Zumiez Inc (ZUMZ) 2017 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Zumiez Inc. Second Quarter Fiscal 2017 Earnings Conference Call. (Operator Instructions) Before we begin, I'd 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 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. 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' filing with the SEC.

At this time, I will turn the call over to Rick Brooks, Chief Executive Officer. Please go ahead, sir.

Thank you, and welcome, everyone. Joining me on today's call is Chris Work, our Chief Financial Officer. I'll start today's call with a few brief remarks regarding our second quarter performance. I'll then give an update on our broader strategy and will hand the call over to Chris, who will take you through the numbers. After that, we'll open the call to your questions.

We are encouraged by the strength of our business exhibited during the second quarter, highlighted by a 4.7% increase in comparable sales, our fourth consecutive quarter of positive comparable sales and transaction gains. Result was a meaningful acceleration compared with our first quarter performance and well above our initial guidance range of 1% to 3%. The combination of higher sales and a 30 basis point increase in gross margin resulted in a loss per share of $0.02 versus a loss of $0.03 a year ago and exceeded our original forecast for a loss of between $0.06 and $0.11.

As we move into the back-to-school season, we've seen further acceleration in comparable sales and a continuation of the strong trends we've been experiencing since the middle of last year. Our comparable sales in August increased 7.4% from the prior year, and our fiscal September month-to-date comparable sales through Labor Day have increased 11.4% compared to the same period last year. Our ability to outperform expectations in a retail environment marked by weak mall traffic is a testament to the work our teams are doing executing on key strategies.

Our intense focus on serving the customer with differentiated assortments and providing them with a great shopping experience is stealing market share gains and strengthening our leadership position in the industry. We continue to adapt to the rapid changes in consumer purchasing behavior by evolving our business to connect with our core consumers more frequently and on a more personalized level.

Through investments we have made in several key areas, including people, logistics, planning and allocation and omnichannel capabilities, we believe we've gained even greater competitive advantages that will benefit us both this year and over the long term.

As we head into the latter half of the year, we remain focused on effectively balancing our strategic growth objectives while protecting near-term profitability by remaining disciplined with our spending while focusing on the right investments to exceed our customers' expectations.

Let me recap the top initiatives we're currently working on. We're continuing to roll out our new customer engagement suite across the U.S. store fleet. We're very excited about this system enhancement, which, in concert with existing omnichannel capabilities, gives us new ways to learn about our customers and engage with them in a more meaningful way. Through this level engagement, in conjunction with face-to-face interaction in stores, we'll be able to keep our finger on the pulse of local trends, allowing us to provide hyper-localized authentic product assortments and a superior personalized brand experience for our customers.

We remain focused on finding new and unique brands across all of our departments. This year, we are on plan to launch over 100 new brands, bringing the newness in localized fashion that our customer is looking for. These emerging brands, coupled with the growth of more established brands within our portfolio, demonstrate the power of our business model. Meanwhile, we are selectively opening stores as we believe our brick-and-mortar locations are integral to successfully executing our customer-centric growth strategies.

That said, the pace of new store openings in North America continues to moderate as we are close to achieving the optimal number of locations we believe are required to reach our customers and service them at a level they come to expect when they engage with our brand. Year-to-date, we've opened 9 of 12 stores planned for the U.S. and Canada, bringing our total store count in North America to 657 stores.

As we look at the real estate profile in North America going forward, we have been thoughtful and deliberate in our lease management strategies, leveraging our physical presences to bring a long-term value to both our customer and our shareholders. Our focus remains on not having one more physical store than is necessary to service our customers in each trade area. In circumstances where we are less confident with the long-term viability of a particular location, we focus not only on reducing rent but also shortening lease terms down into 1- to 3-year range to minimize risk and increase flexibility. This aligns with our capital spend that is focused only on those locations that we believe have potential for long-term success.

