Good afternoon, ladies and gentlemen, and welcome to the Zumiez Inc., Fourth Quarter Fiscal 2022 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' filings with the SEC. At this time, I will turn the call over to Rick Brooks, Chief Executive Officer. Mr. Brooks?

Hello, everyone, and thank you 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 fourth quarter, then I'll share some thoughts on the past year and what it means for Zumiez going forward before handing the call over to Chris, who will take you through the financials and some thoughts on the coming year. After that, we'll open the call to your questions. We finished a challenging year with fourth quarter results that were ahead of our guidance but well below last year's record results. We knew 2022 would be difficult given the tough comparison to 2021, a year in which we grew revenue 20% and diluted earnings per share of 62% as we successfully capitalized on a strong consumer that was flush with record levels of savings due to U.S. stimulus and child tax credit measures. As 2022 unfolded, on top of the tough compares, other headwinds emerged and intensified, including higher operating costs, a continued tight labor market, unfavorable changes in foreign currency exchange rates and most acutely, high level of inflation leading to intense competition for declining discretionary dollars. Beyond the macroeconomic factors, we also experienced the pressure of skate hardgoods declines on the business as well as a push to more value-oriented offerings away from our higher price point branded product. And finally, an over-inventory marketplace led to steep industry-wide discounting especially during the important holiday selling season, which further impacted our full price selling model. On our third quarter earnings call in early December, we assumed that these difficult trends impacting the broader retail sector would persist through the end of the fiscal year. We remain flexible and agile as the quarter progressed, focusing on the areas of…

Thanks, Rick, and good afternoon, everyone. I'm going to start with a review of our fourth quarter and full year 2022 results. I'll then provide an update on our first quarter to-date sales trends before providing some perspective on how we're thinking about the full year. Fourth quarter net sales were $280.1 million, down 19.2% from $346.7 million in the fourth quarter of 2021. The year-over-year decrease in sales was primarily driven by increased macroeconomic headwinds as inflation weighed on consumer discretionary spending during the current year quarter. Growth was also negatively impacted by 147 basis points related to unfavorable changes in foreign currency. From a regional perspective, North America net sales were $219.8 million, a decrease of 23.4% from 2021. Other international net sales which consist of Europe and Australia, were $60.3 million, up 1.1% from last year. Excluding the impact of foreign currency translation, North America net sales decreased 23.1% and other international net sales increased 8.2% compared with 2021. From a category perspective, all categories were down in the total sales from the prior year during the quarter, with men's being our most negative, followed by hardgoods, women's accessories and footwear. Fourth quarter gross profit was $95.3 million compared to $133.9 million in the fourth quarter of last year. Gross margin as a percentage of sales was 34% for the quarter compared to 38.6% in the fourth quarter of 2021. The 460-basis point decrease in gross margin was primarily driven by lower sales in the quarter driving deleverage in our fixed costs. The key areas driving the change were as follows; store occupancy costs deleveraged by 180 basis points on lower sales volumes, product margins decreased by 120 basis points, web shipping costs increased by 80 basis points, distribution center costs deleveraged by 70 basis points, and…

Thank you. [Operator Instructions]. Our first question comes from the line of Mitch Kummetz from Seaport.

Yes. Thanks for taking my questions. Chris, let me start with the outlook for the full year. I know you're not giving formal guidance, but you talked about sales pressure in the first half and then easier comparisons as we go through the year. I mean, do you think sales or comps can be up for the year? Is that kind of how you're planning it or flattish? Any thoughts around that?

