great. Thanks, and good luck.

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

Hi, thanks for taking my question. Just a really quick housekeeping item, Chris, circling back on Mitch's earlier question on the costs included related to Blue Tomato. The earn-out provision that you gave us, $4 million this year versus the $2 million last year, that is actually included in the series of guidance figures that you gave us for the year, or would you like us to exclude that? Help us understand which costs include versus exclude.

What we've done and will continue to do is we'll provide GAAP figures that include -- that are inclusive of the cost of Blue Tomato or any other unique activity. And then we've just called out what the dollar value of those items are for for you guys to make your own conclusions around what's included or excluded.

So, maybe just ask it a different way, the earn-out provision and the amortization, those are ongoing items that will continue even after the anniversarying of the closure of the deal?

That's correct, yes. So, the earn-out is evaluated over a 34 month period ending April 30, 2015, and the amortization of the intangibles is over a 36 month life or three year life of those intangible assets.

Okay, that's helpful. Thank you. Then my question for both of you is, as you're thinking about the comp rate net of the e-com growth, if you're looking at just the stores business, if you could just help us reconcile what that figure is, where it's trending, how you're thinking about that over the course of the year and then rationalizing that with your store growth plans, is the stores business still contributing on an accelerated basis? Or is this more of a normalized basis now and the e-commerce is really adding to the overall lift in comp? Thank you.

Yes, thank you, Steph, and we do disclose some of that, and I'll let Chris talk about the numbers. But I just want to discourage you even to think of it like that because this is -- as we've been talking about throughout, we're building an integrated multichannel selling platform. What happens in stores, what happens online are completely integrated. I can't tell you what start -- where a customer starts online anymore and buys in store or vice versa, the interconnectivity, what goes on. It is completely driven by the consumer, and you need to think about it in an integrated way. So, why we do call out what it is, that's not the way we're thinking about running the business, and I would encourage you analysts to think about it differently. And I think as we go forward over the next three to five years, we're going to have to reinvent the way we think about these metrics because I can tell you that we are successfully building an omnichannel business platform; an integrated, multichannel selling platforms, and we are having great success with our efforts doing this. And because of that, what you're asking us to do, I think is -- we can certainly do it, and I'll let Chris address it at some level here. But I would discourage you from thinking about the business like that because that is simply not the way it's working.

To answer your question, Steph, as we break out our sales the way that we define them, store sales were up 2.9% and our e-commerce sale was up 32% as we mentioned on the call. The combination of those two is the 5% comp that we disclosed.

Gentlemen, your final question comes from the line of Paul Alexander with Bank of America-Merrill Lynch. Please proceed.

Thank you. Rick, could you talk a little [about the long-term store goal] in North America? I know you've framed it as 600 to 700, and in the past you talked about wanting to open up the domestic stores at a pace of 8% to 10%. Just thinking about how fast you're opening the North American stores or just American stores X- taking out Canada this year, you're going to get -- at that pace, you're going to get to the 600 to 700 range in only two years or so, two or three years maybe. So, how should we be thinking about that pace? Will it slow down, or -- will it slow down as you approach that range, or should we be thinking that maybe you might re-evaluate and blow through that range? Thank you.

That's great questions, Paul. And as you would bet, we're thinking about those questions ourselves a lot and having those conversations with our board. Let me just say again that we're saying it's a range of 600 to 700 stores, and as we said in our comments, that we're regularly re-evaluating what that range is and we said that because of the idea of an omnichannel business model. And we also said in our comments, right, that we want the optimum number of stores to meet the needs, meet the demands that our consumers have for products. I don't know what the exact number is, Paul, and that's why we're saying we're going to obviously be looking at it closely on a regular basis as to what we're learning, and that's why we're making all these efforts in omnichannel role. It's why we're executing on the Stash program and many other things we're doing internally. It's so we can make the right decision. Now, we'll also be working our portfolio of stores aggressively. So low end stores, if you go back five years ago, we would tell you that we closed five stores in the history of the Company. I think, Chris, we closed last year --

Five stores.

Five stores. You're going to expect us to work much more aggressively on the low end of our store portfolio to make sure that, again, we're culling the low end to make sure where we don't -- we believe we don't need those stores to meet market demand. I don't know exactly where the number is, so you should think about that 600 to 700 number as it's somewhere in that range. I don't know where it is. We're going to figure it out over the next few years. And in no case, though, I want to make this really clear, do we think that there's any less revenue to be had. Right? Doesn't really matter where we end up in that 600 to 700 range, we're modeling the same amount of revenue. It's how we're capturing the revenue, Paul, that is the key thing in which channel we're capturing it. Whether it purely e-commerce, whether it be in-stores or whether it be in an integrated omnichannel world. That kind of addresses, just at the high level, how we're thinking about 600 to 700 and what that means. I don't know what the right -- I don't know what the exact number is, but we'll figure that out here over the next few years in through working and managing the store portfolio.

The rate of growth, I hear what you say. I think we are looking at those -- the numbers the same way. And so let's talk about international -- or we'll talk about domestic and then come back and maybe talk a little about international too. As we said throughout our comments in the questions today, we believe that we're playing, to a large extent, a share consolidation game in this world where fundamental consumer behavior has changed. At this point, I don't think you're going to see us -- probably slow the rate of store growth, because again, in an omnichannel world, stores and our e-commerce platform are integrated in how they're working together. We want to go out there and meet consumer he demand, wherever that demand may be, and stores are a big part of that. So, in consolidating share world, it's important that we're out there growing stores at the rate I think we have been historically. At least for now, you're going to hear me say that we're going to continue to grow our domestic stores about the same rate we have over the last couple years.

Now, we also have international growth opportunity and as we said in the comments, a lot of growth to go yet in Canada. We can basically double, I think probably more than double the number of stores in Canada here over the next few years, and likewise in Europe, I think we have tremendous growth opportunities there. Both, again, on an omnichannel world, stores and growth on the e-commerce side. And then as you know, we're always looking at what's next. We're good long-term planners. I think we've demonstrated that over the years, and we you view ourselves as a growth business. And so we think there are lots of opportunities for us to grow our business over the long-term.

Great.

Ladies and gentlemen, that concludes the time allotted for questions and answers. I would now like to turn the call back over to management for closing remarks.

All right, thanks. Just in closing today, I just want to take a quick moment. It is the closing of the year for us, and I want to take just this opportunity to say thank you to all our employees for their hard work and dedication in what's another solid year for us here at Zumiez. Likewise, I want to say thanks to our brand partners for their support, we value it greatly. And then lastly, just thanks to you, analysts and investors, for sharing in our long-term vision for where Zumiez could go. With that, I'll say thanks again, and we'll look forward to talking to you all again in May for our first quarter results. Thanks.

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