Good afternoon, ladies and gentlemen, and welcome to Zumiez Inc. fourth quarter and full year 2014 earnings conference 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 that are not based on historical facts are subject to risks and uncertainties and our actual results may differ materially. Additional information concerning a number of factors that could cause actual results to differ materially from the information that will be discussed is available in Zumiez's filings with the SEC. At this time, I will turn the call over to Rick Brooks, chief executive officer. Please go ahead, sir.

Thank you, and welcome, everyone. I’m joined today by our chief financial officer, Chris Work. I’ll start the call today with some press release about the fourth quarter and our plans for 2015. Chris will then take you through our key financial and operating metrics and we’ll open the call to your questions. Our 2014 fiscal year ended on a high note. Net sales in the fourth quarter increased 14% to $259 million, ahead of our most recent guidance range of $255 million to $256 million and earnings per share, excluding all charges related to the acquisition of Blue Tomato, were above the high end of our guidance range. Comparable sales of 8.3% also came in better than expected, driven by solid results in North America and Europe, while also achieving expansion in product margin. Our outperformance was aided by our omnichannel infrastructure that fully integrates our stores and digital platforms with our highly differentiated product assortment. But the real credit goes to the strong execution by our people, who are the foundation of Zumiez. Looking ahead, we plan to build upon our recent success through continued investments in the business. In 2015, we plan to invest in our physical store base both in North America and in Europe. Our goal here has not changed. We still aim to open only as many stores as we need to meet demand. That said, we see a great deal of untapped potential both in new markets as well as in further penetrating markets where we already have a presence. During the fourth quarter, we opened three stores, including two in Europe, bringing our total store count at the end of fiscal 2014 to 603. Our 2015 plan includes the addition of 57 new stores worldwide, including 51 in North America and 6…

Thanks, Rick. Good afternoon everyone. I’ll begin today with a brief review of our fourth quarter and full year results, then I’ll outline our first quarter guidance and share some thoughts about 2015. Beginning with the fourth quarter results, fourth quarter net sales increased 14% to $258.6 million compared to the fourth quarter of 2013. Breaking it down by region, North America sales were $230.7 million, up 13.4%, and our European sales were $27.9 million, an increase of 19.2%. In the quarter, foreign currency translation variances negatively impacted sales by approximately $4.5 million. Consolidated comparable sales, inclusive of our ecommerce business, increased 8.3% this quarter, driven both by increased transaction volume and dollars per transaction. Dollars per transaction in the quarter was driven by an increase in average unit retail, as well as units per transaction. In terms of category performance, men’s, junior’s, hard goods, and accessories posted positive comps, while boys and footwear posted negative comps. We finished the quarter with a total store count of 603, made up of 550 stores in the U.S., 35 in Canada, and 18 in Europe. Gross profit was $97.8 million in the fourth quarter of 2014, an increase of 11.3% over $87.9 million in the fourth quarter of 2013. Gross margin was 37.8% compared to 38.7% a year ago. Last year’s gross profit included a $3.3 million benefit from the correction of an error related to the accounting for rent expenses. Excluding this prior year benefit, gross margins increased 50 basis points year over year, due primarily to improved product margin. SG&A expenses for the fourth quarter were $66.5 million, or 25.7% of net sales, compared to $47.6 million or 20.9% of net sales in the 2013 quarter. SG&A included a $6.4 million charge related to the accrual for the Blue Tomato…

[Operator instructions.] And stand by for your first question, which comes from the line of Mitch Kummetz from Robert Baird.

Let me start with the product margins. So, they were up in the quarter, you expect them to be up in Q1. Obviously, you talked about an easy comparison, but what else more can you say about the product margins? How much of this is mix? What are you doing, or what’s happening in the environment that’s actually leading you to these increases?

There’s really probably two things that are the main driver to product margin in the fourth quarter. As we get into Q1, it’s a little bit different story, just based on where we were last year. But in regards to the fourth quarter, what we saw were really two things: mix, which you’ll see when we publish our 10-K, we’ll talk about our total year results, but what you’re going to see is the categories that have really been our strongest contributors over the last year are women’s apparel, accessories, and hard goods, specifically on the skate side of the business. And all of those categories have earned share at the expense of footwear. So we’ve definitely seen some mix issues in the business that have helped with product margins. The other piece that you’ll see is our private label penetration did increase this year. After a few years of sort of hovering between the 17% to 18% range, we’re going to finish the year around 19.6% private label penetration. And again, we’ve got great branded partners, and this is just how we can mix in the private label within our offerings. So I think those two things are what you’re seeing is helping drive that product margin. We do expect some of that will continue to feed the margin into 2015, in the first quarter, but I think a lot of what you’re seeing in the first quarter is actually a benefit from where we were a year ago and where our inventory positions are.

