00:06 Good afternoon, ladies and gentlemen. Welcome to the Zumiez Inc. Third Quarter Fiscal twenty twenty one 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 the conference. 00:17 Before we begin, I'd like to remind everyone of the company's Safe Harbor language. Today's conference call includes comments concerning Zumiez Inc.'s business outlook and contains forward-looking statements. These forward-looking statements and all other statements that may be made on this call that are not based on historical facts are subject to risks and uncertainties. 00:37 Actual results may differ materially. Additional information concerning a number of factors that could cause additional -- excuse me, actual results to differ materially from the information discussed is available in Zumiez filings with the SEC. 00:51 At this time, I would like to turn the call over to Rick Brooks, Chief Executive Officer. Mr. Brooks, you may begin.

00:56 Thank you and hello, everyone. Thanks 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 remarks about the third quarter, then I'll share some thoughts on sales for the fourth quarter to date before handing the call over to Chris who will take you through our financial results in more detail. After that, we'll open up the call to your questions. 01:21 As you saw from our earnings release issued earlier today, our third quarter was a historic one. We've adeptly navigated multiple external headwinds over the past eighteen months, starting with the pandemic in early twenty twenty, continued global supply chain disruptions, labor shortages, inflation and in some cases, closures due to COVID. 01:41 Despite these challenges, this quarter, we grew net income five point four percent over Q3 of twenty twenty and a remarkable sixty percent of the third quarter of twenty nineteen pre-pandemic levels. In fact, we've now generated more income in the first nine months of twenty twenty one than in any full-year period in the company's history, and we still have the important holiday season ahead of us. 02:09 Looking at the underlying drivers of the record earnings quarter, net sales were up seven percent and ten percent on a one and two-year basis respectively. The majority of school districts around the country resuming in-person learning this year, back-to-school is highlighted by strong full price selling, reflecting pent-up demand and our ability to serve the customer through our integrated model however they want to interact with us. 02:32 The increase in sales combined with product margin growth offset an uptick in SG&A expenses as we saw an expansion of store hours, an increase in marketing and the completion of our…

05:47 Thanks, Rick and good afternoon, everyone. Similar to last quarter, I'll provide comparisons to both prior year and the third quarter of fiscal twenty nineteen where appropriate, given the impact of the pandemic on the year-ago period. Following my review of the third-quarter results, I'll provide an update on the fourth quarter to-date sales trends and our current perspective on the full year. 06:08 Third quarter net sales were two hundred and eighty nine point five million dollar, up six point eight percent from two hundred and seventy one million dollars in the third quarter of twenty twenty and up nine point six percent from two hundred and sixty four million dollars in the third quarter of twenty nineteen. 06:21 The year-over-year increase in sales was primarily driven by our ability to capitalize on current trends, the reopening of stores compared to short-term store closures related to COVID-19 pandemic in the prior year and a more normalized back-to-school season in our U.S. business. 06:37 Our stores were open approximately ninety nine percent of the potential operating days during the third quarter of twenty twenty one compared to approximately ninety five percent of the third quarter of twenty twenty and one hundred percent of the third quarter of twenty nineteen. 06:49 From a regional perspective, North America net sales were two hundred and fifty seven point five million dollars, an increase of seven point one percent over twenty twenty and up eight percent compared to the same period in twenty nineteen. Other international net sales, which consists of Europe and Australia were thirty two million dollars, up four point five percent from last year and up twenty five point two percent from two years ago. 07:11 Excluding the impact of foreign currency translation, North America net sales increased six point…

17:17 Thank you. [Operator Instructions] Our first question comes from Sharon Zackfia of William Blair. Your line is open.

17:33 Hi. Good afternoon. I apologize, Chris, you talked really fast. So, if you talked about this, I just didn't catch it. I guess, I'm curious, there's been a lot of conversations about consumers shopping earlier this holiday season. And I'm wondering if you think you've seen any evidence of that and how you are handicapping that as you talk about the fourth quarter revenue growth rate, particularly that last week into Christmas? And then any thoughts on what you're thinking about for store openings in twenty twenty two?

18:05 Sure. I'll go ahead and take that. I think as it relates to Q4 and sales trends, this is certainly something we've been trying to monitor and understand. I think from our perspective, you can tell that our Q4 growth rate is lower than what we've produced year -- quarter-to-date. And I think that's a factor of considering what you've mentioned here and also a factor of the fact that January last year was extremely strong. And so, if you look at our cadence last year, we got quite a bump in January that really drove the quarter up, and that was primarily related to that period of stimulus. So, we're not expecting that as well. So, I think you can take those two factors as kind of factored into our guidance. This is something we also heard a lot about last year, people waiting until the end and we obviously didn't experience that as much last year. So, we're kind of weighting that with probably a lesser impact than probably what we'll see in January, but definitely factored into our thoughts. As it relates to store count in twenty twenty...