At present, within the bottom 20% of our North America store base in terms of store contribution. We have the right to exit over 80% of those stores in the next 3 years. While this highlights the lease flexibility that we have within our lower-performing stores, it's important to note that at this time, a majority of these stores provide positive contribution and cash flow.

With regard to international expansion, we continue to be optimistic by the long-term growth prospects as our geographic footprint is significantly less penetrated overseas. We are on schedule to open 4 Blue Tomato locations in Europe and 2 Fast Times locations in Australia in 2017 as we continue expanding our global market share. We'll continue to apply a combination of best practices from each of our teams to build on the strong foundations already in place.

To close, I want to stress that while the company has and will continue to evolve in response to marketplace changes, the pillars of our success to date have been and remain our authentic lifestyle positioning, our unique approach to product and our commitment to driving world-class customer experiences, all anchored by the deeply ingrained Zumiez cultural values.

By staying true to these guiding principles while diligently managing expenses, we've been able to navigate through the recent volatility and outperform relative to the industry. I'm confident that our efforts have us well positioned to drive improved results and deliver increased value to our shareholders over the long term.

With that, I'll hand the call over to Chris for a review of the financials. Chris?

Thanks, Rick, and good afternoon, everyone. I'm going to start with a review of our second quarter results. I'll then provide a brief update on August before discussing our third quarter guidance and some high-level perspective on how we are currently thinking about the year.

Second quarter net sales increased $14 million or 7.8% to $192.2 million from $178.3 million a year ago. Contributing to this increase was the positive comparable sales growth of 4.7% and the net addition of 19 stores since the end of last year's second quarter, including 5 new stores in Europe and 6 stores in Australia. During the 2017 second quarter, we saw an increase in transaction volume, partially offset by a decrease in dollars per transaction. The decrease in dollars per transaction resulted from lower units per transaction, partially offset by an increase in average unit retail. Men's and juniors categories comped positive, while hardgoods, accessories and footwear comped down for the quarter.

From a regional perspective, North America net sales increased $10.6 million or 6.4% to $176.6 million. International net sales, which consist of Europe and Australia, increased $3.4 million or 27.1% to $15.7 million. Second quarter gross profit was $59.8 million, an increase of $5 million or 9% compared to the second quarter of 2016. Gross margin was 31.1% in the quarter, up 30 basis points compared to 30.8% a year ago. The increase was driven by a 60 basis point improvement related to leverage of our store occupancy, partially offset by a 20 basis point increase in inventory shrinkage.

SG&A expense was $60.6 million in the second quarter compared to $56 million a year ago. SG&A as a percentage of net sales was flat to the prior year at 31.5%. This resulted from 60 basis points of leverage on store costs, offset by a 30 basis point increase due to investments in salaries and increases in minimum wage and a 30 basis point increase related to the annual incentive compensation.

Operating loss in the second quarter of 2017 was $0.8 million compared to an operating loss of $1.1 million for the second quarter of 2016. Net loss for the second quarter was $0.6 million or $0.02 -- a loss of $0.02 per diluted share compared to a net loss of $0.8 million or $0.03 per diluted share for the second quarter of 2016.

Turning to the balance sheet. Cash and current marketable securities totaled $70.7 million as of July 29, 2017, up from $52.3 million as of July 30, 2016. The increase in cash and current marketable securities was driven by cash generated through operations, partially offset by capital expenditures and cash used in the acquisition of Fast Times.

As of July 29, 2017, we had $141.8 million in inventory, up 7.6% from this time last year, driven primarily by our recent sales trends and increased global store count and, to a lesser extent, continued strategic investments in inventory that we believe are equating and will continue to equate to higher sales.

Turning to our August sales results. Total net sales for the 4-week period ended August 26, 2017, increased 10.1% to $98.6 million compared to $89.5 million for the 4-week period ended August 27, 2016. Comparable sales increased 7.4% during the 4-week period ended August 26, 2017, compared to a comparable sales decrease of 1.1% for the 4-week period ended August 27, 2016.

