Zumiez Inc (ZUMZ) 2013 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Zumiez Inc. fiscal third-quarter 2013 earnings call.

(Operator Instructions)

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 are not based on historical fact, are subject to risks and uncertainties, and actual results may differ materially. Additional information concerning a number of factors could cause actual results to differ materially from the information that will be discussed is available in Zumiez' filings with the SEC.

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

Thank you, and welcome, everyone. I'm joined today by our Chief Financial Officer, Chris Work. I will start today's call with some prepared remarks about the third quarter, then Chris will take you through our financial and operating highlights for the third quarter, and our November sales. After that, we'll open the call up to your questions.

Earlier today, we announced third quarter earnings per share of $0.39, which as expected, included costs of $1.7 million related to the Blue Tomato acquisition. Also included in our results, but not in our outlook, was a $1.3 million charge related to the conditional settlement of a wage and hour dispute in California.

The combined impact of these charges on our earnings per share in the quarter is $0.07. Excluding the unplanned conditional settlement, our earnings were near the high end of our guidance range.

Given how our back-to-school season played out and the general shopping trends we've seen throughout the year, we are pleased with our overall results for the third quarter, which included a 1.5% comp increase. In November, the variability we have seen between peak and non-peak periods continues, as the Black Friday weekend was strong. This was offset in part by the impact of the Cyber Monday week, which was in our prior year comp base, but not in the current year comp.

We believe our ability to grow, despite what has been a challenging retail environment, is a testament to our focus on consistently offering our customer the brands and products they desire, and connecting with them in a unique and personalized manner that further differentiates our concept within the marketplace. This has been Zumiez' mission since the Company's inception.

And today, with technology empowering the teen consumer, we're enhancing this experience across all our channels, and are now able to connect with our customers more effectively than ever. To ensure we are positioned to further evolve our selling, merchandise, and service offering to meet the changing needs of our customers and build a solid foundation for sustainable future growth, we have been making strategic investments in 2013.

To that end, we've seen some pressure on margins as we fortify and extend our brand through these investments. Investing in our business and our people remains integral to our identity as a Company, and our success in the long run, which we believe will far outweigh the short-term impact on the bottom line.

Our investments this quarter, like previous quarters, have been focused on growing our geographic footprint both domestically and abroad, heightening our customers' experience through our strengthened omni-channel selling strategy, and furthering the efficiency and growth of all channels through thoughtful investments in our team. I'll take a minute to update you on these efforts.

We continued to build out our store base in North America, opening 18 new stores in the third quarter, and two in November. As of the end of November, our total North American store count is 541 stores. We believe there's still a great deal of opportunity in the North American market for further expansion, as well as sufficient consumer appetite for our highly differentiated product offerings.

We continue to plan our business in the US to be between 600 and 700 stores long-term, and anticipate our Canadian store base to be approximately 10% of the total US store count. We opened two new stores in Europe during the third quarter, and one in November, bringing our total European store count to 10. By the end of the year, we plan to have 12 stores, which is four times the number of stores we had when we acquired Blue Tomato in July 2012.

We continue to see tremendous long-term opportunity in Europe, and are taking a tempered, well-thought-out approach to gaining market share, while keeping to our core fundamentals. We believe that effectively expanding our presence in Europe is highly dependent on our ability to seamlessly extend those things that have produced our North American success: Our culture, our tailored approach to local product assortments, and the experience we provide the customer, both in-store and on-line.

When we spoke last quarter, we had recently launched an enhanced Zumiez.com and BlueTomato.com. I am pleased to announce that both have been performing nicely.

Our e-commerce penetration grew to be 11% of our total sales this quarter. Our success in e-commerce goes hand-in-hand with the success we have in our stores, which is why we view our omni-channel strategy as so integral to our future success.

There's still much we can do here to further integrate our various selling channels, and enhance our already highly-differentiated customer experience. Whether it be on-line or in our stores, we continue to manage our operations and our expansion on a micro level, assessing what's working, what we can capitalize on within the boundaries of staying authentic, and true to what we do.

By empowering our store managers to make decisions that will make their stores successful, we're able to keep our finger on the pulse of the local markets, giving us greater insight as to on how best to optimize our store portfolio, increase store productivity, and target the right return on our investments. We couldn't do this without the dedication and buy-in of the entire Zumiez team. It is their execution that we believe has allowed us to capture market share in this tough selling environment.

As we wrap up the year, we remain cautious with our short-term outlook, but we feel confident in our position in the market and the strength of our product assortments, going into the key holiday season. Looking further out, we know that the investments we've been making in our business will prove crucial to our long-term success. While I believe the opportunities for expansion are significant, we are careful to stay true to the fundamentals that have driven our past successes.

Our unique culture, diverse and locally relevant product assortments, and our lifestyle-focused approach to doing business still provide the roadmap by which our investment decisions are made. And we believe staying true to these principles will provide the catalyst for realizing our ambition for being a leading global lifestyle retailer. I'll now hand the call to Chris for a review of the financial results.

Thanks, Rick. Good afternoon, everyone. I'll start by reviewing our third-quarter results, then update you on our November sales results, and then provide guidance for the fourth quarter. Third-quarter net sales increased 6.2% over the third quarter of 2012, to $191.1 million.

By region, North American sales were up $9.1 million, and sales in Europe were up $2.0 million. Same-store sales were up 1.5% in the third quarter, and comparable e-commerce sales, which are included in our consolidated comps, increased 7.9%. E-commerce represented 11% of our overall business in the quarter, compared to 10.7% for the third quarter in the prior year.

