Good afternoon, ladies and gentlemen, and welcome to the Zumiez Inc. Third Quarter Fiscal 2019 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. There are not 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 will now turn the call over to Rick Brooks, Chief Executive Officer. Please go ahead.

Hello and thank you everyone for joining us on the call. With me today is Chris Work, our Chief Financial Officer. I'll begin today's call with a few brief remarks regarding our third quarter and holiday performance to date. Then I'll share some thoughts about the future. Before handing the call to Chris who will take you through the numbers. After that, we'll open up the call to your questions. The third quarter, represented our fourth consecutive strong back-to-school season and the 13th quarter of positive comparable sales gains, we drove solid full price selling in each of our geographies, resulting in a comparable sales increase of 5.5% versus our guidance of 2% to 4%. This comes on top of a 4.8% gain a year ago and 7.9% gain, the year before that. We're very pleased with our performance and our teams meticulous focus on providing high quality service to the customer through every touch point, it is this focus has allowed us to convert mid single-digit topline growth into a significant improvement in profitability. The sales gains coupled with growth mark -- gross margin expansion, and the benefits from numerous expense saving initiatives we've implemented throughout our organization drove a 37.1% increase in earnings per share to $0.75, which is $0.14 above the high end of our guidance range. Our relentless attention to serving our customers combined with the powerful operating model, we build around the single cost structure has fueled our strong track record of performance and has Zumiez well positioned for continued success. This includes a fourth quarter, which has started well with quarter-to-date comparable sales measured through Tuesday December 3rd, 2019 increasing 3.3% compared to the same period last year and in Tuesday December 4th, 2018. As we reflect upon the strong results in the first…

Thanks, Rick, and good afternoon everyone. I'm going to start with a review of our third quarter 2019 results. I'll then provide a brief update on the quarterly sales trends before discussing our fourth quarter guidance and our updated perspective on the full year. Third quarter net sales increased $15.2 million or 6.1% to $264 million from $248.8 million in the third quarter of 2018. Contributing to this increase were positive comparable sales growth of 5.5% and the net addition of 15 stores since the end of last year's third quarter, partially offset by a decrease of 1.4 million due to changes in foreign currency rates. During the 2019 third quarter, our comparable sales were driven by an increase in transaction volume as well as an increase in dollars per transaction. The increase in dollars per transaction resulted from higher units per transaction partially offset by a decrease in average unit retail. During the quarter the hardgoods category was our largest positive comping category followed by accessories, footwear and men's, women's was our only negative comping category. From a regional perspective, North America, net sales increased $11.9 million or 5.3% to $238.5 million. Other international net sales, which consists of Europe and Australia, increased $3.3 million or 14.8% to $25.6 million. Excluding the impact of foreign currency translation, North America, net sales grew 5.4% and other international net sales grew 19.8% for the quarter. Third quarter gross profit was $94.6 million, an increase of $7.7 million or 8.9% compared to the third quarter, 2018. Gross margin was 35.8% in the quarter, an increase of 90 basis points compared to 34.9% a year ago. The increase was primarily driven by 40 basis points of leverage in our store occupancy costs, 30 basis points improvement web fulfillment distribution and shipping costs, and…

[Operator instructions] First question is from Sharon Zackfia from William Blair. Your line is now open.

Hi, good afternoon. A couple of questions on -- I guess most obviously on the rate of SG&A growth, which has been really, really low in terms of dollar growth through the first three quarters that you're driving kind of the mid-single digit sales gains and I know, Rick, you alluded to this some in the prepared comments -- commentary, but how do we think about SG&A going forward. I mean is this kind of the new normal where you can grow SG&A at a low single digit percentage rate or is there something unusual this year that you really harvesting and it will pick up again in future years.