And then on Blue Tomato, business has obviously gotten better given what you’re doing with the contingent earn out accruals. Can you just speak a little bit to that? You reversed the accruals last year because you talked about the tough macro landscape. Is it just that the macro’s gotten better, or are you guys doing something there that has led to improvement in that business?

Yeah, I think it’s got to be some of both. I’ll kind of walk through the earn out, and I’d really start by congratulating the Blue Tomato team. As Rick said in his prepared remarks, it’s about people and one thing we know from the acquisition is that this is just a great cultural fit for who Zumiez is, and this team has been working hard at growing that business. So I would start by congratulating them. But you know, as you know, we set some pretty aggressive targets here. A year ago, when we looked at the EBITDA targets we had put around this business, these were multiyear growth initiatives for the business. A second set of targets was around stores and the contribution margins for the stores. So while the landscape in Europe has been really tough and specifically in 2012 and 2013, when we ended 2013, we just did not feel like we were in a position, based on our foreign looking models, that the team was going to be able to reach these incentives. As we move forward, now in 2014, and we’ve been tracking this, I would say there’s a couple of things that have really changed our thought here. Clearly, there’s a little bit of rebound in the economy, but I’d say Europe’s really still tough. I link this more to really the continued maturation of the business there. The team in Europe has really been working to grow the Blue Tomato brand and in doing that, we’ve seen good results. And you’ve heard us talk about that, even in this last quarter, more than we have historically. The second thing is just better operating on a per-location basis. With comp store sales gains and the maturation of the business, what we’re seeing on…

And Mitch, I guess I would just add my congratulations to the Blue Tomato team too, and a bit of color around the winter business. It hasn’t been a great winter business in Europe, but I think it speaks to the consolidation of the marketplace in Europe like we’ve seen in the U.S. over the last few years. And as you guys have heard me say on these calls over the years, I think we have the best team, I think we have the best business, and I think we’re winning share in Europe just like we have in the U.S. So I also feel good about that, that we’ve had such a strong result in what hasn’t been the best of winters in Europe, but we’re seeing really good results from our team in being able to sell the winter products. And as Chris said, we are very encouraged by the performance of those stores and seeing the maturation, the year over year comp. Because these are new for all of us, right, as we build out the store, particularly in Germany, as a new market. So it’s been really important for us to see what it’s been, and it’s been really encouraging. And I think as we look at the long term future for what we see in Europe, this just makes us feel even more positive about where we’re at.

And your next question comes from the line of Paul Alexander, BB&T Capital Markets.

A lot’s being said about the success at Blue Tomato, but can you talk about the domestic business or the U.S. business and help us to understand what’s been going on here? Because with the impact of Blue Tomato being so strong and distorting the comps, I think we’ve lost a little bit of clarity on the domestic picture in recent months and might have trouble anticipating what things are going to look like when that distortion goes away as the Blue Tomato seasonality reverses.

Obviously it’s been a really good year in North America, and I think particularly in the fourth quarter, one of our strongest comps we’ve had in a number of years in the fourth quarter. So you know, we continue, I think, to see the strength of our model play out. And as we’ve talked about over the years, the strength of our model, when I say that, what I’m referring to is the diversity of brands, which I might ask Chris to comment on for us too here, the diversity in categories, presenting a full lifestyle approach to what we’re doing. So here in the U.S. in particular, where footwear has been a definite drag on our business, you’ve still seen us deliver pretty strong results, particularly in the fourth quarter. So I think it reflects again the strength of our overall business model in that. We feel good about where we’re at. If you look at, again, earnings gain in the U.S., we look pretty strong, and that’s still the bulk of the business. Blue Tomato is still a small part of our business. So what you’re really seeing is, I think, some pretty healthy growth and some pretty good comps, and we feel pretty good about where we’re at. Chris, you want to add?