In terms of category performance, juniors, hard goods and accessories posted positive comps, while boys, men's, and footwear comped negative. Our top line also benefited from having 55 additional stores in the 2013 quarter, compared with the year-ago period, partially offset by the shift of is a high-volume back-to-school week out of the third quarter into the second quarter, worth $7 million.

Gross profit was $70.8 million in the third quarter of 2013, compared to $67.1 million in the third quarter of 2012. Gross margin was 37% in the quarter, compared to 37.3% in the year-ago period.

The decrease in gross margin was a result of the deleveraging of our store occupancy costs and increased e-commerce fulfillment costs as a percent of total sales, partially offset by $1.4 million in prior-year inventory step-up costs, associated with the Blue Tomato acquisition. Consolidated product margins excluding the impact of the prior-year inventory step-up charges were flat in the quarter.

SG&A expenses for the quarter were $50.1 million, or 26.2% of net sales, compared to $45.7 million, or 25.4% of net sales in the 2012 quarter. Included in SG&A in the current-year period is $1.7 million in Blue Tomato acquisition-related costs, made up of $1.1 million of contingent incentive payout accruals, and $0.6 million for the amortization of intangible assets. Also included in the current quarter is $1.3 million associated with the conditional settlement of a wage and hour class action lawsuit in California.

Included in SG&A in the 2012 quarter are $2.6 million of Blue Tomato acquisition-related costs. Also included in the 2012 quarter is $0.3 million of costs for the relocation of our corporate office. Excluding these costs, SG&A increased 90 basis points as a percent of sales, due to deleveraging our store operating expenses, the shift of back-to-school sales out of the third quarter, and investments in our e-commerce business.

Third-quarter operating profit was $20.7 million, or 10.8% of net sales, compared to $21.4 million, or 11.9% of net sales during the third quarter of last year. And lastly, net income was $11.9 million, or $0.39 per diluted share, in the third quarter of 2013, compared to $12.7 million, or $0.40 per diluted share during the 2012 third quarter.

To summarize, in our 2013 third-quarter results, our costs of $1.7 million, or $0.05 per diluted share, related to the contingent incentive payout and amortization of costs from the Blue Tomato acquisition, as well as $1.3 million or $0.03 per diluted share, related to the conditional legal settlement. On a combined basis the impact on EPS was $0.07, due to rounding.

This compares with costs included in the 2012 third quarter for Blue Tomato-related charges of $4 million, or $0.10 per diluted share. Also included in the 2012 third quarter are $0.5 million, or $0.01 per diluted share of costs associated with the relocation of our e-commerce fulfillment center and corporate offices. As a housekeeping note, our 2013 third-quarter guidance did anticipate costs from the Blue Tomato acquisition, but did not factor in the conditional legal settlement.

Turning to key balance sheet highlights, we ended the quarter with cash and current marketable securities of $94.2 million, down from $98.3 million a year ago. The year-over-year decline was driven by capital expenditures, primarily related to new store growth, and approximately $30 million paid to repurchase our common shares, partially offset by cash generated by operations.

Inventory increased to $126.7 million at November 2, 2013, up 15.4% from $109.8 million at October 27, 2012. In North America, our inventory per square foot was essentially flat.

However, due primarily to the buildup of operations in Europe, our consolidated inventory per square foot was up. As a reminder, throughout the year, our inventory balance may be impacted by the shift in the calendar, resulting from a 53rd week fiscal 2012. Going into the busy holiday selling season, we remain confident in the quality of our inventory levels.

Turning to our November comps and Black Friday, our comparable store sales increased 1.7% for the four-week period ended November 30, 2013, compared to a 4.2% decrease for the four-week period ended November 24, 2012. Total net sales for the four-week period ended November 30th, 2013, increased 16.3% to $62.4 million, compared to $53.6 million for the four-week period ended November 24, 2012.

The increase in comparable store sales in the period was driven by an increase in comparable store transactions, partially offset by a decrease in dollars per transaction. Dollars per transaction were down for the four-week period, due to a decrease in average unit retail, partially offset by increase in units per transaction. During the four-week period, accessories, juniors, and hard goods comped positive while boys, men's, and footwear posted negative comps.

Our comp over the Black Friday weekend, defined as Thursday through Sunday, compared to the Black Friday weekend 2012 was 11.2%. While we believe there was a positive impact of the calendar shift on the weekend, due to the condensed holiday shopping season, we also believe these results are an indication of the significance of the peaks during the holiday seasons. Year to date 2013 comparable store sales through November 30, 2013 increased 0.8%.

Turning to guidance, as always, I would like to remind everyone that formulating our guidance involves some inherent uncertainty and complexity in estimating sales, product margins and earnings growth, given the variety of internal and external factors that impact our performance. Before I get into specifics on our guidance, I want to quickly review some of the trends we've identified today and on previous calls, because these trends are reflected in our guidance.

We believe we continue to be the retailer of choice amongst our customers, despite the challenging selling environment we've experienced in the last several quarters, which we believe is reflected in our year-to-date comps. While we're encouraged by the continued support we see from our customer base, we remain cautious on our top-line outlook, given volatility in consumer shopping behavior, particularly amongst teens. In addition, as Rick discussed previously, 2013 has been an investment year, as we continue to build a strong foundation for sustainable future growth.