The comparable sales increase was driven primarily by an increase in transactions, partially offset by a decrease in dollars per transaction. Dollars per transaction were down for the 4-week period due to a decrease in units per transaction, partially offset by an increase in average unit retail. During the 4-week period, men's and juniors posted positive comps while accessories, hardgoods and footwear posted negative comps. Our quarter-to-date comparable sales through Labor Day increased 8.3% from the same period last year.

Looking at guidance for the third quarter. Once again, I'll start off by reminding everyone that formulating our guidance involves some inherent uncertainty and complexity in estimated sales, product margin and earnings growth, given the variety of internal and external factors that impact our performance.

We are currently planning third quarter comparable sales results in the range of positive 4% to positive 6%, with total sales in the range of $236 million to $241 million. We anticipate that gross margins will be in the range of down 20 basis points to plus 20 basis points compared to the third quarter of 2016. Consolidated operating margins are expected to be between 7% and 7.7%, with earnings per share between $0.43 and $0.48 compared to earnings per share of $0.43 in the prior year third quarter.

Before I wrap up, I'd like to give you a few thoughts on how we are thinking about 2017. While our recent comparable sales trends remain positive, the retail environment in general remains uncertain. As we look to the remainder of 2017 and beyond, we continue to believe that the investments we've made in our infrastructure, particularly our omnichannel presence as well as those investments we continue to make in the Zumiez brand and team, will drive long-term top and bottom line growth. With that in mind, we continue to believe that comparable sales will be positive for the year, and we will experience earnings growth based on our current planning.

For the back half of the year, we expect a greater year-over-year impact on the business related to foreign exchange, with the European, Canadian and Australian currencies all strengthening to the U.S. dollar. These changes will have a larger impact on sales and year-over-year expense growth than overall profitability, given the relative size and profit margins in our international business.

There will be an extra week in fiscal 2017, resulting in a 14-week fourth quarter and a 53-week fiscal year. The extra week will benefit sales and earnings growth in fiscal 2017 and will be a detriment to sales and earnings growth rates in fiscal 2018. As a reminder, we saw a product margin expansion each quarter of 2016, with the exception of the first quarter. In 2017, we expect product margins for the year to be greater than 2016. However, we anticipate that the increase will be modest.

From a cost perspective, we are currently planning SG&A to grow at a greater rate than in 2016 as we continue to absorb minimum wage increases across the country and invest in important initiatives for our long-term success such as continued investments in our people, the rollout of our new customer engagement suite and other strategic initiatives previously mentioned -- and as previously mentioned, the negative impact of foreign exchange.

We are planning to open a total of approximately 18 new stores this year, including 3 in Canada, 4 in Europe and 2 in Australia. 11 stores have been opened year-to-date.

We expect capital expenditures for the full 2017 fiscal year to be between $24 million and $26 million compared to $20.4 million in 2016. The majority of the capital spend will be dedicated to new store openings and planned remodels. While our store count growth rate is decreasing in 2017, the related decrease in capital was offset by an increase in remodels for the year.

We expect that depreciation and amortization will be approximately $27 million, in line with the prior year. We are planning our business assuming an annual effective tax rate of approximately 38%. And lastly, we are currently projecting our diluted outstanding share count for the full year to be approximately 25 million shares.

And with that, operator, we'd like to open the call up for questions.

(Operator Instructions) Our first question comes from the line of Sharon Zackfia with William Blair.

A couple of questions. I guess, you guys had really stood out with your comp growth over the past several quarters. And I'm wondering, I know this is sensitive, but is it particular brand strength that you're seeing in your mix? Or is it a band with the brands that are contributing? Or is it a product category? If you could help us get some more clarity on that. And then secondarily, as we approach the colder seasons, is there any change in your strategy for snow this year versus last year?