I’d just sort of frame up kind of the scale here, because when you do look at Blue Tomato on an annual basis, just to frame it up for real, this is really still less than 10% of our business. And so while recently, in the last two monthly sales calls, we’ve talked about Blue Tomato being a more meaningful portion of our comp, I also would just add that it overpenetrates in January and early February from the less than 10% level that it is on an annual basis. As I think about that on the year, with the four or six comp on the year, clearly at less than 10%, there has to be something working in the North America business as well. So we feel good about that. We feel good about the category performance, as Rick mentioned. We’ve talked all year and even last year about the drag of footwear, but we’re still running decent comps here despite a portion of our business that’s roughly 20% being a drag. The other thing is we feel really good about the product mix within North America, and across the whole business, and what we’ve talked about that from a product mix before is the importance of the diversity of what we’re doing. And what we’ve seen over the last 12 months is really a decentralization of our top 10 brands being less of a percentage of the overall business while the top 20 brands has really gained in its contribution to the entire business. And we see that as a good thing, because that shows that there’s a brand diversification and brands moving in and out. And that helps bring that newness and the exciting thing that we think our customer is looking for.

Just as a follow up, then, on that, the expectation of a decelerating comp trend here in the first quarter versus the last few months. If that’s not just about Blue Tomato’s seasonality reversing and not overpenetrating anymore, why are you making that assumption of such a deceleration?

I think the first thing I’d look to is where we have been, right? Q4 we would all agree was a very strong quarter, but our trendline pre-Q4 was about what we’re predicting for Q1. And I don’t think that’s inconsistent with what we’ve seen over the last few years, which is really we’ve done pretty well in the peak at winning share, but when we’ve been outside of the peaks, we have not seen what we just saw over the last three months. So we’re looking at it that way and that’s our best estimate of how we can see the first quarter playing out. Obviously, as we’ve pointed out, we think March will be a lot better based on the Easter shift, but we expect to see that negative impact on April.

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

In terms of following up on the Blue Tomato and the strength there, I think I may have actually just gotten an answer to part of my question. I guess I’m wondering about your currency exposure at this point. It sounds like Chris, you just touched on the fact that international or Blue Tomato specifically is still less than 10% of revenue. I guess as we think about the rest of the currency exposure, how should we be thinking about expenses, if at all, and then more importantly, cost of goods sold? And then how does that tie into the guidance you laid out for product margins in the first quarter and the impact to overall gross margins, particularly with, I would assume, a fair amount of your brands that you sell over there are still actually U.S. domiciled, etc.?

Our first quarter guidance includes the impact that we’re predicting today for the foreign currency change. As you look at where we were a year ago, we’re seeing foreign currency hurt us both on our European business as well as our Canadian business as the dollar has surged against both of those currencies. So we have predicted right now what we think that means to our overall sales. The thing that I would point out to most of you is as we look at our business over the last six to 12 months, we’ve really started to see this change. There’s nothing today that we’re seeing in our new stores that are contributing to the spread that is alarming to us. As you look at what’s happened to our spread over the last six to 12 months, it is really more currency based. We do think we’ll have a significant impact in the first quarter from foreign exchange, and we think that will carry forward in the second, third, and ultimately the fourth quarter based on how we’re seeing exchange rates today. But as you guys know, those move and we’ll just have to continue to monitor those. From an expense perspective, it’s actually an area that we don’t have significant exposure to because most of the purchasing of our product is in local currencies. So we do have a little bit of cross-border activity, but nothing that’s meaningful enough to bring up on an external call. So I don’t have as much concern there. And as we talked about in our prepared remarks, from an overall EPS perspective, we’re still investing in our international businesses. And while Canada’s a little bit ahead of our European business, the bulk of our earnings today is still in our U.S. business. So from an FX perspective, this has more of an impact when looking at increases on the sales line than it does on the EPS line. So it’s not that there’s no impact, it’s just more meaningful on the top line. So from an expense perspective, you’re obviously translating all your expenses at the same exchange rate, so less meaningful there.

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

Wonder if we could just talk a little bit about the penetration you’re seeing on the ecommerce side of the business. Obviously, the stores are doing great, but I’m sure ecommerce is growing, so just wondered where you are on that. And also, just maybe a little color on your loyalty program, Stash.

I’ll let Chris talk maybe about what data we share on the ecom side, and obviously happy to share it. I’ll just caution you that it’s not as meaningful as it once was in terms of thinking about the business. The omnichannel world, this integrated world of channel-less selling, it’s real, it’s worth a lot of dollars as we are, I think, one of the leaders in that area. And we are blurring the lines for our customers. And actually, a better way to say it is our customers are blurring the lines between what’s ecommerce, what’s store. They’re in charge, they’re choosing, they’re driving it. We’re just enabling their ability and enabling our teams to meet their needs, our customers’ needs, wherever they may be, however they may want to interact with us. So I’ll let Chris share the number for what we report, but I’d caution you that I don’t know how meaningful it really is in today’s integrated channel-less world that the consumer sees now.

