Good afternoon, ladies and gentlemen. And welcome to the Zumiez Inc. Third Quarter Fiscal 2024 Earnings Conference Call. At this time, all participants are in 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 Inc.'s filings with the SEC. At this time, I'll turn the call over to Rick Brooks, Chief Executive Officer. Mr. Brooks?

Hello, and thank you, everyone, for joining us on the call today. With me is Chris Work, our Chief Financial Officer. I'll begin with a few remarks about our third quarter and the start of the holiday season before touching on our strategic initiatives. Chris will then take you through the financials and our outlook for the balance of the year. After that, we'll open the call to your questions. When we shared the outlook for 2024 during our Q4 earnings call back in March, we believe that we could build on improving trends that we were experiencing at that time and deliver total sales growth for the full year. I'm pleased to report that our third quarter results demonstrate further progress towards our goal as comparable sales increased 7.5%. Our top line performance was fueled by the North American business as comparable sales in the region accelerated from mid-single digits in the second quarter to low double digits in the third quarter. US and Canada sales results more than offset some expected and some unexpected softness in our international regions. Total sales of $222.5 million were in the middle of our guidance range as warm weather in Europe hampered demand for snow related apparel and hardgoods late in the quarter. However, thanks to our continued focus on profitability, we reached the high end of our guidance range for earnings at $0.06 per share. Much the same as the prior quarter, our third quarter comp performance was driven by contributions from multiple areas of our business. Our men's category continued its positive momentum growing year-over-year for the fourth consecutive quarter at an accelerating pace. Our women's category, which turned positive in Q1, again, accelerated meaningfully after posting strong double digit growth year-over-year in Q2 while footwear also experienced a noticeable…

Thanks, Rick. And good afternoon, everyone. I'm going to start with a review of our third quarter results. I'll then provide an update on our fourth quarter-to-date sales trends and some perspective on how we're thinking about the full year. Third quarter net sales were $222.5 million, up 2.9% from $216.3 million in the third quarter of 2023. Comparable sales increased 7.5% for the quarter. The shift in the retail calendar had a negative impact on our results, decreasing net sales growth by approximately 510 basis points during the third quarter. Comparable sales results as reported considering the calendar shift and represent a more accurate measure of operating results. Our third quarter performance was driven by our North America business, which was positive for the third consecutive quarter. This strength was partially offset by a decline in international sales as we put greater emphasis on full price selling in Europe, which benefited margins but pressured our top line. From a regional perspective, North America net sales were $186.8 million, an increase of 2.9% from 2023. Other international net sales, which consist of Europe and Australia, were $35.7 million, up 2.7% from last year. Excluding the impact of foreign currency translation, North America net sales increased 2.9% and other international net sales decreased 0.3% year-over-year. Comparable sales for North America were up 10.4% and comparable sales for other international were down 5.6% for the quarter. From a category perspective, men's was our largest positive comping category, followed by women's and then footwear. Hardgoods was our largest negative comping category, followed by accessories. The consolidated increase in comparable sales was driven by an increase in dollars per transaction and an increase in transactions. Dollars per transaction were up for the quarter, driven by an increase in average unit retail and an increase…

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

Chris, let me start with the comp guide for the fourth quarter. If I heard you correctly, you're saying 6% to 7.5%. Quarter-to-date, I think you're running at 2.9%. Could you kind of help me bridge that gap? I assume you're expecting a big December and you -- first of all, can you confirm that and if so, what gives you the confidence that that's something you guys can achieve?