Okay. Thank you, Sharon. I'd be glad to give you, I think, some color around that. We'll start with the kind of current cycles that we're in. And you've heard us talk consistently over the years that we have a really diverse business model, driven really by kind of a portfolio approach to brand management, but the same is true for department and category management. So within that construct, let me talk a little bit about kind of things that we think are driving our business forward. So we've always said that we can -- we're very focused on getting emerging brands that come into growth brands, and that's a big driver for us. We also have been able, over the years, to play fashion cycles and trends relative to broader, whether it be brand-driven or purely fashion-driven cycles that -- where the brand may not be unique to us in terms of the trend, but we can drive a lot of volume out there because we could be first on it and we can lead on those type of brands. And the third area we've talked about growing is on hot items where we can drive a lot of volume with a specific item that really can get cranky for us in terms of driving sales. And right now, Sharon, we basically have 2 of those 3 working. We have a number of brands that, as we talked about over the last year, have moved from emerging to growth brands for us. I think we feel that we have room with those brands yet in terms of where they're going. And as I -- as we said in the script, we continue to launch 100 -- we're on plan this year to launch what's typically about our average or 100 new brands a year. When I say 100 new brands, I don't mean private-label brands included in that. This is truly young brand founders out there launching new brands with us. And maybe in a few local stores is where we're doing around the country where they're relevant in the marketplace. And it typically takes those brands a few years, I think, in the cycle. We may see up to 3 years now if the brand really performs well to become a broader to move from emerging to growth. So we're definitely in that cycle, Sharon, where we're seeing -- and I'll let Chris talk about maybe some of the brand elements and how we're thinking about concentration like that in a moment, how it may play out when we're in a cycle like this. But we're definitely in that where we are leveraging the strength of these young brands who are coming up in the marketplace. And I think we're uniquely positioned to serve them and to meet their needs as growing brands, but not only our U.S. presence but our Canadian presence, our European presence and now, in the last year, adding Australia presence to those brands. So we have that working for us. Now we won't talk about specific which brands they are. Let's just -- suffice to say, we're very good about it. We feel comfortable with where we're at with those brands. And we're hopeful that we're going to have more of the brands we've launched over the last years come into the growth merge -- move from emerging to growth phase brands. We also have some apparel trends that have been really working for us that are broader that we don't consider to be as brand focused as we do just to be trend driven. And those have been -- in some cases, going back to kind of '90s retro stuff, have been very strong for us also, and we were able to play in that -- in those areas, I think, in unique ways relative to our own approach to visit what's right for our consumer. And so we've got 2 of those 3 things, with the last one being the hot items, Sharon. We don't have anything of particular significance there that's driving volume at this point. We've got 2 of the 3 working. And I would tell you that, again, we're really highly focused on how we can continue to drive new brands forward, emerging brands forward. And we'd certainly really intensified our effort. While we've always done these things, I would tell you that over the last 5 years, we have really intensified our efforts around emerging brands, around making sure that we are first on trend cycles, that we're really adapting our in-store and digital experiences for this new empowered consumer world. We've done a lot of things with reengineering processes, experimenting with new ideas across all of our consumer-facing teams. So I think what -- part of what you're seeing as being able to do here is really maximize a cycle when things move in our direction. Now all that being said, I remind you that of our big departments, men's, women's, shoes, accessories and hardgoods, we're running down in 3 of the big 5, or 50% of our volume, our business is being driven, and again, our ability to maximize results is being driven by men's and women's apparel. So I say that because I think, again, it shows that diversification of the model can really drive our result when we have trends and brands moving our way, but also to speak of the opportunity that lies in front of us because hot items will also drive -- if we can dig those up, will drive accessories. And of course, I think we're in the middle of a footwear transition away from performance -- athletic footwear into something new. What it is, I can't tell you necessarily yet, but I think it's -- I think our team views this as a time to really experiment in footwear, to really try some new things and see what we can drive out in the footwear cycle. And of course, with footwear cycle will come potentially changes in apparel, which can also be good for us. So historically, these things have worked out pretty well for us in terms of how we think about driving results. And again, I feel good that our teams have really done a good job focused on reinventing and reengineering and rethinking our current processes. So that's kind of sharing where I'm at. And I guess, I'd wrap all that up with this is really -- we continue to believe, as we said many times over the last few years, that we're in a share consolidation game. And for me, this cycle is an exciting one for us because I think it shows that we're winning share. And that's part of what's going on in the marketplace, too, is that we're not only maximizing it based on our own efforts. We're maximizing it based upon our dominant model for our -- to serve our consumer, which is, I believe, gaining share in the marketplace. Lastly, to the second part of your question on colder merchandise, Sharon, I don't -- we're always adapting. And every year, I expect our teams to make changes around how we think about the cold winter business. So we had some pretty good winter business last year here in the U.S., not as strong in Europe. And it will not snow somewhere as is the case every year. So we always tend to be relatively conservative. The strength of the omnichannel model, again, of our scope and scale, that allows us, I think, to help manage our way through the seasonal categories very effectively and move product around and position it to turn things on and order fulfillment algorithms to turn things off regionally as we need to do so. We have many capabilities now today that we didn't have 5 years ago. So I think we're in a position, no matter what the weather conditions are, to well -- to probably manage ourselves well through the cycle. And we will do more localization of assortments. That is as you would expect us to do in all aspects of our business. That would also be true for our plan for the hardgoods and outerwear business for the winter season.