As a result of these investments, we do anticipate some short-term drag on our margins, as we equip the Company for long-term success. With that in mind, we are planning fourth-quarter comparable store sales to be in the range of a decrease of 1% to an increase of 2%, and total sales to be in the range of $230 million to $237 million. We expect consolidated operating margins to be in the 13.5% to 14.5% range, with diluted earnings per share between $0.60 and $0.66.

Included in our fourth-quarter guidance is an estimated $1.7 million, or $0.05 per share, in costs associated with the acquisition of Blue Tomato, consisting of $1.1 million in the contingent incentive payout, and $0.6 million in intangible amortization. As a reminder, the calendar shift resulted in an extra week in the fourth quarter of fiscal 2012, which was worth $8.9 million to that quarter.

For the full year, through November 30, we have opened 57 of the planned 59 stores for this year, including nine in Canada, and four in Europe. We expect to open two more stores in the fourth quarter, and our net store growth, after closures for the year, to be 53 stores. As a reminder, we have removed the two seasonal Blue Tomato stores from our total share count, as these stores are not representative of our full-line store base.

We expect capital expenditures will be between $36 million and $38 million, consisting primarily of new store openings and store remodels. This compared to $41 million in 2012. We expect depreciation and amortization to be approximately $26 million, an estimated 14% increase over fiscal 2012.

We anticipate our annual effective tax rate to be slightly higher than our fiscal 2012 rate. Our 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 the 0.2 million shares repurchase year-to-date. Any additional share repurchases will further reduce our share count.

Based on our performance through the first nine months of fiscal 2013, we expect to incur lower than planned incentive compensation expense, which will benefit this year's earnings, but does create a tougher year-over-year comparison in fiscal 2014, which is something to take into account as you think about next year's bottom-line growth rate. Lastly, today we announced the authorization from our Board of Directors to repurchase an additional $30 million worth of our common stock.

The new repurchase program replaces the previous repurchase program that had been authorized a year ago. And with that, we will now open up the call for your questions.

(Operator Instructions)

And your first question comes from the line of Mitch Kummetz with Robert Baird.

Couple of questions. First off, Rick, could you just comment on your thoughts on footwear these days?

I think it was last year on the Q3 call you talked about shifts in trends there. Sounded like you maybe were correcting some of that.

Last month, October, footwear was up off of a down month the year before, but then in November, it looks like it was down off of a down month. Just kind of curious how you're think about footwear these days?

Sure, Mitch. Again, we kind of have to parse the discussion a bit between men's and women's.

The strength in our footwear, has been, again, it's flipped from a year ago, has been men's. And our women's footwear business has actually been more a difficult business this last year. But in aggregate, the men's is pulling it up to a positive number.

So we're seeing, Mitch, I mean, I think some of it is recurring trends around some really unique product on the marketplace that we're able to again be in a good partnership position with our branded partners on, and there's just a hot shoe right now, which is one important element to what's going in to footwear business. So our teams have done a great job of repositioning, again, as we've talked about in the comments, that our ability to micro-sort really gets down to what's working at every single location.

We're planning footwear at a more detailed level than we've ever done, Mitch. So it's a combination of great product from our branded partners in footwear, a good hot silhouette in the shoes, and then our team, I think is just doing from our merchant side, a really great job of planning the category at a really fine level.

Okay, that's helpful. Then, following up on Blue Tomato, can you guys just drill down on what the earnings impact was on the quarter? Maybe on last quarter, too.

It sounds like sales were up year on year, but you have opened some stores. I was hoping to maybe just get a better sense as to how that business is impacting the earnings.

Yes. I think we tried to lay out the he overall charges for Blue Tomato. So hopefully, you got those through the call.

If you exclude those charges, Blue Tomato is contributing positively. But the charges that we're recording are making the overall contribution negative at this point.

Okay. Would you expect Blue Tomato to contribute positively to earnings in the fourth quarter as well, excluding the charges?

Yes.

Okay. Great. Thanks. Good luck.

And your next question comes from the line of Dorothy Lakner with Topeka Capital Markets.

It finally seems this year we've actually gotten some cold, snowy weather, depending on what part of the country you're in. So I'm just wondering if you could comment on the snow part of your business, how you have positioned that this year versus last year? And then just also if you could comment on the accessories part of the business as well? Thanks.

All right, Dorothy. Appreciate your question. So we'll start off with the snow business, and as I think Chris said in the commentary, we'll focus on, and really should focus on November, in regards to responding to your question.

And so as Chris commented, overall our hard goods business comped positively in November. However, if I parse that, and break out the skate versus snow hard goods side of those two businesses, I'll tell that you skate is what created a positive number for us in North America. In Europe, our snow business has actually been quite strong.

Now, I think there's -- as we look at November, and, by the way, I'll add, and it's just not the hard goods. Our outerwear business was also difficult in November. So I break that out and say, there's always a perception that it was a colder November.

It really isn't true if you look at broadly across most of the country, and in the west. It was actually not as cold as I think people think on the East Coast. So we -- and that is where the bulk of particularly our hard goods business and our outerwear business has done, more in the Colorado and west market places.

Now, we still have a long ways to go in the snow season. The November numbers are significant, but they're dwarfed by our numbers in December and January, when we look at the strength of the business, those months. So we have a long ways to go in the snow business, in our winter business categories.

I will add, though, in terms of positioning, we have done, I think, our merchants did some very clever things with how we've positioned our inventory buy this last year. I'll tell you, I think that we are in an excellent position, relative to inventory, in our snow product.