You've got your numbers right. We do believe the comp guide would be around 6% to 7.5% and we're trending around 2.9%. As we thought about the fourth quarter and we went and looked at kind of how the quarter is falling, and I mentioned in some of our prepared remarks the impact of the calendar shift within the third quarter. What we do is what we normally do, we get pretty detailed in our planning. And we went back to kind of prior periods, our quarters where Christmas fell on a Wednesday, and we looked at the cadence of sales moving through that quarter. And as we looked at that makeup, what we found in our results is that we will see a higher concentration. Our expectation is we'll see a higher expectation of sales around that Christmas timing. So as we looked across the quarter, November from a comp perspective becomes a little less important, December becomes a lot more important and January a little less important as well. So just based on the timing of how the calendar moves, we believe there'll be a bigger pickup in December. This obviously, from a guidance perspective, creates a little bit of a challenge. We have less sales in at the time we're reporting today than we do in other quarters in the fourth quarter. So that's kind of the start of our baseline, so we believe it will accelerate. As you know, we just finished a quarter with a 7.5% comp. We're really actually quite happy with the trajectory of the business, with the apparel brands really performing quite well. And our footwear business has turned positive through the third quarter. Now that's not the case as we moved into November. But again, we sort of expected November to…

And Chris, you started to answer my follow-up question, which is around footwear because it went from a low double digit positive comp in 3Q to negative 4Q to date. Is that just a category that is more where demand is just more concentrated around peak buying than like maybe apparel is? Would that explain it, is that the category that you expect pretty meaningful inflection from November to December?

We definitely think there's periods of time where footwear is going to be much stronger. In fact, obviously, the third quarter being one of them, which we are very happy with how it performed in the third quarter. I do think there is some concentration around the peaks. I also think that footwear can sometimes be what the person, the individual wants to buy and we see that pick up post Christmas sometimes too. It's not always the gift, maybe it's more of the gift card that comes back and invest in footwear. So we do think there are some different periods for footwear. I think what we're seeing in November after our Q3 is probably more associated with the discounting we were doing a year ago and that speaks to really what we saw in margin as well. I mean we have really seen margin accelerate. Footwear has been one of the biggest drivers of that. So if we look at -- we break down, we look at full price and sale footwear, our bigger problem in November is sale of footwear. So we're just down from where we were a year ago and I think that's okay as we really focus on full price and full margin. So we'll see how it plays out as we move into the heavier volume here in the quarter around Christmas and after.

And then maybe lastly on occupancy. What are you expecting in the fourth quarter? Obviously, on a 6% to 7.5% comp, normally, you would probably get some good leverage there but then I know you're going 13 weeks versus 14. How does that kind of impact occupancy as well?

There's a few things going on in occupancy as well as the fact that as we disclosed in our call today, we're going to have some closures. We're planning 33 closures this year and we've closed 10 stores quarter-to-date, so through the third quarter, I should say. So we have the bulk of our closures here to happen in the fourth quarter. So we'll see a few different movements that will be tied to occupancy. As you would expect, the occupancy on some of our closing stores can be higher as a percent of sales because we don't have a lot of sales in those stores we're closing. So we'll see a few movements on occupancy. I think overall, we would expect to leverage occupancy. We've done a good job over the last couple of years of trying to get some leverage out of occupancy on a lower comp. Obviously, we deleveraged on a negative comp. But this is going to be a little bit fluid on this type of comp we would hope to get some leverage on occupancy.

Our next question comes from the line of Richard Magnusen with B. Riley.

I was wondering what more can you tell us about any promo strategy and ability to be agile inventory apart from the point forward of inventory you just discussed, as you progressed through the post Black Friday holiday season? And are there any particular trends that you believe have yet to deliver in this latter part beyond what you've mentioned so far?