From a web penetration perspective for the year, we did see probably a 100 to 130 basis points increase from the prior year, so we’re at around 13.5% of web penetration. But as Rick said, it’s really hard for me actually to report that number. So you won’t see us report that externally, because it’s just so blurred between the channels when we think about how we’re interacting across these channels both on our U.S. platform as well as our European platform. We really do view these as one business that’s tied together with one set of inventory. And I think your second question was around Stash, and we’re approaching 3 million members in the Stash program. We’re still really excited about it, and we still would say we’re in the early phases of it, which I know we’ve said for the last couple of years, but this is really about gathering information and really learning from it, and we feel like we’re on plan to get to where we want to be.

And I guess I’d just add to that, which is really 2015, Dorothy, would be the first time I’d say we’re really starting to use the Stash data with some very targeted CRM approaches to our customer base. Experimental phases on that, those stages are what we’re doing with Stash at this stage of the game. So it’s not only about rewarding our customers, but now how can we better communicate and better localize the messages for our customer base. And we’re beginning that process here in 2015.

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

I wonder how you’re thinking about footwear at this point. I know it’s been a negative business for you, but what do you think needs to happen for that business to turn around for you? And do you think there’s a chance of that happening this year?

I only wish I knew the answer to that question, Jeff. Let me share with you a little bit about what we’re doing on our side. And it’s the reason I think we had the better December in footwear. Chris was cautious with all of you in talking about what that might mean and the caution was well warranted, I’d add. I don’t want to leave people with the impression that we’re not trying everything we can try to improve the footwear business. We are. We’re pushing hard. We’re testing and evaluating all the time here. We’re trying to fine tune local assortments on a market by market basis. We’re working really closely with our brand partners about what we can do together with them to bring freshness and newness to the assortment on the walls. Now, all that being said, we’re still up against what I think is fundamentally a trend cycle in footwear that doesn’t favor what we do here in the U.S. and that is really about athletic performance footwear, with basketball and running leading the way. And that’s why we’ve seen, particularly in our footwear business, it lose share to our total business here in this last year. So this trend continues, so it really is a function of the consumer cycle. And I’ll go back to what I said earlier in this call, why this is the strength of our business model. This is a strength of why we can have such a good fourth quarter. It’s because our team is really good at looking at the tough department and saying, that’s tough, we’ve got to minimize those losses. But we have other opportunities in other areas, hard goods, accessories, men’s and women’s apparel here, both earning gains in Q4. These are real strengths that we can leverage to improve product margin, that we’re able to deliver in Q4. So for me, it’s a testament to the strength of what we’re doing as a business with the diversity of brands and diversity of categories. We’re presenting the whole lifestyle, that even in spite of how much of a drag footwear has been on our business, we’ve found ways to [run] gain. So I definitely don’t want to leave people with the impression we’re not trying everything we can. Our footwear team is working incredibly hard, but we’re fighting an uphill battle. We need probably to see some trend change in terms of consumer behavior around footwear. And right now, I’d say we’re still in that trend cycle around athletic performance footwear.

And then maybe you can just touch on some of the initiatives, talk a little bit more about some of the initiatives you’re working on for omnichannel to move that forward this year?

Sure. I will do what I always do, Jeff, which is probably not tell you anything about it. But let me just say this. I think we’re one of the early players in this. We first started talking about our focus in exploring these ideas in 2009. By the time late 2010, 2011 rolled around, we were really launching our first initiatives in the omnichannel world. And we had a series of initiatives as part of our five-year planning process that we have just been knocking out one by one, and finding ways to allow our consumer to communicate, work with us, and get what they want. And so I’m really proud of what the team has done, and it’s been really, really encouraging. It’s been very, very significant for the business. I would tell you as we look forward in 2015 and beyond, we have another clear set of roadmaps for what we need to do in the omnichannel world. For competitive reasons, I’m not going to share what all those are. But we know what the mission is, and we have a clear roadmap for more opportunities to interact with our consumers in this channel-less retail world that we’re all living in now. The consumer’s got the power, and our job is to be there for them any way that they want to work with us and to unleash the power of our sales teams in serving this omnichannel consumer. And I guess the other thing is what’s really important about this world is the importance of great sales people. And this is why I think ourselves and a couple of other retailers I think are really leading the way here, because omnichannel is really about amplifying your business, about amplifying your voice, both at the stores and in the digital world, and the way you do that is through great teams of people, with strong culture, great brand positioning. It allows us, through these tools, to unleash the power for not only the consumer but the power of our sales team. So that’s kind of the other secret I’d say about what we’re doing that is been so impactful for us. And it’s also really motivating for our sales teams at the same time. So we have a lot on our plate for that. We’re going to continue to drive it forward, and I think, again, it’s about the consumer, where the consumer’s going. And I feel really good about where we’re at, and I feel really good about where we’re going. I think we’re one of the leaders in really embracing this omnichannel world.