Sure, sure. And I'll go ahead and take that. So I thank you for your compliments on our SG&A growth, we're pretty happy about it as well. This is, -- this has been a big effort of ours, as we've been thinking about the business over the last couple of years in setting goals really by entity and how we're planning the business and as we think about 2019 and how we've exited the last couple of years, I think that, the one benefit we've had in growth rates is, last year we performed pretty well, the year before that and 2017 we did as well throughout that time we were growing the incentive pool and we've got that kind of -- to that targeted level and beyond. And so there is a benefit in incentives to a modest amount in how we're planning 2019 right now. So that's one area but beyond that, it's really strong expense management across all of our entities. This is something, again, we kind of talked about in our long-term plannings of how do we think about SG&A and really all costs to really try to optimize the business and it starts with some of the things Rick talked about localization and how we're thinking about one sales channel. Now we've really tried to break the business apart and say, you know the customer only sees us as one sales channel. We don't need to see our cost structure is too and so fulfilling from stores in the way we've been able to ship closer to the consumer. All of those things have been benefits to our site -- to our overall business. That being said, we've had many other areas within SG&A, just in our management of store wages how we've looked at…

And Sharon. I think to add to that, I don't want you to think that this is a cost saving push, that we are making investments in our business to about things that we think are going to drive long-term results simultaneously, as Chris has laid out our ability to think about this concept the trade area optimization of trade areas, the importance of refined localized assortment as we mentioned in the comments and how we are able to lever labor in new ways in a single cost structure world there are lot of initiatives, how we're going to act with our consumer over the next few years and all sorts of different ways been high -- more highly relevant to them. I think that will continue to drive this. I don't want you to think that this is really about cost savings a one side. This is really about optimization of the business. Why we are investing for the future at the same time.

Okay, that's helpful. And then on merchandise margin or product margin. I know you've kind of have that slightly negative guidance all year. But it's been kind of slightly positive through the first three quarters so I guess, I mean we're going to have all of that happen in the current quarter, is that -- is that really more geographic because of the kick up and international in the fourth quarter or is it more of the category mix.

Yeah, hi, it's definitely as it relates to the fourth quarter and we have been up and down. We are a little bit up in product margin in Q1, down in Q2 and relatively flat in Q3 here. So as we think about Q4 international is just a larger portion of the business. So that is going to mix shift, international is going to have a bigger impact into the fourth quarter, but the growth as we've really reported all year in skate hardgoods predominantly, but also footwear has been pretty phenomenal and so that mix within categories is impactful as well. But to your question, International will have a larger impact in the fourth quarter then the category mix but both will have an impact in the fourth quarter and what our plans are today.

Thank you. Our next question comes from the line of Jeff Van Sinderen from B Riley, FBR. Your line is now open.

Hello, this is Richard [ph] in for Jeff Van Sinderen. Historically during the strong skate hardgoods cycle, what did you experience in the Snow hardgoods related apparel business with the snow conditions being equal. We're just wondering if there is a correlation, you can point to.

No, there is no correlation is a simple answer, Richard. Snow is as a function of weather to a large degree when we’re talking about snow hard goods in the outer where that goes with it. So it's really a function of where does snow and how much does it snow and that is now in our larger markets where we do business versus or the smaller markets where we might operate around the country, around the world. So it's a function of snow I don't view it is, I don't see any correlation relative to the trend skate cycle.

Okay. And then regarding the various brands that you carry and just turning to the leadership of the brands is constantly evolving. Can you speak to any emerging trends that you're seeing develop and what is your latest thinking on where you are in the branded cycle in the apparel business. And then maybe you can touch on the trends in your foot business as well and the outlook there.

All right, I'll let Chris talk a little bit more deeply about the trends relative to mix of our business and things like that, but let me, -- let me start average debate just seeing that. I think that we are, -- we feel good about the pipeline for new brands. I believe we're on target for hitting our launch this year of how many new brands we are target to launch on an annual basis. So we're not seeing any lack of new brands coming forward into the marketplace. From that perspective, now it doesn't mean that they become an all-star by right these many work as local brands as where you start working with them and beginning to help them build their business. So I'll just remind you that from my perspective, you have to think about our business at the portfolio of brands, a portfolio of departments and categories. And at different times, different things will drive the business and again, as we talked on our comments that can change rapidly as you've seen from last year with the apparel being the driver of this year with skate hard goods and accessories being the driver. And so our view of this both from a brand perspective emerging brands, is that we're always going to see something happen if this is a wallet share drive and we believe we've, pretty good at capturing our share of the wallet. So just keep that in mind, our model is about this portfolio approach to brands and the lifestyle represent entire lifestyle through departments in category combination, so that on that let Chris add some comments.