And Sharon, just to add to what Rick said on what's driving our comp growth from a brand perspective, after a couple of years, in '15 and '16, watching our top 10 and top 20 brands decentralize or decline as a percent of overall sales, we have seen the top 10 and top 20 brands increase a little more as a percent of overall sales, which, again, talks to Rick's point of emerging brands moving to growth and seeing those become bigger impacts. We continue to see the same 20% to 30% turnover in the top 20 brands that we've seen through the first -- historically through the first 6 months of this year. And more of that turnover is happening in the 11 through 20 brands. So we -- again, I think that is some of that newness coming along. And hopefully, that -- some of that can continue to fuel us here in the months ahead.

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

August was a good comp month for you. Maybe you can just speak about the sales progression you saw during the month, any color there. And anything that differed from what you saw last year, I guess anything notable in terms of differences to last year. And then also any color you can give us on Labor Day weekend. Anything geographic to note. And then I guess, maybe just speak to some of the elements that are supporting your confidence in the comp guidance for Q3. And then also how you're thinking about the nonpeak weeks of Q3, how you've kind of factored those into your guidance.

All right. I'll start off, Jeff, and then let Chris pick up on some of the details, particularly on the guidance and the pace through the -- progression through the weeks of August. I'll let Chris handle those aspects of it. So I would tell you, Jeff, that I don't think we have anything beyond what I've -- from my perspective, what I talked about with Sharon is that we have a lot of really exciting things that are working that I think are uniquely positioned in the marketplace. And then we have amazing salespeople out there in our stores and within our digital teams that are really driving, I think, great customer experiences for our customers. So it's about when things move our way, how we can maximize those trend cycles and really take advantage of them. And a headline for me, I guess, too, is comparison to August a year ago, and you really can't stack comp, so I'll let Chris talk about the shift of Labor Day week and what that meant between August, September a year ago to put some relevance around that. And then the last thing for me, and then I'll let Chris take over, is I would tell you that, again, back-to-school is more complicated in some ways than holiday to execute against because of the timing of back-to-schools changing and moving around the country all the time and about how you -- about how continually those peak periods are getting more intense. So the volumes tend to happen in shorter time periods as each back-to-school cycle happens around the country geographically. To really be in a position, I guess, is where great product planning, allocation planning, making sure that those localized assortments that really drive our result are really in place, right, and ready to drive the result for your customer. And those trends, I think, all -- those trends still all continue to be true, and I think that's why we continue to see peak weeks of August, those peak days by each geography, but then a little bit more volume siding to September all the time, with the importance of Labor Day and the importance of buying post back-to-school for some shoppers. So that is an aspect, I think, generally of the back-to-school cycle. I'm going to let Chris take over.