And Jeff, I’d just add to what Rick said, that we also look at this on a geographic region by geographic region. And part of the importance of us opening stores both in the U.S. and in Europe is really filling in so we can have a better omnichannel presence. And so while we feel like we’re really ahead of the game here in the U.S. on our strategies, we’re also implementing some of these change strategies in Europe. And it takes stores. You have to have enough stores to do it. But we think these are also long term growth vehicles that will help us, we think, internationally too, both in Canada and in Europe.

And your next question comes from the line of Adrienne Yih from Janney Capital Markets.

Rick, I wanted to ask you about women’s or juniors in the trends that we’re starting to see. Hearing a lot about kind of a knit top cycle and it tends to be a little bit more private label. Can you talk about opportunities, what you’re doing in that piece of the business, and how you expect to grow it over the next year or two?

Women’s is a great example, I think, of when our teams really focus, work hard together, and we’ve been on a great run in our women’s business for a number of years now. And so it’s been really exciting for us to see this. I think we have a really successful partnership, not only with our brands but between our branded women’s buying team and our private label team. And I think the integration of what we’ve done there has been a big part of our success here, particularly, as you noted, in this last year, where private label penetration in women’s has grown significantly stronger in our businesses last year. And I think it’s because of the close integration of our two teams. And it’s because of what the consumer’s demanding, and you’re absolutely right, this has been the trend relative to women’s business. So I think we’ve done a much better job of being on top of the current cycles. We’ve done a much better job of telling color stories for women in our presentation in our stores and online. And I just have to give credit to our teams and our people for doing that. Now, that being said, we are always at the same time working closely with brands and young brands about how we can introduce them on the women’s side of our business. So probably two years ago, we were really driving a lot of the women’s growth through the branded side of the business. Trendwise, that’s kind of moved more towards driving it through private label. I think there’s an opportunity for us over the next 12 to 24 months to see some brands come back onto the women’s side, particularly unique brands to Zumiez that we can then help them grow their business by guiding them into the women’s side of our store. So these are the cycles and trends I’d expect to see continuing on the women’s side. And again, kudos to our team for the multi years of good work here on our women’s business.

Rick, just longer term, is there enough space physically in the stores if you wanted to more significantly penetrate and compete in that women’s space? Or could you do it online or do it through an ecom channel that was dedicated towards women’s? Just wondering how you might take advantage of kind of a piece of the business that could be pretty meaningful, but doesn’t seem to have enough space in the stores. I could be wrong.

No, I think we are definitely more constrained than most women’s retailers in our space, so I think your observations are probably correct. That’s a good position…

But you probably were safer over the past 12 to 18 months by doing so. [laughs]

That’s probably true, and I also would say that we are a lifestyle retailer. When we look at the women’s business, we have to look at it through our lifestyle lens. So we’re not just going to chase anything in women’s. We have a definite point of view about who our customer is, what they’re looking for from the women’s side. It’s not always exactly the same as we view our men’s consumer. But we still have to apply the same lifestyle lens. It’s got to be a consistent brand experience that’s consistent on both sides of the store. I would also tell you that’s one of the things I think we have a much better understanding of, the work we’ve done over the last two to three years on understanding really a deep dive in our organization around our brand positioning, understanding what we’re really doing for consumers. And I think that lens is super important for us, and therefore, we don’t need necessarily all the space that someone would need that’s going to do a gigantic bottoms presentation for women’s. We tend to be much more focused on what’s unique, that we can do that other people can’t do in the women’s business. And so I would say that the need for space is somewhat limited by this lifestyle lens that we’re applying, which is a really good thing, because it means that we get to see the women’s world a bit differently than our competitors do. And so I think it’s a really important aspect to what we’re doing. And I’d tell you we’re limited on space throughout our stores, by the way. The goal for us is to turn product. The faster we can turn product, the more cycles we can get in the business, the more successful we’ll be, both from the freshness of the inventory as well as our profitability in the business. So we’re also very focused on the speed which must change and rotate product. In women’s, as you know, that’s even more critical than it is probably on the men’s side.