Yeah, I'd just say from a trend perspective as we've talked about it over our history, we really try to look at kind of our top 20 brands and how they represent. And we've said in the past at 20% to 30% turnover over an annual period is pretty common, we are actually just trending slightly ahead of that through the third quarter year-to-date. So we'll come back and report that after a full year, which is probably the best read to kind of give an idea of what's happening. But to Rick's point, I think we continue to see the pipeline look good. A couple of the brands that have moved into our top 20, we weren't even in our ecosystem a year ago, which is, -- which is kind of, I think, a really cool sign and again highlights what we talked about over the years. It's just the speed of trends and how fast things move. So I think overall, the top 20 brands in regards to kind of where we are in this brand cycle. Our top 20 brands are actually through the first nine months. I go higher as total penetration than they were a year ago. Which is historically been an indication for us, it's kind of still the strength of the cycle and where our top 20 consolidating taking more of a share. So again, overall feeling good about the make up in regards to footwear, footwear has been a driver all year long we talked about that we did call out that it was just down, it was down through quarter-to-date, but I will reiterate it is down very, very slightly. So, almost to the flat level, So we are feeling fine about where footwear stands in and footwear trends have been good. We still have one vendor. That's been a bigger driver there, but we are seeing growth in other areas of Footwear too, so it's not just all growth in one areas and that's, -- that's the diversity that Rick talks about both across departments as well as within department. So, we obviously feel very pleased with the trends of the business and our brand situations there.

Thank you. Our next question is from Janine Stichter from Jefferies. Your line is now open.

Hi, thanks for taking my question and congrats on the great results. I wanted to ask about women's apparel business. I guess, that's the one piece that you could maybe say is a little bit weaker. Right now, everything else working really well. So what's going on there? Can you give us some context, it's just the fact that we've been a stronger branded cycle, and I think that the women's apparel tends to skew a little bit more towards private label or how should we think about it. Is there some outlook where you can give us that the timeline for that piece of the business, which are positive. Thank you.

Sure. Glad to help out a little bit there Janine in terms of thinking about the women's business. I think women's tends to be a bit faster from a trend perspective, then our men's side of the business, so some of that I think we tend to see more volatility around women's both on the upside and the downside. Traditionally, I'd also remind you that I think that our women's consumer is in many respects buys men's product to a large degree and so some of the new and emerging brands, we have our brands that I think where we're not offering women's products, so that will probably see some of that women's from this a trend perspective buying the smalls and men's. For example in T-shirts and things like that. So what we talk about women's to be clear, we are talking about is the number. We're talking about there is women's apparel, it doesn't include accessories a women's footwear. So it's a broader mix, When we look at overall women's and then again, I think there is push to -- for our business that women don't see gender lines is clearly there just as happy to buy men's sizes and men's brands and certain such -- I mean like the fit better frankly on the men's side, the business. So it's not as clear as just women's apparels. It's been a negative, but I do add that it tends to be more volatile than the men's side traditional because trend cycles will be even faster, and Men side of business.

And I'd just add one thing with women's just to remember, we have been down for the first three quarters of this year, but we are up 10 quarters prior to that and end up pretty strong. So even when I look at like the two-year stack through the year is still positive, so we ran some really strong results in women's, and yes, we've been running down but still pretty good results overall specifically in light of where the overall business set.

Great, that's helpful perspective. And then just anything you can give on tariffs what you're hearing from your branded partners and any update there.