And I think, no matter how the season turns out, we're going to be well-positioned coming out of the season, based upon some of the unique strategies we've been able to employ. In terms of how we bought the product, and how we're selling product across the country.

Oh, that's great to hear. Good luck for holiday.

the comment on accessories, it's been a great category or department for us, for a while, and there are, as usual, I won't get into the details, but there are a number of categories within the department that are working really well. And again, we have a lot of categories, Dorothy, underneath our accessories department.

So I'm not going to break that and parse it down, because it just gets way too micro. But as usual, and I think this probably ties back again, also, to Chris' comments about to makeup of the comp relative to transactions and AUR, because you're seeing accessories in a month like November lead the charge there. You can draw some correlation between those two, I believe.

We just have some things that are doing terrific. And I might add, we have categories that are doing really badly, too.

But that's the nature of the accessories business, where we sell so many categories of products within the department. And again, it's a place where I think our merchants have done a great job of chasing what's working, minimizing our exposure on the things that aren't, and leveraging the business to drive the gain.

Great. That's very helpful.

Your next question comes from the line of Dave King with ROTH Capital Partners.

This is actually Isela Soto on for Dave King. Can you give us any color on Cyber Monday, following some of the on-line initiatives you've implemented over the past year?

Sure. We're not going give direct color on Cyber Monday, other than to say, we talked about the shift and the impact that has on the month of November. One of the challenges as we look at Black Friday and Cyber Monday overall, is the compression in the cycle here, in going from five weeks between Thanksgiving and Christmas to four.

So what we can tell you is on Cyber Monday, overall we're up from the prior year, but it is hard to parse out what is being closer to the important Christmas holiday, and what is the performance on Black Friday. So what's important to us, as Rick mentioned, our sites are operating well, and our investments are paying off there, and the web continues to contribute positively to our comp. So we're happy with our results, but it's hard to parse out what the benefit is.

I agree with Chris' comments, and I think, again, we're going to have to -- we need to be patient to look at the whole season together. So we'll be able to talk to you more about that when we release December sales results.

Okay, that's helpful. Then did you feel any pressure to extend or add items to promotions, over the course of the Black Friday weekend? And how should we think about that over the remainder of the season?

Thank you for the question, because it's always important for me to remind everyone that we're in the a discount retailer, like apparently everyone else in the mall is these days. So we were no more promotional a year ago than we were today, overall. In fact, considering the new stores that we added over the last year, we had very -- in the month of November, very little additional markdowns overall, as captured by our point of sale.

So we were no different really on any significant way from our promotional cadence from a year ago. Again, our goal is to be the partner for -- the retail partner for our branded suppliers to sell their product at full prices, because we have great product, unique product, that customers see value in.

That's our role in the marketplace. So our promotional cadence was no different over the Black Friday weekend a year ago in any significant way, and we're really happy to be in that position.

Okay, thank you.

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

Great, thanks. This is actually Maria Vizuete, for Stephanie. We're just wondering if you could provide a little more color on merchandise margins in the third quarter, and maybe provide any color on how we should think about them in Q4?

Sure, yes. Our merchandise margins for the third quarter were flat with the prior year, excluding the impact of the prior-year inventory step-up around Blue Tomato. So overall margins continue to be strong, tying into Rick's point and the previous question around being less promotional, and selling brands that have significant equity.

As we look to the fourth quarter there, in the guidance that was provided, there was no significant plan to change margins materially. So we feel confident with our inventory position and feel good about our strategy, moving into the fourth quarter.

Thanks. And then can you just provide any additional facts on where you see inventories ending at Q4 end? Thanks.

Yes. Without getting complete guidance, as we saw in the third quarter, our inventories were up, with North America being relatively flat on a per square foot basis, and then growth in Europe, based on getting ready for the holiday season, and the stores that we're opening there. So we do anticipate we'll end the year with slightly higher inventory, but do not anticipate it to be as large as our third-quarter increase.

Great. Thanks so much. Best of luck.

And your next question comes from the line of Jeff Van Sinderen with B. Riley.

I know that e-commerce has been, or digital has been comping for you, and you've done a lot of work to bolster that part of your business. Maybe you can just give us a little bit more on what the key omni-channel, if you will, or digital initiatives are, that you're focused on for the next few quarters. Maybe just comment on how you think that -- or how you think about omni-channel becoming more seamless for your customer in the future?

Sure, Jeff. And I'm not going to get too specific here, because I think that some of the things we're doing we have significant competitive advantages on, in terms of how we're doing it, and the strength that we're doing it with. Let me just maybe highlight for you some of the things that we would look back over the last few years, and talk about the significance of what we've done, and perhaps give you some characterization for the things we've looked at going forward.

So if you look back over the -- what's been a really pretty tough environment over the last five years, from a particularly teen retail consumer experience, we've been very focused on looking and saying it's really driving share consolidation, and the marketplace has empowered consumers through the use of smart devices. And I think that's been accelerated at times by a very difficult economic situation.

For the last really four to five years, we've been really focused on saying we're going to be an omni-channel retailer. We'll define that by saying it's integrated multi-channel selling, seamless integrated multi-channel selling is the objective.

So over the last five years, we've done a lot of things, and we've talked about a lot of them with you over this time. The first was, I will remind you, just from a strategy point of view, is to pull back the number of stores, because prior to five years ago, we were saying we were going to have 800 stores in the US, and now we're saying it's going to be a lot less. I say that, but remind everyone, that doesn't mean we think we're going to have any less revenue overall, it's that we're going to capture the revenue differently.