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

We just wanted to ask about the long term store based opportunity, particularly with regard to some of the tests you’ve done off mall in street locations. If you could just provide any early learnings there, and then how this might ultimately impact your thinking about how many stores you could have over the long term.

I’m glad to help you out a bit there, and I’ll ask Chris to add as appropriate here. We still think, as we said in the prepared comments, that we have a good opportunity to continue to grow stores because we have parts of the country that we actually aren’t in yet. So we have that opportunity for ourselves, and we know when we enter those markets, that our web business grows significantly in those new markets, as well as our omnichannel business, our ability to leverage both stores and web together, is another significant growth opportunity for us. So we have whole parts of the country that we’ve still got to penetrate. So that’s where a lot of the growth is yet. Now, we are experimenting, as we have talked about on past calls, with stores in different formats, strip centers, street stores. And I would tell you that the population, to conclude today, is too small for us to say this has been a home run, we’re just going to all into it. We have sized the opportunities for street, and so we have that, but I’m not ready to talk about it yet, because we would need more comfort, I think, to say yes, it’s going to be all in, we’re going to go do this. Now, that being said, I will tell you that the handful of street stores we have, we feel good about where we’re going. We feel good about our success there, but we just need more time to fully evaluate it. And so more to come on that front. And you are going to see us, in the strip side, we will be continuing to target particular locations where we think we might have an opportunity around the country. We literally look at marketplaces and we say, map it out. We look at population densities and we say, do we have a hole in the marketplace that we’re not covering through the mall perspective? And in many cases, those aren’t going to be street stores. They’re not downtown centric. These are more suburban communities. Those are where we’re looking to say we’re going to try some more opportunities. And likewise, the count is too small to confirm our observation at this point. But nothing to stop us from continuing to test. And I think we have positive inclination at this point, we just need more data points themselves.

And your next question comes from the line of Randy Konik with Jefferies.

I guess I’m just curious, you mentioned a lot about private label, top 20 brand penetration increasing. Obviously there’s going to be increased penetration in the web and obviously Blue Tomato growing. Of those four items, how do you think that impacts the margin structure of the company overall on the long term basis? And then as it relates to product margin opportunities, obviously it sounds like the first quarter is more of an opportunity because of an easier type of comparison, but how do you think about long term potential product margin opportunities ex a mix shift, just a normalized margins per product. Do you see those starting to kind of being able to rise again? Or not? I’m just curious on how you’re thinking about long term product margins.

Our goal is to always grow product margins long term. And I think if you take mix out of it, we certainly look at the business and we see opportunities to do that. I think it’s going to be about finding great brands and continuing to do what we do with brands that we can sell at full price and full margin, and turning inventory, as Rick talked about earlier, to really be able to sell more at a high price and then have less markdowns. It’s about looking at our off-price, value customer and saying, how do we work with brands to service that customer while still getting the margin that we want to get. So I think there’s a lot of things like that that we weave together to believe that we can continue to grow product margins, both here domestically and internationally. I think we certainly have scale opportunities as we go international, which is, again, a thing that I think we can really help brands and tell a great story, where we can start with small brands and just a handful of doors here in the U.S. and we can move them into more doors and ultimately give them a route to go international with one partner that we can tell a great story together. And so I think there’s a lot of those different strategies and opportunities that we can execute on on a micro level that long term will continue to bring value to product margin.

That was a great list, Chris, and I think I only have one more to add to the list, and that’s our ability to localize assortments. It’s always been one of our strengths. It’s going to continue to be one of our strengths. I think, again, integrating really localized assortments with the omnichannel capabilities we’ve developed, I think is also going to be very powerful for us. It will be faster to the consumer at all touch points. Same day, next day, will be the goal in all cases with the consumer. We’re not there yet, let’s be clear, but that is where we’re going for our customer, because they’re going to want us to do it for them. And that gets back to the power of localized assortment and it’s always been something that our teams have been super good at. I think we’re better than anyone in the branded specialty retail world that’s doing this. We’re micro-assorting down to, in many cases, particularly in seasonal buys, down to an individual store level. Again, as we look ahead our future for where we’re going, these I think are where we have really clear roadmaps, what we can do, and it puts all these things that Chris listed out, and I’m talking about here, with what we can do with localized assortments and speed to the consumer. Puts it all together that I think, again, reduces markdown structures and enhances our ability to serve our customers. So we’re really good planners about this. Our five year plan is very detailed as we laid it out, particularly in the first three years of the five year plan. We have good roadmaps. I think we have clear ideas about what we need to do to achieve these things. All of these things that Chris mentioned and I’m talking about here, should yield better product margins over time.

