Good afternoon, ladies and gentlemen. And welcome to the Zumiez Inc. Second Quarter Fiscal 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. 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. 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’s filing with the SEC. At this time, I’ll 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 to Chris, who will take you through the numbers. After that, we’ll open the call to your questions. We're 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. The result was a meaningful acceleration compared with our first quarter performance and well above our initial guidance range of 1% to 3%. Accommodation 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 physical 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 fueling 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…

Thanks Rick and good afternoon everyone. I am 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 these increases was a positive comparable sales growth of 4.7% and the net addition of 19 stores since the end of last year's second quarter, including five new stores in Europe and six 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 junior's categories comped positive, while hardgoods, accessories and footwear comp 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 consists 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 60-basis point improvement related to leverage of our store occupancy, partially offset by 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 cost, offset by 30 basis…

[Operator instructions] Our first question comes from the line of Sharon Zackfia with William Blair. Your line is now open.

Hi. Good afternoon. A couple of questions. I guess you guys are 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 bandwidth of brands that are contributing more than product categories 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'll be glad to give you I think some color around that. I'll start with the -- with the 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 with that kind of 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 things that we think of driving our business forward. So, we've always said that we can and we're very focused on getting the 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 and we can lead on those type of brands. And the third area we've talked about growing is on hot items we can drive a lot of volume with a specific item that's really can get cranky for us in terms of driving sales. And right now, Sharon, we basically have two of those three 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 we've said in the script, we continue to launch a 100, we're on plan this year to launch what's typically about our average of a 100 new brands a year.…

And Sharon, just to add to what Rick said on what's driving our comp growth from a brand perspective after a couple years in '15 and '16 watching our top 10 and top 20 brands, decentralized 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 six 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.

Okay. Thank you.

Thanks Sharon.

Thank you. And our next question comes from the line of Jeff Van Sinderen with B. Riley. Your line is now open.

Well, let me say congratulations on a strong peak back to school. 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 deferred 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 and the comp guidance for Q3. And then also how you're thinking about the nonpeak weeks of Q3, how you've factored those into your guidance?

All right. I'll start off Jeff and then let Chris pick up on some of the details particularly around the guidance and the pace through the progression through the weeks of August. I'll let Chris to handle those at best. So, I would tell you Jeff that I don't think we have anything beyond what from my perspective what I talked 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 sales people 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 trends cycles and really take advantage of them. And a headline for me I guess too is it's comparison to August a year ago and you really can't stat comps, I'll let Chris talk about the shift of Labor Day week and what that meant between August and September a year ago to put some relevance around that. And then the last thing for me and then I'll let Chris took over is I would tell you that again back-to-school is more complicated in some ways than holidays to execute against because of the timing of back-to-school's change in moving around the country all the time and about how you need 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. So, you really have to be in a position I guess is of our great product planning, allocation planning, making sure that the localized assortments are really to 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 for by each geography, but then a little bit more of volume citing through September all the time, 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 cycling. Then I'll let Chris take over.

Yeah sure. And 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 a 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 thought process is pretty similar with what we've seen the last couple years. It just was -- it was stronger throughout. So again, all weeks were pretty good as we moved into September, the nine 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 in stores that go back there and then you have a 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 non-peak or the rest of the quarter, I think that factors into how we guided. We've given a guidance range of a comp of four to six. Our thought process is it will be a little tougher as we move to non-peaks. 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, combined of those two 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, on 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 4% to 6% comp for the quarter.

Okay. Great, and then if I could draw 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 evolving and innovating your physical store concept, how should we think about that I guess along the lines of plans for remodels etcetera or maybe that's 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 over the further out maybe into next year.

All right. I'll let Chris handle again the detail their Jeff and we are constantly Jeff thinking about evolving and innovating the customer experience and let me start with it from that perspective because the store experience is one -- is it's 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 entire 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 like to think we can innovate in a lot of areas to improve the customer experience and really our Zumiez's brand experience with that customer across all touch points in the stores are clearly part of that. And as I think Chris said in his comments, we do have a pretty aggressive remodeled budget that we put out there to come back at stores and as you heard we'll apply it differently based upon our perception of long-term of how much 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 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 do 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 think we must have plans to evolve the experience across all those touch points whether it be a digital touchpoints and social media on our commerce site or within our loyalty programs. Any of those touchpoints we have pretty detailed plans on how we're going to progress them from a seamless perspective to serve customers.

Great. And then to your question on SG&A as we've talked about in our prepared remarks, we do expect SG&A is going to grow at a greater rate than it did in 2016 and we laid out a few items related to that, the cost the increased cost and minimum wage, our customer engagement suite. We talked about a few investments in our people that we believe are really critical to our long-term success. One of the biggest areas there is around incentive comps. We've talked over the last couple calls about that investment as we entered 2016, we could not build a plan that we though would get to 100% target incentive payout. So, as we accrue through 2016, we were accruing 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 at roughly a target payout this year, which is worth about $3.9 million increase in incentive comp over the whole year. Just to 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 performing phase. So, there is some areas of the business that aren’t performing at 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 we would be something we think we can 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…

Okay. Thanks, and continued success.

Thank you, Jeff.

Thank you. [Operator instructions] Our next question comes from the line of Jonathan Komp with Robert W. Baird. Your line is now open.

Yeah. Thank you. 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 that played a role in the acceleration in sales trends?

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

And when you look at some of the growth brands, maybe kind of the big three currently, I am just curious when you look forward in certain cycle for those brands I think we're working last year, if you could maybe talk about your confidence in 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 successful brands getting to high single-digit percentage of sales and I am curious how many of the newer ones do you think have that type of potential when you look out?

Again, I think that 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 position with their marketing support of their brand point of view right and in the case of back to your first point 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 part that can help them do something interesting of fun in that category. So, a lot of this depends upon not only 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 continue to innovate. We have to find new ways to help young brands grow and develop and we're clear experimenting with a lot of these new ideas with young and emerging brands and where we can -- 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 three of the kind of emerging brands, I think we have room in all three 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 branch and their brand positioning, their marketing. So, it's all about how it's going to work together,…

Okay. And maybe the last one for me then Chris just wanted to ask about the full-year earnings guidance and 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 am just curious if the degree of earnings growth even though you haven't quantified it, if that internally has thinking around the degree of growth has gone up a little bit after the quarterly results?

Well, we still feel pretty good with our original 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 growth too. So, by accruing to target, you can get the feeling that we we're pretty much planning on being right about where we plan 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 John I'll just add again as Chris said, we don't -- we really believe it's a paper performance model. So, 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 that will be the only I guess one thing I guess I'd say as a big shareholder in the company that I think is the right way that businesses should be thinking as it's got to be to earn target payouts we have delivered earnings growth for our shareholders and the cash flow it 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 where everyone can win and that's -- so we feel we're on track to do that this year.

Okay. Thank you very much.

Thank you. And I am 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 a 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're 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. And I say that around the globe where we're doing business. So, I think at Zumiez we're very excited, I hope people are. We're looking forward to I think hopefully a very strong completion to this year and will look forward to talking with you all in December when we talk about third quarter results and fourth quarter guidance. Thank you. everybody.

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