Yeah, absolutely. From a tariff perspective, obviously we're just like all other retailers here monitoring this very closely. One of the things we talked about over the last few quarters. It's just where our exposure lands and we still are probably just over since 9.1 which is the last time the last update, we've had of kind of the rates going into effect. We're still probably just over 40%, 41%, -- 42% of product coming from China that I try to remind people we talk about this because that number can see bigger but such a large portion of our business is screenable and much of that is blanks that come from China and so as we start to break that down the imported value of a blank is obviously much less than the completed value. So but, yes, I mean we continue to work with our vendors here to date, what you've seen through the third quarter and what's planned in the fourth quarter. There are, -- there is not a material impact. There are areas where we have seen the increased tariff and a few areas where we've seen some pass through from our brands and, but at the end of the day, it's not material to this year. It's something we'll continue to monitor and manage as we move into 2020. We're going to, -- we're going to really try to take a balanced approach here of working with our vendors, continuing to try to move production where possible finding other potential offsets on price here. And then in the last case scenario potentially having to raise our prices to customers, so it's ongoing situation we're monitoring and we'll kind of keep tabs on here.

Thank you. Our next question comes from Mitch Kummetz from Pivotal Research. Your line is now open.

Yeah, thanks for taking my questions and congrats on the quarter. I have a few questions. I just want to circle back on footwear, which was it sounds like a barely negative quarter-to-date. I know that's a very small sample size, it doesn't sound like me that you guys are concerned. I just wanted to drill down on that. I mean is there. I know that these categories sort of ebb and flow and I'm, -- it doesn't sound like you feel like footwear is now something that it's going to hit a downward trajectory like maybe apparel has for the last few quarters and I'm just kind of wondering why you think that is, if this is just a blip or two small sample or?

I think makes the way I think about it and obviously we've looked at this different ways. It's been trending really well for us all year along, we've looked at this over the last two -- Q4's and have actually seen November softer than December, so December typically has gotten stronger in footwear sales, which I think makes sense in regards to gift giving and the need around Christmas time for people wanting footwear. So, we don't have any indications at this point, I would kind of classify more to your question of the smaller sample size in November obviously the good portion of our volume here is still to come and we expect footwear is still be a strong part of our Q4 sales.

Yeah. Got it. Perfect. Historically, if I just add that, again I think foot were really booms in the post-holiday period, when they could -- when our consumer or young consumers back in this for in the store, as opposed to the gift giver. So that's why we really seen historically, but doing even better. Okay. And then on EBIT margin, you guys are closing in on 8%. It looks like based on with the Q3 guidance you are sort of inching towards that because I know that in the past when people have asked you about EBIT margin targets, you sort of talked about I think 8% something lower than prior peak. I'm just wondering, now that we're kind of getting close to that number. Where do you think you could go from here, what's the low hanging fruit at this point on the margin side, to get it above that 8% level that I think you've kind of referred to in the past.

Yeah, thanks. Thanks Mitch and I'll kind of tie this in with even Sharon's question earlier on SG&A because we're super happy with where the results are coming in for this year obviously on top of very strong results in 2018. To your point, the top end of our Q4 guidance would indicate operating profit or EBIT close to 8% there it's about 7.7% in operating profit, compared to 6.2% a year ago. So I'm very, very happy with the growth there and I think we're pushed in the past is to say, high single-digits. And so that to us means we can cut probably get closer to 10 and it's going to take some work to do, that are working our way is always to kind of optimize and maximize the potential of our North America business, that's here that's very mature, obviously you guys know, we have a good opportunity to grow internationally and turn that profitably, which will, -- which will help us a lot but in addition to the comments I made around Sharon's question earlier. You know there is other areas that have contributed to this operating profit or EBIT margin depending on how you want to look at it in regards to do. We continue to make some traction on shrink now are seeing our shrink rate come down. We've, -- we called out the amount of excess and obsolete inventory management that we've been able to benefit from, which is really our teams coming together and maximizing some of our clearance and damage product to bring more value to that, we've talked about occupancy leverage and opportunity there and working on that line item. And there is a lot of the kind of DC optimization and shipping optimization projects that we've reached and benefits from and have benefits to come in the future. So for us, I think it's really trying to push it to get back to that around 10% and we kind of, So that's where we're pushing to ours.