So it sounds like in some of your commentary, there is meaningful product margin opportunity ahead. As it relates to just the private label and that comment around the top 20 brand penetration increasing, do you envision meaningful increase in the penetration rates of those two items or not? And then lastly, what’s the ultimate vision in your mind around Blue Tomato and how do you think that differs from what your vision has been and realized with the Zumiez business?

I just want to make a couple of comments about the top 20 and private label. And first, I think when Chris was laying out those statistics for us, it’s two things here. It’s a reduction of concentration in our top 10 brands from a year ago and a slight increase in the penetration in the top 20. And we view that as a positive, because what it means is the volume is spreading out over a larger group of brands, and there’s some emerging brands in that pool that we’re very excited about. So for us, what we want to see, and typically we’ve now been, I think, decentralizing here in this top 20 over the last couple of years. Now we’re starting to see a little higher concentration, but the top 10 is losing it to the second 10 in this process. So this is a good thing in our business, because these are typically the areas that we have close relationship with these young brands, more exclusivity around the presentation with the product. And some of these young emerging brands are going to become all-store buys here, would be I think everyone’s goal, over the next few years. And as Chris said, then we want to help lead them in with the best quality retail in Canada and lead them in when they’re ready for Europe with the best quality retail platform in Europe. So those things are what’s really important about, I think, the comments about concentration. What’s more important for me is we’re deconcentrating the top 10. And that’s been an ongoing trend the last couple of years, because of the emergence of smaller brands. So that’s really the key thing for me there. Private label, as Chris said, it’s one of the ways we…

And your next question comes from the line of Edward Yruma of KeyBanc Capital Markets.

First, in your de-emphasis or your shift in mix away from some of those top ten brands, do you think over time there’ll be a longer term margin benefit? And I guess the reason I ask that is it seems like some of these big brands have become commoditized and become more promotional elsewhere in the mall. And then I guess second, more housekeeping, on the Blue Tomato incentive comp, I know you guys went through it at great length, the stub period left in April, should we assume that’s then 400,000, I guess the difference between the 6.8 and the 6.4? Or how should we model that last bit of the incentive comp accrual?

I’ll take the first part and let Chris handle the second part of that question. I don’t think you’re going to see significant margin impact. Again, we’re so diversified across the brand groups that I don’t think concentrating or deconcentrating will necessary have a big movement in the margin impact relative to those top 10 and top 20 brands. So I don’t have a lot of color for you there. It’s more about the larger challenge we have, that Chris and I talked about earlier, about all the ways we have to think about driving product margin over the next few years. So I don’t see any significant impact from deconcentration of the top 10 brands, positive or negative in that regard. And I’ll let Chris take the next part.

As we talked about, in Q1, it’s $1.1 million of charges made up of $0.6 million for the contingent earn out and $0.5 million for the amortization. As you think about how that rolls into the second quarter, you essentially would say two-thirds of the quarterly amortization charge is what would roll into the second quarter. We’ll anniversary that at the beginning of July.

And your next question comes from the line of Liz Pierce of Brean Capital.

In the stores that you’re opening in Europe next year, the six, is that in the same countries, or are there new countries?

We’ll continue to concentrate in Germany and Austria, which we’re about split 50-50 today. So as we continue to look at stores, mostly concentrated in the marketplaces that we’re in today.

So no new countries, basically?

We’re clearly laying that plan out for what we’ll do, and I think those are exactly what our Blue Tomato team is looking at, when we add a new country to the mix and what the timing’s going to be for that. We still have a good opportunity, though, in Austria and Germany for the next year or two years. Well beyond that, actually, before we need to add a new country. But you should expect that over the next couple of years, we will be adding another country to the mix and the discussion is which one, why, in what order will we go? And that’s what the team is really working on at this point.

And then the second question, I guess just your commentary on the port situation, the impact, or none at all?

I think from a port perspective, as it relates to 2014, we spend a lot of time working on this topic over the year. Obviously, as all retailers, it was a big distraction to our business. I’d tell you, we certainly looked at it and said there were disruptions within the supply chain as far as getting product to our distribution center and most importantly, getting it out to our stores and in front of our consumers. So we did see some slowdowns, although I applaud the team in really working with our vendors to try to get around this without having huge additional costs put on the business. So I think from a 2014 perspective, we feel good about how we were able to manage through that inconvenience. Obviously, February was more challenging based on where it ultimately had to go to get things resolved, and we’re working through the backlog today. So I will tell you there has been some delay, but we, like all retailers, have just been trying to work through that.