We invested heavily in 2009 at the time of our largest software investments, in new assortment planning software. That was a key tool that we're using heavily today, intensely today, in my comment to Mitch regarding our ability to really finally assort footwear by locations.

These are very powerful tools. We think we have some leading edge advantages here, with what we're doing. We're going to continue to evolve in that many ways as we look into the future for our omni-channel efforts.

But there are fundamental omni-channel things that we need to have, because you just don't think about planning by location now, you think about planning by trade areas. These things are really a critical way to think about the business.

So we have done a series over the last four years of integrated selling techniques between the web, our stores, stores and the web, social channels, you name it, we've been experimenting and trying with it, and we've had some pretty good success. You can anticipate going forward that we're going to do a lot more of that, Jeff, in terms of our process, how we think about what we're doing.

A key part of building -- the launching the new web platforms was to establish ourselves with a new technology platform, so that we can extend what we're doing in an omni-channel way in -- over the next few years based on the technology we launched in this last platform. So, I like people to always think about these things on a continuum.

We've been doing a lot. And I think we've done it fairly successfully over the last four or five years, but we have a lot more to do.

And I can tell you we have a fairly detailed roadmap on the things we believe we need to do next year, that will lead to what we're going to do in 2015. And they're all inter connected, built on one another, as we lay out the omni-channel strategies.

And I like, Jeff, thanks for the way you phrased the question, because it's really not about e-commerce, it's really not about stores. It's about meeting whatever our customers want, in whatever channel they want it, any way they want to get the product. That's where we're trying to play, and we're trying to dominate the market in that arena of integrated multi-channel selling.

Got it, that's really helpful. Thanks very much. Good luck for the rest of holiday.

Your next question comes from the line of Edward Yuma with KeyBanc.

A little bit of a derivative off the last question, but your business is much different than it was many years ago. You have more, arguably more opportunities for organic growth, so e-com, Canada, now Europe.

As you think about the long-term earnings calculus for your business, where should we expect the bulk of your incremental investment to be spent, particularly if the US teen mall environment remains intensely promotional? What would it take you to reconsider your US store target? Thanks.

Thanks, Ed. And you're right, that does build off the last question. And I will tell you that we, on a regular basis, are revisiting our US store target. So this is something, I think your question is an excellent question.

I have to tell you, I just view retail in America as over-stored. In particular, I think teen retail is way over-stored.

That is one of the reasons there's such tremendous promotional pressure in the teen retail world. One of the reasons, not all of them. But it is a significant reason, I think, that we see the level of promotional cadence in the teen world, that we're seeing today.

So we are constantly looking back and challenging ourselves on a regular basis, about what we think that right store number is. I can tell that we don't know what the right store number is, but we've tried to characterize it like this, which is, we don't want one more store in a market area than we need to capture the sales in that market area.

So we're measuring things in all new ways, and you are absolutely right, our business today, compared to what it was five years ago, has been essentially completely reinvented. And we used to be just a 20% unit grower, and we virtually didn't really have a web operation. Now we've got a pretty substantial web operation, we've slowed down the rate of growth of our stores, and we've really focused on this idea of integrated multi-channel selling, the omni-channel world.

It's a much different business, and I have to tell you, I also think our position today is much more defensible. It was much easier to be a large unit grower than it is to play the game we're playing today.

So we're constantly going to reevaluate where we're at, and as I said when we moved from 800 to 600 to 700 stores, that wasn't a takedown of revenue in our mind, it was a shift between channels, and it was a shift to more productive, as we believe, more productive stores. So if we were to move wherever we end up with the store count in the US, we don't anticipate that we're going to have less revenue in our projected five-year plan.

We think we'll capture the same amount of revenue. It's a matter of capturing it in the most cost efficient way that we can possibly capture the revenue. And in a way, the best, and even more importantly, in a way that best serves our customers.

Great. Thanks so much.

Your next question comes from the line of John Morris with BMO Capital.

The juniors business, Rick, has been performing well, despite a lot of weakness industry-wide in female teens. Can you give us a little bit more color about what you are doing differently there, and more broadly, any changes in terms of how you're seeing how the teen junior shops? Thanks.

All right, thanks, John. Again, we have worked hard on the juniors business, going back again four years ago, with a new merchant in place. We really have redeveloped what our strategies are, and we have a three-pronged approach, John, to how we're thinking about our women's business.

I'll tell you, I think our strategies today in women's are more sustainable than -- in terms of being able to continue the quality of our women's business going forward, than it's ever been any time I've been here, in my 20 years with Zumiez. So I feel really good about what our merchants have done, and how we've thought about layering in uniqueness of product from a brand perspective, the importance of private label for a values perspective in the business, and really going after the key fashion trend by categories.

And as you know, we have a very limited space, relative to our competitors in the juniors arena in the mall setting. So we have to be very special in how we use that space. And I think our merchants have done a really good job on that front, of really laying out a clear path for us, with how we can play.

We can play in different cycles, and I'm really proud at the consistency and quality of what they've done. We think, again, that there's an opportunity.

I also think we're seeing -- we're benefiting broadly from the perspective that there is some desire to move back towards a little bit better quality women's merchandise, than has been driven by the fast fashion cycle the last few years. I think that a retailer like Zumiez is very focused and unique in what we're trying to do, is probably benefiting a bit from a cycle back towards a little bit better high-quality product.