19:14 Twenty twenty two.

19:14 Twenty twenty two, thank you. I think as we've always said, we like to be very opportunistic in how we think about this. And if we look back at the last significant downturn and rental rates, which is probably during the last recession, we opened some really good stores in two thousand and eight, two thousand and nine and coming out of that recession. And I think we're looking at this market very similarly to say that there's good opportunities to work with landlords to fill spaces and find markets that we think we can do well over the long term. So, at this point, as we think to twenty twenty two, I think you could expect us to increase the number of store openings in each of the geographies that we operate.

20:00 Thank you very much.

20:04 Thank you. [Operator Instructions] Our next question comes from Jeff Van Sinderen of B. Riley. Your line is open.

20:13 Hi. Thank you, guys. Can you please just give a little bit more color on digital versus in-store sales that you saw over Thanksgiving Week? Maybe if you could touch a little bit on Black Friday and Cyber Monday and how that differed versus the same period in twenty twenty and twenty nineteen? Thanks.

20:31 Sure. I think what we've seen in digital really throughout the whole year, let me start a little bit higher level before I kind of tackle the holiday, is that we've actually seen -- when we looked at where we were in twenty nineteen compared to twenty twenty, we were about sixteen percent annually penetrated digitally in twenty nineteen that went to twenty six percent in twenty twenty as we were predominantly closed during large portions of the year. And as we were planning this year, we actually sort of anticipated that we would be somewhere in between that, that there'll be some level of digital that would hold, and that -- but we wouldn't be as high as we were in twenty twenty. 21:16 I think we're really happy today to tell you that we're much closer to the twenty nineteen numbers than we are to the twenty twenty numbers, which I think is a really good thing for our brand and our customer. And again, you have to kind of frame this into that twelve to twenty four year old who's trying to self-express and figure out who they are, and they come into our stores, which are pretty energy filled with an awesome sales team that can talk with them, human to human and connect and I think create a really good buying experience. So, we're really quite happy that our digital sales have moved much closer to twenty nineteen. That being said, and as Rick said in his remarks, we're pretty impartial to how they shop. So, we've sort of set up our model to -- you can buy online, you can buy in store, it's kind of their choice. And we're here to serve them, and we've built our cost structure on the back end to really not care which way that they -- would they choose to shop. 22:19 So as it played out over the holiday weekend here, what's really interesting is our results got stronger as we moved through November and the holiday weekend was good. I think we saw a much larger return to stores than we had seen, which was a detriment to the web. But not quite as strong as where we were in twenty nineteen. So probably somewhere in between, kind of like what we had -- what we've seen across the year in digital penetration.

22:50 Great. Thank you. And then another question from me. So relevant to incoming spring merchandise, what changes are you guys seeing in supply chain and how are you planning inventory for the spring?

23:06 Well, I'll take a crack at this, and then I'll let Rick add anything he'd like to add. I mean, I think from a supply chain perspective, it's certainly something that's gotten a lot of publicity. And whether you're talking about spring or whether you're talking about many periods across this year, including holiday, it's been a grind. And I think fortunately or unfortunately, however you want to look at it, it's no different than what we've been experiencing now over the last eighteen plus months. It's been challenging since we came out of the significant closures of twenty twenty. I think our teams have done a phenomenal job working with our brands and our vendors to get product in. We certainly have departments that have been more challenging, some of which have been pretty well-publicized, like footwear has been a challenge with some of the global supply chain headaches. 24:00 And so I think as we move to spring, our thought process is to continue to navigate this with brands. And where we have areas where our brands are going to have a tougher time delivering on what we're hoping to get to, we're looking to other areas of the business that are working and trying to move those sales around. I think this actually gets to one of the strengths of our model is that if you look back at time and you look at our sales and our comparable sales performance over time, what we know about our model is as much as we'd like to have all departments positive at all times, that's not very likely. And what we find is that there's different cycles and departments get really hot for a year or two years, sometimes three or four years. And then we typically see those dollars move to other departments that we operate in. So, I think that's why we're very happy with our positioning. It's really a lifestyle retailer of having the apparel, the accessories, the footwear, the hardgoods. All of those thing’s kind of play against each other and help us navigate periods like this, specifically times like the spring that you've mentioned in your question, where we probably will have some challenges in some departments, and we'll have to try to shift dollars to other places.