So do you have, then, basically a contingency plan in for this year, or you’re just presuming that the settlement is going to stick, kind of stick with what you’re doing?

I think our contingency plan is to continue to work with our vendors and stick with what we’re doing. I don’t want to give the impression we have empty shelves. We’ve got a very diverse product mix and a diverse set of vendors we work with. So we have been able to work through it. There’s just been certain product that we would have loved to have in stores that was not in the location we wanted it to be because of the slowdown. So I think our contingency plan is to continue to work through it, and obviously you can see by our results we’ve been able to work through it okay, but we’d like to continue to work to make it better.

And your next question comes from the line of Richard Jaffe of Stifel.

You talked about the ecommerce business and how it’s kind of integral to your stores, but it’s sort of chicken and the egg, they’re both essential. I’m wondering if you’ve gotten to a critical mass. Has the need to continue investing or the rate of investing slowed down at all for your ecommerce enterprise or plateaued? Do you see any slowing in that [unintelligible] investment?

You know, a couple of years back, we invested heavily in both of our commerce sites, both here in the U.S. as well as in Europe, as we really did a large revamp on those platforms. I’ll tell you, as we’ve moved through 2013 and 2014, there’s still investment there. And we will see annual investment. I liken more of that to the omnichannel piece that we’re talking about. There’s certainly pieces of it that are helping the web, but I think they’re helping everything. As our stores are connected through the web, to be able to sell to consumers and our consumers are connected to our stores’ inventory. And those considerations are important to providing the Zumiez brand experience. And so you’re going to see us still have investments, although I would not say what we’ve planned is as large as what we did when we redid the site by any means. But I think we’re in a cycle where you’ll just continue to see investments on the omnichannel side of the house to continue to enhance that customer experience.

And I’d just add, Richard, these are investments that we expect a payback from, obviously in doing this. This is one of the reasons, I think, that we’re such a good cash generator in our business, is I think the investments we’ve made, we’ve been able to earn the returns on those investments. So, again, that’s about the disciplined approach, about making sure we’re making the right investments at the right time. And when I talk about a roadmap for us that our five year plan lays out, these are the kinds of things we’re talking about, what needs to go in what order and why, and what the return’s going to be for making those investments. And this is one of the reasons, as you’ve heard me say over the last five years, it’s been about share consolidation in the marketplace. I think the next five years is about share consolidation. One of the reasons in my mind winners keep winning is because we have the resources to invest and earn the returns on those investments. And that’s tougher for people who aren’t gaining share in the marketplace. So you’re going to continue to see us invest. And again, I want to emphasize, we have a strong roadmap for the investments we need to make, which we think we can earn healthy returns on. And those investments are going to drive more share consolidation.

And your next question comes from the line of Lee Giordano with CRT Capital.

I was hoping you could just update us on how you feel about current inventory levels, and then also how you’re planning inventory for spring and then maybe even later on in the year.

I think we feel good about our current inventory levels, specifically in light of where we were a year ago. We feel much better. I think our buying teams have done a great job in moving through inventory and keeping it fresh and unique. You’ll see us continue to do that in the spring. And we’ve continued to grow sales quicker than we’ve grown inventory, which is an important metric as we manage the business. And so as you see us move through the year, I think that’s really how we monitor the business as we try to grow sales ahead of our inventory growth. You’ll see that even as we move to the end of 2015. We expect to be in that position and we will continue to grow inventory. There’s no doubt, especially with the store growth that we talked about and as we plan our inventory around what the customers’ needs are. But I would expect to see sales grow ahead of inventory.

And now I would like to turn the call back over to Rick Brooks for closing remarks.

Thank you very much, and again, I want to say thank you to everyone for joining us today. As I always like to do at year-end, I just want to offer my thanks on behalf of our executive team to all of our Zumiez employees, our Blue Tomato employees, for the great contributions this last year. I also want to make sure I say thanks to our great partners that we have in our vendor base, our brands, those brands that we resell. We have some tremendously supportive and empowering partners there too. I want to make sure I offer my thanks to all of our brand partners and again, of course, to all of our investors for their patience and understanding our investments as we grow this business. And I hope you’re enjoying the kind of results we’ve been able to generate in this last year. So many thanks to everyone, and we look forward to a great 2015.