And the last thing I would say about what we're doing in juniors is that we're trying to do something that is completely consistent with our Zumiez brand experience for our consumer, that isn't something distinct and separate from what we're doing on the men's side of the business. But I think that's a very important point, too, because again, as we said in the comments, you have to be authentic and true to your brand ID. I think, again, I feel very good about where we're at with the strategies we have in place, that we're executing in our women's business.

Great. Thanks, Rick.

Your next question comes from the line of Pamela Quintiliano with SunTrust.

I just had a quick one. We recently received the Ultimate Gift Guide in the mail, and it looks great. Don't remember getting it in the past, but quite honestly, it could have just been because we weren't on the list.

So can you tell us a bit more about it, the strategy surrounding it, cost to do it, where the list is coming from? Anything else you feel like providing for us would be really useful. Thanks.

Thanks again for the question, Pam. And thanks for paying attention to what we're doing out there. I would again put this under the guise of one of our continuing investments in omni-channel selling, integrated multi-channel selling.

We are, to be clear, though, this is actually our second book. We mailed a book in the back-to-school season, too, in the early part of the back-to-school season, and we are in a test mode.

And I want to be clear with that, this is not something that is designed to, at this point, drive large volumes of business. It's designed for us to evaluate whether or not it works effectively with our current consumer base.

So today, we are not using the book to prospect. We're using the book to determine whether or not we can deliver a great brand experience for our branded partners, as well as for Zumiez, in the home of our consumers, and that we can see a lift in purchases, because of the delivery of this book into people's homes.

So we are using a series of control groups, in addition to -- we have a number of segmented test mailings that is we do as part of the overall approach. We have control groups for each of those test mailings, then, of course, we're measuring the lift that we're getting in sales for each group, and relative to the control group.

I can tell you again, that we're very encouraged by the back-to-school results. But again, these are tests.

They're not designed to drive large volume. But we're very encouraged about what we learned at back-to-school, and we're going to continue this process, and we hope to learn a lot more.

We of course, as you might imagine, and testing more things here as we move through the holiday season. But we hope to learn a lot more, and I anticipate that we'll probably continue the process over a number of series of books, and hopefully, we're able to turn this into another channel, inter-connected channel for our overall retail business.

I would add to that, Pam, your question around costs, they're not significant enough to call out, and as Rick mentioned, it's something we're measuring, to get that lift. And so as the impact is greater, we would invest more in the test. But at this point, it's not substantial enough to call out.

But you did expand the number of people that you sent it to, this round, versus back-to-school?

We did. And again, you can probably derive again, as I said, that we saw some significant lift in the back-to-school test. So you might imagine that we were -- we felt it was appropriate to mail to more people this round.

It looks fabulous. It's very, very eye catching. I would imagine it's going to serve a strong traffic driver, so best of luck for the holiday with it.

Your next question comes from the line of Richard Jaffe with Stifel.

Again, my compliments on the juniors business. It looks terrific. I guess I feel like you're showing a lot of discipline in keeping it small and very quick-turning, but very, very trend-right.

Wondering, as you look into a very competitive environment with the junior side being arguably more competitive, a woman having more choices, how you see the holiday season and spring for your junior business, and how you think you will manage it in terms of opportunities for growth, and if you have visibility for some either new vendors, new trends, new ways to continue that business' success?

Thanks, Richard. I wish I was clairvoyant enough to know exactly how holiday and spring were going to turn out in women's. I'm not that smart. I think you probably already know that.

That's not what I meant.

But what I will tell you again is, it's been gaining in mix share of our business. I think it is going to continue that, because I think we have an opportunity here.

Our previous peak, I think, on our juniors business, the mix I'll share, is 50% of the mix. We've been -- we're still below that. And I think we have some opportunity to move up, and without losing -- this is additive business.

We're not going to lose more men's business, because we're able to build our juniors business, turn our juniors business faster. So we're excited. I think the team has good strategies in place.

You're right, we're very disciplined about the strategies, and we're very disciplined about turning the inventory quickly on the juniors side of the business so we can be on the current trends and cycles. I think we have found the right mix of value, in addition to unique brands and fashion pieces.

And it's a very, as you said, for the space we have, very limited space we have relative to our competitors, I'm really encouraged by how the team is doing. So my hope and my belief is that we will see these trends continue through holiday, and hopefully into spring.

I'll keep my fingers crossed for you. The store looks great. Thanks a lot.

Your next question comes from the line of Chris Buss with Credit Suisse. And your line is open. Mr. Buss, your line is open. And your next question comes from the line of Betty Chen with Mizuho Securities.

I was wondering if you can talk a little bit about the men's business, men's apparel. This year, we've been lapping some very tough comparisons. Wondering how do you and the team think about that business, as you wrap up the year, and go into 2014.

And then secondly, for Chris, can you just clarify your commentary regarding SG&A guidance for the fourth quarter? I think you had mentioned that it would be up, but I just want to make sure we have the right notes down. Thanks.

Thank you, Betty. I'll talk a little bit about how we're thinking about men's at this point, and then Chris will address your SG&A issue. Men's, obviously, it's been tougher for us, and you're right, I think it's partially tough because we have had a long run in our men's business, and we've had some terrific brands.

We've grown significantly over the last few years. And I might also add, the comments earlier about our tough November, as in relation to November, our tough winter business in men's, that was reflected in our men's business on the outerwear cycle, too.

So I think some of this we'll see come around, it may take a bit more time here. But we have a lot of very exciting young brands that we're working with.