25:22 Awesome. And then just quickly one final question. Can you speak a tiny bit more about what you're seeing in the Europe segment, and any changes to strategy or new initiatives you're working on there?

25:34 Sure. Yeah. Let me just kind of cover Europe pretty high level. I mean we're super proud of the Europe team for their twenty twenty one results in light of the challenging backdrop. This is an area where really stores across the region have continued to be challenged with closures. It's not like here domestically, where we've been open pretty much all year. We saw sixty percent of the possible days in Q1, we were open -- or I'm sorry, closed, twelve percent of Q2. And while we were opened all of Q3, we've now been closed eight percent in November with all of our Austrian stores closed until right now, we believe December thirteen. And this is compared to their close twenty five percent of all of twenty twenty. 26:27 So our Austrian stores do represent about twenty five percent of our store base over there. They represent a higher percent of our store sales just because it's our original market. So, some of our strongest stores are in that market. So, we're currently estimating that we'll have an impact on Q4. But what I would say is despite those challenges and closures, we find ourselves in a spot where we're up double-digits in sales to the prior year. We're only down modestly to our budget. We view our customers as extremely loyal. I mean we're seeing very similar trends to when we've had closures here of the moving to digital penetration. 27:08 And overall, we do expect this downturn to help propel us in the months and years ahead. As I think we're creating a very strong loyal base there. And some of our regional players are challenged. I think long-term, as you talk about strategy in your question of how we think about it, I mean,…

30:04 Great. Thank you so much.

30:09 Thank you. Our next question comes from Sharon Zackfia of William Blair. Your line is open.

30:16 Hi. Sorry. I had a follow-up question. I was just curious, just given this being such a high season for you. How are you doing on staffing in the stores? And I mean, are you going to bring in seasonal labor? Can you talk about your ability to actually kind of service this holiday season? Thanks.

30:35 Sure, Sharon. Glad to give you some color around that topic. I think we're -- as we said in our comments, we're clearly not immune to the challenges around labor in the marketplace, but I also think we are more adept than many of our competitors have been able to be relative to our labor. And that's fundamentally because we have such a loyal customer base, and we essentially hire our customers. And so, we are hiring seasonal staff through this season and getting hours for them on the floor. And of course, we're also maximizing hours for our existing teams and our top salespeople through the process too. 31:17 But I think, again, the loyalty of our consumer base gives us a great population of young people to hire. So, we're seeing them a lot in our stores, and it gives our managers a chance to basically take a look at who -- which of those loyal customers have the cultural values that we want, that we expect in our employees, bringing them in, getting them to training and then unleashing them on the sales floor. So, we've had some challenges here, but I think we're generally faring better than most people are on this topic.

31:50 Thanks. And then one more question for Chris. I guess the lack of giving more color on the fourth quarter, is that primarily due to the uncertainty around Europe at this point? And did you touch on Australia at all? Did I miss that?

32:07 No. I think, when we think about the fourth quarter, I think that is probably the biggest hurdle out there, as well as the fact that the January stimulus impact is still something we're continuing to measure. We certainly have our estimates. We've now had a couple of rounds of this and I think have some good planning there. But I think we felt it was best to kind of stay higher level at this point until we have complete certainty around where our stores are going to be. 32:36 And I think the second part of your question on Australia, we are fully open in Australia. I think they've done a really good job. They have had a lot of challenges too. As I mentioned, their Q3, they were still closed the majority of the quarter. So, we're happy to get them back open. I think they're performing at a really good clip. We feel very similarly about Australia that we do in Europe. I think our growth there has been really successful. We've been able to open new stores both in existing and new markets, and they've performed pretty well. So, we feel good about where we're at in that market.

33:10 Okay. Great. Thank you.

33:14 Thank you. I'm showing no further questions at this time. I'd like to turn the call -- I apologize. [Operator Instructions] I'm showing no further questions at this time. I'd like to turn the call back over to Rick Brooks for any closing remarks.

33:41 All right. Thank you, Valerie. Appreciate that. Again, I just want to thank everyone for obviously your interest in Zumiez and your passion following what we do and wish everyone a great safe holiday season and we look forward to talking to you again in March. Thank you, everybody.

33:54 Thank you. Ladies and gentlemen, that concludes today's conference. Thank you all for participating. You may now disconnect. Have a good day.