Yes, sure. Jeff, to touch on some of the more numbers piece of it, obviously, we said in our prepared remarks, August was up 7.4%. From a cadence perspective, we saw it pretty strong throughout the period. Obviously, as Rick pointed out, all different areas of the country go back to school at different times. We thought those areas light up even more significantly the weekend before they went back to school and the weekend after. So that process is pretty similar with what we've seen the last couple of years. It just was stronger throughout. So again, all weeks were pretty good. As we moved into September, the 9 days of September here that we've disclosed, which is the first week plus Sunday and Monday of Labor Day weekend, was up 11.4%. So you can see that's even accelerated from what we saw in August. Again, we have a higher population of stores to go back there, and you have the holiday, but it was pretty strong leading to -- quarter-to-date through Labor Day was up 8.3%. So feel really good about how back-to-school ended up. As we're thinking about the nonpeak or the rest of the quarter, I think that kind of factors into how we guided. We've given a guidance range of a comp of 4% to 6%. Our thought process is it will get a little tougher as we move to nonpeaks. We've historically seen our business perform stronger in the peaks. And as we think about the back half of September and October last year, we performed pretty strong. In fact, August was down 1.1%, and September was up 6.3% last year. Those -- combined of those 2 months was up 2%. So you can see that's probably a better way to look at it with the Labor Day shift, but it got stronger on the back half of September, and then October last year was up 10%. So we know we've got a little bit of toughness ahead of us from a comparable perspective, but again, to touch on Sharon's question of kind of how the brands are performing and our business is performing, we feel pretty good with some of the trends that are out there and still think we can comp on, comp here as we move through the quarter, and that gave us the confidence of a 4% to 6% comp for the quarter.

Okay. Great. Then if I could throw on one follow-up. I guess, one thing, you guys have done a tremendous job in terms of engaging your target demographic with great store-level employees. And obviously, your merchandise content has been excellent. But let me ask you this, in terms of when you think about sort of evolving and innovating your physical store concept, how should we think about that, I guess, along the lines of plans for remodels, et cetera? Or maybe that just isn't something that you feel needs to evolve so much experientially. And then also, I know this has been a year of investment, but just wondering how we should think about SG&A leverage, although they're further out maybe into next year.

All right, I'll let Chris handle again the detail there, Jeff. And I mean, we are constantly, Jeff, thinking about evolving and innovating the customer experience. So let me start with it from that perspective because the store experience is one very important aspect of our customer experience and perhaps the richest aspect in terms of the human-to-human connection that takes place within the store environment. But we like to think about it as an entirely seamless experience across all touch points for the customer. And so we have a number of initiatives underway, Jeff, that will look at how do we -- across all the touch points, continue to evolve, and hopefully, I'd like to think we can innovate in a lot of areas to improve the customer experience and really our Zumiez brand experience for that customer across all touch points, and the stores are clearly a part of that. And as I think Chris said in his comments, we do have a pretty aggressive remodel budget that we put out there to come back at stores. And as you heard, we will play it differently based upon our perception of long-term -- of how much of a long-term player we believe each location is for us as we think about real estate going forward. But we're constantly looking and thinking about how do we evolve that in-store experience. And fundamentally, it all starts with how product and our employees engage with customers and how can we make that as dynamic and interesting as absolutely possible. But again, I want to make sure, as we think about that, we're targeting all the consumer touch points that we have and saying we need -- we must have plans to evolve experience across all those touch points, whether they be digital touch points and social media on our commerce site or within our loyalty programs. Any of those touch points, we have pretty detailed plans on how we're going to progress them from a seamless perspective to serve customers.