And then last question just you kind of touched upon it briefly and your response to that question. But profitability update on Europe, especially given what you've seen in the international business last couple of quarters, I would imagine that that's been pretty impactful on the profitability of international business, but it's still losing money, if I'm not, -- if I'm not mistaken. I think you kind of talked about getting closer to breakeven this year. One, can you get breakeven. Just kind of based on what you've seen over the last couple of quarters in particular.

Yeah. Thanks, Mitch. I -- it definitely as part of the mix right, when we're growing here, operating profit between 25% to 30%, a big portion of that is North America just because the lion's share of our business, but there is a great contribution from our international teams here as well. We've talked about are losing millions of dollars over the last couple of years, we are getting that down quite a bit. We'll make substantial our forecast we're going to make substantial improvement here in 2019 we'll try to give a little more color on that in Q4. I think it is important, just based on the seasonality of that business that we see how the Q4 comes in, but our current estimates would mean where would show we're going to making major traction there in 2019 as we look two-third, 2020, our current focus based on how we're planning the rest of this year and into 2020 is that will continue to make substantial progress and this would be a business that within the next year or two, we would be looking at on the profitability side of it. So I think that we're getting very close, we are really excited about our current results, as Rick talked about on the call, we continue to see Europe performed very strong specifically in some of those important markets outside of Austria, which was the home country for the business. We've seen Germany be really strong. We opened in Finland here in the last quarter, which will be our fifth market here in Europe, which will be started in Austria. We added Germany, Switz, the Netherlands and now Finland and we've seen some really good early indications from that market. So, so really happy with that. And as Rick pointed out in his comments, International is super important to our global footprint and really meeting the expectations of the customer. Right and how trends emerge around the world and then obviously serving our brand partners as well. So happy with how that's moving forward and we'll look forward to giving you guys more of an update here in our Q4 call.

Yeah, and Mitch, I'll just add just flavor to this comment about international is when we talk about needing to invest in the current business. Thinking about the long-term nature of driving profitability in

All in announced markets take invested because for us to roll out in our Omni tools practice processes in the tools themselves require scale in the marketplace. So when we, -- when we launched in Canada, our first international market. We had to make those investments really lost money in our initial years in Canada and then as we are able to gain the scale that we have in Canada today, we are able to turn on all our Omni tools serve the customers are all new levels and actually we have a pretty strong business in Canada. These days, and that's what you're seeing us do globally as we think about the business here, Europe is a really big market, so it requires that we make those investments where you'd be making this that as we go along, Why delivering good long-term result of the execute develop new tools and new ways to serve customers in our most mature markets, while investing in growth in those markets to gain scale then allowing us to implement our Omni tools, which are now begin able to do in parts of Europe where we're building out models and seen the benefits of the Omni tools play out. So again this year. I want for all of us to think about this as the continuum of with making investments today, they're going to pay off in the future.

Great. All right, thanks guys, good luck.

Thank you. Our next question comes from the line of Jonathan Komp from Baird. Your line is now open.

Yeah, hi. Thank you. Just wanted to follow up on some of the category performance and I guess I'm just wondering, when you look at the current mix. Yeah. Hard goods, accessories, footwear, to a lesser extent, can you maybe just comment more on maybe the duration of that mix of drivers and is there a point in the future where you think you need to get apparel back working better to sustain the comps performance or how are you thinking about that.

Sure, Jon. Again, as we think about this is a portfolio approach. We've always been, we've got to own the wallet share for our consumers and there's not many years that we don't not in fact not many years that we not only don't own our share. But I think we're gaining more share of their wallet as we move forward. So I would, -- I would tell you that in Pete's we've seen better performance of the men's apparel already and, as Chris said, I think where we found some new brands will go into the play that's been very impactful in on the men's apparel line and probably again indirectly on women's too because I believe it to some extent it's women buying the smaller size of -- some of these new managed brands. But that being said, again we listened to the consumer, we follow the consumer says, I think some trend cycles move at different speeds the fastest trend cycles have to do it just fashion trend versus a brand SAC, which tends to be longer in duration and I would tell you that I think as skate cycle like we're in here, 10 those historically for us have been long cycles both on the upside and the downside as you recollect, I think our last peak in skate was in 2015 approximately had a tough 16