And we're seeing good success in key markets with these young brands, and our experience, over a long period of time, and, like I said, in my 20 years here at Zumiez, is things like this run in cycles. And we're happy to have other categories or other departments lead the way, and we've seen other cycles like this, where men's has been a laggard, because of strong comparisons, and then before you know it, we find that next key emerging brand that becomes an all-star buy, where you ride a new emerging fashion cycle.

So I have to tell you that from my perspective on the men's side, I am actually really encouraged at how well our teams have done at managing against what are some very difficult comparisons with some brands in the business, and how well we've done in offsetting some of the losses we've had in some of those brands, and so this is normal cycle for us. Again, I think if you look back historically, we have a very strong track record at finding ways to run gains, no matter, and usually in those cases some departments are always running down, and some departments are always running up.

I think that's where we're at now, and I'm optimistic, as always. I can't tell you what it is going to be, necessarily, but I'm optimistic as always that we are going to see the men's business. We'll find that next catalyst, we'll find that next brand becomes the all-star buy, and we'll be able to ride that for quite a period of time from that point forward. Chris?

Betty, in regards to your SG&A question around where that will be, what we did talk about in the guidance, where our operating profit would be, which was, we believe our year-to- date operating profit in the fourth quarter would be between 13.5% to 14.5% for the year. Obviously, one of the challenges we have on the SG&A side, specifically in this investment cycle, is that on this level of comp, we are seeing some de-leverage.

So we are doing things obviously to mitigate that. We talked about in our prepared remarks the reduction of incentive comp, in meeting our metrics. But we expect to grow SG&A overall on the year, but we will be deleveraging because of the comp.

Okay, great.

And I also should mention, as we think about SG&A as well, in comparison to 2012, 2012 did include an extra week. It was a 53-week year compared to a 52 in 2013, which obviously puts some challenges into our metrics, in comparing it year-over-year.

And then in terms of earlier, I think, Chris, you said that we're in an investment stage. A lot of these initiatives, really sounds like the ongoing investments are really required in the business. How should we think about 2014 SG&A? If any color you can give us on that front.

I think the challenge with investments is I can't turn them on, on the first day of the year and turn them off, on the last day of the year. So there always is going to be some impact, as they move on into the coming year.

As we talked about the investments, on the last couple of calls and throughout the year, these investments, they are significant investments around the website, our IT, and web teams, then obviously our international expansion as well. So the way we would think about those investments is that they will have an impact on 2014 and beyond.

However, we also believe that they'll drive incremental sales, and like all investments, we evaluate the investments based on their long-term returns. And so the idea would be the investments are put in place to help drive future growth, and that growth will further leverage those fixed costs in the years to come.

Wonderful. That was really helpful. Thank you and best of luck for the holidays.

Your next question comes from the line of Paul Alexander with Bank of America Merrill Lynch.

Could you just talk a little bit about the comp guidance for fourth quarter? For the November comp, you're running near the top end of the fourth-quarter guidance. So imply that from here out, you see more risk of the comp decelerating, than of it maintaining or accelerating.

Why would that be the case when November arguably has the stiffest headwinds from calendar shift, and as you were saying about peak periods being best for you, December is clearly the peak of the year. So why the maybe conservative outlook? Thank you.

We spend a lot of time talking about this, and thinking about this, Paul, as we do every quarter. If you look back at the year, our quarterly comp cadence has been down 0.7, up 0.9, and 1.5 for the third quarter. So we certainly have established a trend line of what we're seeing.

And in this market there's clearly some uncertainty. While we are happy to be positively comping, the outlook, as we look forward, is more challenging, as we think about where the comp will go. So we definitely think we're encouraged by our performance over the holiday weekend, and how we comped over black Friday, but there's clearly some more macro trends here that have impacted our comp over the year. And so as we look to the fourth quarter, we're trying to lay out where we think a reasonable comp range is.

I would just add, Paul that Chris laid out that quarterly comp trend for the current year, that is against some widely different comp trends, quarterly comp trends from the prior year. So, again, this is where your -- the prior year comp doesn't seem to really have much impact on the current year comp, relative to ease of comparison or difficulty of comparison.

So that's why it's appropriate to be conservative with where we're at, then I'll just remind you, when we talk about being better in the peaks, looking back over particularly the last 10 years, what that really means is that you are soft in the troughs. So when we talk about peaks around this season, what we're really talking about is the Black Friday weekend, then in relationship to now, of course, we expect our e-commerce business to be dominant and the stores to be tougher in the trough.

Right before Christmas we expect our stores to be dominant. And, of course, we -- those days after Christmas, we have a long history of doing very well when our customer comes out to be the shopper, so it's not just that the peaks are better. I believe this will be the case, when we'll see the peaks get more violent this season, but the troughs will get deeper in between the peaks.

So that's why again, I think, as we've laid out the guidance, we're trying to be appropriately conservative. Relative to the trend cycle, as Chris pointed out, as well as to this expectation that the peaks of a few days, that it makes a difference that we can excel in those -- outside of those few days, we expect the trough to be deeper.

That's really helpful. Thank you. Rick, just a follow-up on that topic that you were addressing earlier about the brand pipeline and finding home runs in the men's -- in men's brands, and how that's cyclical and sometimes it takes a while for you to find that new brand.

In your experience, is there any general sense of what the duration is of those cycles? How long sometimes it takes to -- is there any rule of thumb that cycle moves at a couple years, then you get something, then a couple years and you get something, or is it completely unpredictable?