Great. And then, Jeff, to your question on SG&A, as we've talked about on our prepared remarks, we do expect SG&A is going to grow at a greater rate than 2016. And we laid out a few items related to that, the cost -- the increased cost to minimum wage, our customer engagement suite. We talked about continued investments in our people that we believe are really critical to our long-term success. One of the biggest areas there is around incentive comp. We've talked over the last couple of calls about that investment. As we entered 2016, we could not build a plan that we thought would get to 100% target incentive payout. So as we accrued through 2016, we were accruing it at roughly 50% of the incentive target payout. This year, we have built a plan that we think would warrant the right result, both for our internal metrics as well as our investor metrics that would warrant a target payout. So we are accruing roughly a target payout this year, which is worth about $3.9 million increase in incentive comp over the whole year. Just a reminder, last year, we paid out about 33% of the total target incentive. So that's a pretty meaningful number. It is down from the $4.4 million that I disclosed earlier this year, primarily because, again, this is performance-based, so there's some areas of the business that aren't performing at a level we thought, and we've taken that down. And in the event we were to exceed expectations in the back half of the year, that will be something we think we could take up, and it should flow through in the model correctly. So we have some investments there. And even now more recently, the impact of foreign exchange in the back half of the year is not going to be insignificant on some of these expense growth line items. For example, our Q3 guidance includes about 100 basis point increase in growth of SG&A just related to FX alone. So there's a few things there that are leading to the higher SG&A. But as we talked about before, we believe we're pretty good long-term thinkers. And as we look to 2018, while this is something we continue to analyze, I'm not going to give specific color to 2018. What I'd tell you is that going forward, assuming that the incentive is paid out at target this year, we'll have that built into the base. And we think SG&A growth rates would moderate as we move forward. And that being said, we're also -- we're looking pretty diligently at the business, saying we have mature markets like the U.S. and Canada here in North America that our focus is really going to be on kind of localization of our sales efforts and optimization of the cost structure. As Rick pointed out, we're not opening as many stores. And then we're going to have maturing markets like Europe or Australia where there is still going to be some investment to build out that customer platform of the stores and the web tools intertwined to serve the customer. So there'll be some things in the future years, but assuming that the incentive is built into the model, we feel better about SG&A growth in the years to come.

(Operator Instructions) Our next question comes from the line of Jonathan Komp with Robert W. Baird.

I want to start by following up on the sales acceleration that you experienced. And I want to ask specifically, I know towards the end of July, you launched a pretty compelling promotion or new line that was a collaboration between, I think, one of your growing brands and one of your core brands where you've had a lot of success in the past and I think was nearly exclusive to Zumiez. So I just wanted to ask how much of that played a role in the acceleration in sales trends.

That's just one small aspect of it, Jonathan. So yes, it did all play a role, but there is a lot more going on than just that.

And when you look at some of the growth brands, maybe kind of the big 3 currently, I'm just curious, when you look forward and start to cycle for -- those brands, I think were working last year. If you could maybe talk about your confidence and the ability to cycle the positive growth last year and see continued growth. And I know in the past, you've talked about some of your real successful brands getting to a high single-digit percentage of sales. And I'm curious how many of the newer ones you think have that type of potential when you look out.