And then we had tough years in skate. In fact, we're running down skate year ago. Yes. So they tend to be a multiyear cycle is what we've seen tend to see whether it's a department driven cycle like that. Now that doesn't mean we're going to run up in the skate as big as we are, this year and next year to be clear, but I think if you thought about in terms of recapturing percentage mix of the business and scale that you could expect over a period of time, over a period of years. We would, -- we would achieve that penetration again that we've historically achieved in skate hardgoods, so each of the -- each of the different kinds of trend cycles move at different speeds and I would expect because the fashion transact move faster, we will see some things trend down. Well, the next 18 months, it was the all-new things being introduced and brand cycles, I think as we said earlier, we feel good about the pipeline where we're at. We've had some good success with new brands this year in the business. So I think, I don't have any major negative for you there. And then on the category type of department category kind of -- kind of combination will tend to be longer-lasting has been our history, multi-year cycles, and again, so I think we've got some -- somewhere in with skate to go and I think the right way to think about it is, do we get back to the peak penetration pit in prior cycles.

And that's why I wanted to follow-up actually on the skate, I guess two questions is skate -- first is skate item that's give did for holiday, or is that a business that kicks back in next spring. And then just any color or commentary what you observe in terms of the competitive set, following the last down cycle. Would that be a case where you could maybe go deeper capture more of the share in an up cycle, if the competitive set has changed.

Yeah, hi good questions and I would tell you that I think that skate cycle, there are fewer competitors today in the skate hardgoods world than there were in the last cycle. And so I think that we've talked about where they're not we achieve a greater deeper penetration. I think the evidence. We're going to have to wait to see that play out in the sea if that is going to be true. But I think that the rate that skate is growing for us is pretty phenomenal. And we tend to indicate to me that we own a bigger share. I think this is a good example of that. Jonathan, where we do I believe a bigger share than I believe our skate business is growing faster than most of the rest of the marketplace and I think we just on scale. I don't know who -- when you come to actual lifestyle skateboard retailing where you're assembling components and boards. I don't know if anyone bigger than us in the world doing it today. So this is an area, the strip definitely a strength of ours. We'll see, we've had some competition truly everyone we might reach a new peak here. I think we just have to -- have the evidence play that out.

Okay. And just on the holiday. Is that something that's a gift that or is it, should we think about

No it is definitely gift item. So I think now also t-shirts put run bigger in the holiday season is a good obviously a good gift out of accessory groupings, but no I skate -- skate has always been a good gift item that may not run up as high as it does in the spring just relative to mix because other categories like t-shirts and accessories run higher, but it is a good gifting item,.

Okay, great that's all really helpful. Thank you.

Thank you. Our next question is from John Morris from DA Davidson. Your line is now open.

Hi, thanks. Hey Chris, Rick. So, really nice work here and I'm thinking the inventory levels. It's really great that you guys were able to put up these kinds of numbers with a lower inventory. Actually, at the end of the quarter. So any more added color there, is that where you're getting a lot of the efficiencies that we're talking about and where, -- what should we be thinking about how inventories, look at the end of the year. And you know just kind of turning it around, do you feel like you could drive more sales. If you decide to release more inventory into the pipeline and I'm thinking from the perspective of not so much Q4 now but how you might manage the business differently into next year. So sort of all of that inventory discussion. Nice work.