I wouldn't say it's completely unpredictable, because it's a cycle. Typically, the cycles run long.

The in-between cycles, Paul, tend to be shorter than these success cycles, right? Because, once the brand really emerges, then it has a long run over a multiple year period. That's typically the way it's worked historically.

In today's world, I will tell you, though, my belief is that looking forward we're going to see these cycles shorten because again of the power of technology. This is why we are laser-focused on trying to be supportive, and a really good partner for our small retail brands.

Again, we have hundreds of brands today that we're doing business with, just like we always have, and some of them are just in a few doors. We want to be there in the right way for that young brand, and we wanted to do everything we can to help see them be successful. Maybe it's just those 10 doors.

But we're hoping that over time, and they have to do their job well, too, of making sure that they have great product. They have to have great marketing and product and marketing have to be completely aligned with the unique brand positioning, and then they have to have great retail partners that believe in full-price selling, and we are a huge believer that it's a dangerous time to be out there for young brands, in the sense that it's easy to be in a place where you is going to be highly discounted.

That does a young brand, in particular, a huge disservice. So we're trying to be the quality retail partner out there for these young brands.

We're trying to engage with them early, we're doing a number of new things around that, and some of them recently here in the last few months, where we've done some new events that we've never done involving some young brands, and really laser-focused on how we can help them be successful. They're going to pick their own course. We're willing to take whatever course that is with them.

Because as they emerge, we'll be happy then to help them move from 10 stores, to 50 stores, to 200 stores, to all-store buys. Again, there's no one pattern I can tell you, other than that the historically, the troughs between hot brands has been much shorter than the run we get when they emerge.

That's really great. Thank you very much.

And your next question comes from the line of Jennifer Black of Jennifer Black & Associates.

I wondered if you could talk about your thoughts about unique fashion in the aggregate, over the next six months. I know that you will not talk about specifics, but do you see anything down the pike that you're excited about, as far as unique fashion, in either men's or women's?

Yes, and -- thanks, Jennifer. And I know where you're going, because the fashion cycle has been kind of a stale one, right? In terms of what we're seeing out there.

There hasn't been anything that's been moving the needle, particularly in the teen market, I would tell you. I know you're well aware.

They're more micro things that have been out there driving, and so I don't know -- I can't tell that you I know what it is at this point. We're out there, experimenting all the time with different looks, different fabrics, and, again, we have the luxury of having our branded partners doing the same thing.

And so we're going to work closely with our brands, to determine where we think what will come out next. I can't tell that you I have any insight today, Jennifer, about what that unique or new fashion cycle is going to be.

Again, in our case it may not be so much fashion driven, it can be brand driven. So we have -- that's, I think, an added benefit of our multi-brand structure, multi-branded retailer structure.

So we're looking at both cases for how can we maximize the emergence of young brands, as well as, let's just keep our -- let's just keep experimenting. Let's keep pushing on the fashion cycles, in categories and in fabrications, to make sure we're going to be there on the next cycle.

We believe, again, that historically we get early reads to that, based on the nature of our business, and the nature of working with so many young brands, and our branded partners out there. So I can't tell you what it is.

I don't have any great insight about it. But again, I'm counting on the fact that we have great merchants, and that we have great relationships with our branded partners to find and to be ahead of the game, in finding whatever that next cycle is.

Great. Okay. I just have two more questions.

I wondered if there were any significant geographic differences domestically, and were there any big differences between your full-price stores and your outlets or online? Did you see anything that was unusual?

Great. From a geographic perspective when you look at North America, there are no significant call-outs across North America.

As we have said on our last few calls, Europe did contribute positively to the comp, and it contributed positively in Q3. It also contributed positively in November, which is more important as the volume of Blue Tomato's cycle is more concentrated on the winter months. So, we did see some pick-up there from a overall geographic perspective.

Regarding web and the stores, we do talk about that. Web increased 7.9%, and the stores were 0.7%, related to the quarter. So you can see there was a breakout there.

Although I will, again, caution you, as you think about those two channels individually, and they work together. It's truly an integrated cycle. We break that out, but we really look at the comp overall.

And outlet versus regular?

Outlet versus regular are relatively consistent. Nothing to call out there.

Okay. Great. And then just lastly, can you talk about your Stash rewards program? Are you making any enhancements?

Again, thanks, Jennifer. We're still in the early phases of Stash, with just over a year in the program.

So we are in the learning phase with what we're doing. So, yes, we will be making enhancements. We'll be adding new capabilities here over the next year, to what we're going to be doing in Stash.

We have beefed up the staffing in our area with Stash, with people who have experience working with loyalty programs. So we're very encouraged by where we're at with Stash. And we want to find more ways to reward our customer base, in ways that really motivate them, and those are probably the areas you are going to really see us experiment with and play with, here over the next year.

Great. Your stores look great, and best of luck.

Ladies and gentlemen, this will conclude the question-and-answer portion of today's conference. I would now like to hand the call back over to Mr. Rick Brooks for closing remarks.

Thank you. And again, I just want to make sure I say thanks to all our investors out there, and the analysts who follow our stock. We appreciate your attention.

As Chris said, and you've heard me say, we think we're well-positioned for the holiday season, and we'll look forward to talking to you and giving you some color on December here in early January. And then, of course, in our March discussions, when we'll lay out not just how we did for the full year, but how we're thinking about some direction for 2014.

So we're excited about our positioning, we're excited about our long-term investments and our position for the long term, and we appreciate your interest in Zumiez. Thanks, everybody.

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