Well, I think, Mitch, this is obviously a challenging question because we're not going to talk about the full year. I think we have a range of scenarios, as you would expect. And I think when we look at the business, we are going to bifurcate it by the different components. And I think it's probably very much bifurcated, the way we disclose it. When you kind of look at North America and specifically the domestic business, which makes up the majority of North America, there's a different trend line than what we're seeing international and also just based on where the business is. So I'll start with North America. I mean as we looked at Q1, I'll give more detail. We looked at kind of where we've been trending based on pre-pandemic levels. And that was kind of our easiest way to look at, at least a period where we knew there was a different level of stability than what we've seen in the last couple of years with some highs and lows around closures and stimulus. And we plan the business sort of on that trendline because we've seen some levelization there. And I think that when we look across 2022, we did see sort of trailing numbers to those pre-pandemic levels. And so that gives us some thought that there's more opportunity in the back half than the front half. I think we couple that with some of the macro environment discussion that's out there plus the fact that if we look at this business, we can look back at '08 and '09, we can look back at 2015 and 2016 as tougher times in our performance. We've led into the recession in '08 and '09. We came out much stronger out of the recession than what happened to us during the recession. So we're looking at some of those periods anticipating there'll be a recovery in our North America business. Internationally, I think as we look at the year, it is a different story. While there continues to be high levels of inflation and challenges in some of the international markets that we operate in, we also have a growing store base and a real growth concept. And I think you see that even in some of the quarter-to-date results that we talked about, where their sales numbers are compared to where we are in North America. So tying that back to the year, without giving specific guidance, what I would tell you is I think we have some modeling that would show what happens when comps are up and our sales rebound as we move through the year. We have modeling that is more challenged than that. And I think that's kind of the fine line that we have to walk here of kind of managing the investments, the expenses and making sure we're preparing for the long-term with some of the short-term components that we're experiencing right now.

Okay. Two more questions. I'll ask them individually. Rick, you mentioned that one of the challenges in '22 was skate hardgoods. I'm curious if you guys can say where hardgoods penetration ended up for the year and if you think that skate hardgoods is kind of nearing a bottom. It sounds like of the comp pressures quarter-to-date, it seems like for Q1 today, it had the least negative impact on the comps. I don't know if that's an indication that maybe it's getting close to a bottom, finally.

Yes. I'll just make a couple of quick comments. And Chris actually does have the numbers to share with you Mitch. Again, I think as we've discussed previously, skate hardgoods goes through cycles like this. And I think as much of like the last 3 years, this is really an unusual scenario, when skate hardgoods really began to uptick significantly after a multiyear down run in the late really from 2016, 2015 through 2019, we had that beginning in 2019, skate hardgoods took off everywhere. So we thought we'd have multi-year run, which is typically what happens. And then, of course, we had a pandemic year later, and I think what we had was all a huge amount of demand pull forward on skate hardgoods, and Chris can talk a little bit about the peak of the skate hardgoods business, too. And I think it's magnified somewhat for us, to mention from the point of view that I think we own a larger share of skate hardgoods market than we've ever owned across the markets we're doing business in. And I just think there's been a lot of consolidation over the last decade. So I think that will reflect some of what -- where we got to in the peak and what it probably means for the downside. With that, let me let Chris share the numbers.

Sure. And Mitch, you know these pretty well. But just as we look at the last 10 years, we've kind of had two troughs of right around 10% of sales is kind of where skate hardgoods and snow, we report them together, but the lion's share of what we're doing in the hardgoods category is skate. So in 2018, as Rick mentioned, we were at 10% of sales; 2019, that grew to 13% of sales, and then the real peak in 2020 was at 19% of sales. Last year, in 2021, it came down to 16% of sales, and we're actually just below 13% of sales right now. So you can see there kind of the impact of where we're at. And as it relates to Q1, remarkably almost all categories were actually pretty consistent. So we did see drops there in hardgoods as we laid it out as well, but they were fairly consistent. I think as we talk about sales and maybe even tying back to your earlier number and we look at this number being kind of just below 13%, this is where we see some opportunity, too, in the year. We think that the more larger company trends get better as we move through the year and specifically as we get into mid-summer, the same is true for skate hardgoods. So we are optimistic there'll be some benefit there, not to mention our ability to keep launching new brands and try new things and find that next kind of hot trend key item or key brand.

And if I remember, Chris, the 19% was a peak, correct?

The 19% was an absolute peak. Yes. Yes.