Sure. I appreciate it, John, and I'll jump in here and let Rick add anything at the end, if he like. I think from, let's say if we just step back and kind of talk long term obviously going to localize fulfillment was a big benefit in inventory to us overall, no that's not, -- that's not going to directly attribute to the year-over-year here, but I do want to just focus on when we closed our fulfillment center and we pushed a portion of that inventory out to stores. It's really allowed us to optimize and think about inventory differently over the last couple of years and Rick even talked about in his prepared comments of the -- it's benefited the experience of the physical stores because your online demand is effectively carried in the local stores, which makes as you match those together from a planning and fulfill -- and a planning and allocation perspective, it just brings a better in-store experience overall. So we're really happy with the inventory management. I think our buying teams and our store teams and our web teams and everybody working together has really, really optimize inventory and we have a ways to go. We have a ton of opportunities as well. So we're very pleased with the inventory management. I think if you look at growth rates. I would just say, let's look at it over a multi-year period last year at this point. We saw, inventory increased 19.1% at the same quarter. So over a couple-year period our two-year stack and this is still a pretty good increase for us. But really that's just if Of doing, I think what you're asking in the latter part of your question, of if you had more inventory. Could you do more and we got to last year, was it by increasing more inventory bringing in more Q3 receipts and getting that inventory, and a better balanced position heading into holiday we didn't think we could do more and I think it feel good results last year and as we manage through this year, we thought we could take it down a little bit and we did that. But overall, we feel like inventories in a really good spot. We're about more current than we were a year ago. Across all of our entities. So, the health of the inventories in a good spot. And we're excited to see how this fourth quarter plays out.

And the other thing I'd add John to Chris comments is, again I just want to reemphasize that the quality of inventory is really strong. Again, we're more current as Chris that across all of our entities so we really feel good about that. The teams have worked hard to bank in about keeping things -- keeping things in good current positions, which of course is going to be helps us offsets in the margin challenges relative to mix and shift in the business. Yeah, I think I would tell you that is a positive for us in the cycle like this. And although it's a small still overall small percentage of our business relative to men's or women's apparel, for example of skate hard -- skate hardgoods is a quick turning business. So if you actually looked at our inventory there. We're running down actually -- significantly there in inventory relative to that a significant gain, it just we have had a program that we're closely with our brand partners, a very important retailer for our brand, partners and so we're able to turn. That's actually a faster turn category for us because we have land -- we land Dex every week and we really literally build plans with our partners as or what we're going to need and when we're going to need it, and so we work really well to get their partners and that tends to be faster turning to was a small part of our overall inventory position we are. I can tell you have larger were down more in skate inventory running up a huge amount, so it's just a quick turn the fact is that's a trendy business force helped us a little bit just because it's a quick turn business.

yeah. And we can see that better inventory in the stores. They look great. One other quick question, Chris, on the tax rate for the fourth quarter, can you just true it up for us for Q4, because it looks like the full year. I think you said would be 25%. So that would imply Q4 would be down quite a bit, too, and I'm just. -- I just want to check that number with you.

That's correct. Yeah, we would expect Q4 to be down even significantly to our Q3 rate, which was 25 and I think the big challenge here. And actually the benefit we had throughout the year is, really most closely tied to our international business, as you guys know, we do have a valuation allowance on the losses that we've sustained in Europe, which means we cannot recognize any tax benefit in Losses to operating profit flow straight to the bottom line. So that has a inverse impact in the fourth quarter where this is the quarter that our operations there and make money, it's their largest quarter and so we're going to see a positive benefit to the bottom line of the operating profit dropped straight down to net income and offset some of the net operating losses, we have in the entity, So you will see that benefit, which is obviously driving the lower tax rate in the fourth quarter and then to our annual guide of that we gave in our script.

Should we be thinking about next year around 25%.

Would be are working tax.

I think where we land here for 2019 will be a good draft for where will be long-term. Obviously, there are more profitable that we can make our international operations. The more benefit we should have there. And so, yes, I think this is probably a good benchmark to start with for 2020 and we'll try to provide some more color as we get to our Q4 call. Got it. Thanks and good luck for holiday, guys, thanks.

Thank you. [Operator instructions] At this time, I'm showing no further questions I would like to turn the call back over to Rick Brooks for closing remarks.

All right, thank you very much. And we appreciate everyone's interest in Zumiez. And thank you for all your questions today and of course we wish you all the best in the holiday season. And we'll look forward to talking to you again with our fourth quarter results in March. Thanks everybody.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.