Again, I think the answer is they're going to have to prove they can do it on their side in terms of their continued development as brands and their market positions, their marketing and support of their brand points of view, right? In the case of like your first comment, the right collaborations obviously make a difference for some of these brands where they're not going to be in a certain category but they find a partner that can help them do something interesting and fun in that category. A lot of this depends upon not only on the brand's effort but our effort in working together. So this is where -- going back to an earlier comment about innovation in the marketplace, I think this is where we have to continue to innovate. We have to find new ways to help young brands grow and develop. And we are clear experimenting with a lot of these new ideas with young emerging brands and where we can all work together to get a better result for our customers and where everyone wins. Our customers win, our brand partners win and we benefit, too, as their primary retail partner. So I think we have a lot of really interesting things, Jonathan, going on in this world as we look forward. And I think we have room in all -- if you want to look at the top 3 of the kind of emerging brands, I think we have room at all 3 for continued growth. But it's not just a slam dunk either. Our brand partners have to do a great job of building their brands and innovating in terms of their brand, in their brand positioning, in their marketing. So it's all about how it's going to work together. But we've got room and -- for some of these brands to move yet. And more importantly, we're hopeful that we're going to have more brands merge -- move from emerging to growth. And then our job, again, is how do we work together in a world that's moving so much more quickly in terms of how fast brands can move from emerging to growth brands. I mean, to happen in 3 years, that -- compared to where we were a decade ago, that's really fast. And it speaks to the reach of social media, right, globally. It speaks to the importance of having, I think, an international brand platform as a retailer that this gives us a unique position to help our young brand partners move forward in their business. And we must innovate in these areas to help them do that and to be a really great partner for them in serving customers globally. And I think that's one of the great things about our position that we're excited about is we think we're the only ones in this -- in our lifestyle niche that can do this. And of course, we worked hard to get in this position over the last 6 and 7 years. So that's what, I guess, I'd tell you is I think we have room to move. It depends upon the brands also doing their part in execution of their brand. And then I'm hopeful that we're going to have more of emerging brands move to growth brands while we're continuing to ride trend cycles in other aspects of our business, and at some point, we're going to see hot items emerge that we can drive volume with. We'll find those items. And again then, we'll see some probably sector rotation in something and footwear yet, which I'm not sure what that is at this point, but I think there's some opportunity for us to have an interesting aspect and experimentation in place in what we can do in footwear. So that's kind of where we're at. I think we have -- we feel good, but we have to continue to help our partners and innovate in how we execute around our global retail business.

Okay. Great. And maybe the last one for me then, Chris, just wanted to ask about the full year earnings guidance. I know for a while now, you've been saying the full year, you're hopeful for positive comps and earnings growth for the year. Obviously, you over-delivered in the quarter. So I'm just curious if the degree of earnings growth, even though you haven't quantified it, if that internally has -- the thinking around the degree of growth has gone up a little bit after the quarterly results.

Well, we still feel pretty good with our regional plan coming into the year is what I would say. We were not right where we wanted to be after the first quarter. We feel much better about the second and third quarter. And this is all relative to how we planned out the incentive accruals, too. So by accruing the target, you can get the feeling that we're pretty much planning on being right about where we planned for the year. So at this point in time, that's how we feel. And our goal will always be to exceed as we move forward. And we feel good about where we're positioned here as we try to close out the third quarter.

And Jonathan, I'd just add again, as Chris said, I mean, we don't -- we really believe it's a pay-for-performance model, so we're going to -- if we're going to pay out target incentives, we have to deliver value for our shareholders in terms of growing earnings. So we have to have an appropriate level of return there for shareholders so you can -- that would be the only -- I think I guess I'd say, as a big shareholder in the company, that I think is the right way that businesses should be thinking is there's got to be -- to earn target payouts, we have to deliver earnings growth for our shareholders, and then the cash flow comes with that. So when we build models, we build models that we feel are fair and appropriate for all parties in terms of getting everyone to win. And that's -- so we feel we're on track to do that this year.

And I'm showing no further questions at this time, so I'd like to return the call to Mr. Rick Brooks for any closing remarks.

And I'd just like to say thank you to everyone for your time and attention today. I think it's an exciting time for Zumiez. As I said, I think we're at a point where we can -- we are positioned to really win share in the marketplace. And I think we're closer to tipping that in terms of share consolidation maybe than ever before in the marketplace. So -- and I say that around the globe where we are doing business. So I think people at Zumiez are very excited. I hope people are. We're looking forward to, I think, hopefully, a very strong completion to this year, and we look forward to talking with you all in December when we can talk about third quarter results and fourth quarter guidance. Thank you, everybody.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone, have a great day.