Okay. And my last question has to do with other international, which continues to outpace the North America business in terms of its sales performance. I don't know if you can comment on profitability, particularly on the Blue Tomato business. I feel like that business has gotten near profitability a couple of times and it sort of backed off. I don't know where it is today and kind of what your expectations are in '23.

Sure, sure. I'll comment on both Europe and Australia because I do think there's two things going on here. I think from a Europe perspective, as we said for a few years, our teams are just pounding it over there and really, really working hard to grow that brand after meaningful closures in COVID far more impactful than what we felt here domestically. 2022 has now brought a war in Eastern Europe, extreme pressure on energy prices, high levels of inflation, and most recently, a pretty challenging snow season as we looked at kind of Q4 and what that has meant to the business. So despite all that, as Rick mentioned in the prepared remarks, we've got sales of about €126 million, up 8.8% from last year. While this is below our budgeted amounts, really, we've got a lot of new stores there, and the snow impact in some of those other macro items that I've mentioned, it is showing growth with where we're at. So as it relates to the operating loss and your question about where we're at, the miss in sales did impact our overall loss. We saw operating margin declining and losses widening from 2021, as we just really challenging to leverage our fixed costs and around occupancy and labor on a sales mix. So while we lost more than 2021, I am happy to report this is still in the millions of dollars. This is not in the tens of millions of dollars. The impact as you probably saw in our results had a negative impact on our tax rate, but maybe even more meaningful with the U.S. income being down and what the negative result in Europe meant against a smaller U.S. income. I think how we play this out long-term, obviously, we continue…

All right. Thanks guys. Good luck.

Thank you, Mitch.

Thank you. [Operator Instructions]. Our next question comes from the line of Bill Dezellem from Tieton Capital.

Thank you. Relative to potentially having customers trading down, within each category, are you seeing a greater unit decline in higher-priced items relative to the -- just on a unit basis relative to the lower-priced items?

Again, I'll ask Chris to make sure we get this right from the data, Bill. But generally, AUR through the year was flat to up. So the answer to your question would be, no, from that perspective, on an overall average base. Now what is unique about our business, and I'll let Chris talk about the private-label component here in a moment as part of this discussion is, throughout the year, as we saw more of a challenge as consumers looked for value in their purchases, we definitely did a lot of promotions around bundling of our private-label product. And in those bundles, we would toss in marked down, we would give our teams the ability to toss in marked down branded product into the bundles, too, but it was predominantly private-label products. And so four for $120, those kinds of combinations of things and you imagine the mix can be different at back-to-school versus holiday. So that, obviously, as you drive promotions like you're driving some higher ticket items like that, too, across there and more units. So it's a complicated analysis because, yes, some of that private label categories are lower than the branded categories, but we're starting to create value through bundling of those products together. So it's a complicated analysis. And I think maybe Chris will give you some color around where private label was for the year.

Yes. I'll definitely touch on private label here. And as Rick mentioned, AURs, generally AUR have been up, units down. We have seen those units declines and obviously, that impacts your dollars per transaction. And we've seen an overall transaction drop is the biggest impact. And from a private label perspective, we talked about throughout the year kind of the growth we've had around all the different things that Rick mentioned, but we're really excited. I mean, it's been really successful, up almost 600 basis points to 18.4% year-over-year. So we've seen really good growth in private label. I think it kind of speaks to your question of sort of trading down and finding that value.

Thank you, both.

Thank you.

Thank you. At this time, I would like to turn the conference back to Rick Brooks for closing remarks.

Thank you. Again, I just want to reiterate how much we appreciate everyone's hard work across all our teams and our brand partners and our partners outside of our brand partners for supporting us and continue to drive our business in what's been a really challenging environment. But also as we look forward to making those key long-term investments that are going to drive our business, we come out of this tougher macro environment. So I just really appreciate all the hard work and effort across all our teams and our brand partners, and we look forward to -- we're talking to you again in early May or early semi-June when we report first quarter results. Thank you, everyone.

This concludes today's conference call. Thank you for participating. You may now disconnect.