I don't think so, Richard. I think we are -- basically, our promo strategy doesn't really change throughout the year. And as we've talked about the importance of our private label in terms of delivering value to our customer, both -- and again, value doesn't mean just from lower price. What value means is really cool stuff at a value structure. So in our case, often, that is like the bundling as an example of how we'll do it, where we're giving the consumer a group of products that had a really good value but it's clearly really trending an on-trend product. So we -- our promo structuring and price structuring outside of, as Chris talked about a year ago with the significant footwear markdowns we took when we have unusual situations like that, is really pretty much year around. So we were definitely less promotional than our competitors in the marketplace. And that reflects, I think, positively -- our results reflect very positive when you understand that of how uniquely we're positioned in terms of the product assortment, how on trend our product assortment is with private label and then how well our value proposition works for the customers and how we're presenting product for them. So I love that position, right, to be a leader on trend and uniqueness of product because that drives margins and profitability. So we don't really change our pricing structure at all. Now as we look through the rest of -- our promotional structure very much at all, as we look into the rest of the holiday season, I think we expect it to be very promotional. And I'm -- where we focus on is uniqueness and how we deliver uniqueness. And yes, when we do have markdown issues, we clearly address them and address them through that perspective. But again, it's -- I think what most people see in our stores is just really cool stuff and when we deliver value through our promotional bundling.

And Richard, I'll just take the second part of your question on trends. What we're really proud of is what we've seen here through the third quarter in our apparel categories. I think we've really seen some acceleration there really tied to a few different things. Our private label brands that we talked about in our second quarter call have continued to do well as have our newer brands that we've launched within the portfolio. They are representing a larger portion of our overall sales. And I think that's a really good thing for us long term because it's that continued newness that Rick talked about in our prepared remarks that really drive sales in the peak period. So I think we're feeling good about our offering heading into Christmas here over the next month and we'll look forward to kind of seeing how that performs.

[Operator Instructions] Our next question comes from the line of Corey Tarlowe with Jeffries.

I was wondering if you could parse out for us as you think about your endeavor to become more profitable in the US and Europe. And what the different moving parts to be? And then I think you can maybe rank the opportunity by category or by segment as you think of the bridging margin from what it is today to where you think it could go over time? And then I just have a follow-up on hardgoods as well.

Well, Corey, I'll try to take this sort of high level. As you can imagine, in a business like ours that has operations in so many different parts of the globe, this is a more complicated answer overall. But from a high level perspective, I guess what I would say is this. Domestically, the business is about growing sales back. As you know, we reached our kind of peak sales there right around the pandemic in 2020 and 2021. I had a very strong run of sales going into the pandemic. And I think for us our focus is really to get back to that level of sales within the business, that will drive everything from a profitability perspective. Beyond that, we do look up and down the P&L with a variety of opportunities and we're guiding as to how we drive this business back into profitability and well beyond where we want to be. It starts with product margin beyond sales, continuing to push product margin and drive product margin growth initiatives. We think it's really important to be a full price, full margin retailer. I think it differentiates you in the marketplace and allows you to really have -- I think, accelerate that profitable growth. And then we've been looking at things over the last couple of years of really tightly managing costs. And that comes down from everything, as we've talked about in the -- on the shipping line items, to areas like occupancy, working with our landlord partners, to making sure we're kind of rightsizing to market rents, to how we manage payroll within our stores. And that includes looking at some of our lower volume stores and really challenging our staffing structure and the hours put into the model. And I think our teams have…

And then just on hardgoods, it's been obviously a pressured categories for quite some time. I know it's the most negative category in Q3. How is that trending from Q4? Can you talk about any green shoots in category, when do you think it could turn -- any color there would be really helpful.

The answer to the question is similar here to what we talked about in Q3, which is it's still a tough department for us in terms of results. But the green shoot is really happening in Australia, which went into the downturn of the skate cycle a little earlier than the rest of our businesses. So -- and they've been positive, I think, Chris, for five consecutive months now…

Yes.

And so -- and running decent gains in the skate hardgoods category. So we're still running down in the other parts of the business, to be clear. But we're hoping that that is an indicator for us that we're going to see it start to flatten out. Hopefully, that will be the first thing for us to both not run a loss but let's flatten it out, so it's just not a drag on the business anymore and then start up again. And I think as we talked about on the last call, again, this is -- our situation to get hardgoods is really unique in this cycle is because usually the cycles are fairly long cycles from peak to peak or trough to trough about eight year cycles is what it's run for us. But obviously, with the pandemic, a lot of skate hardgoods volume got all moved into 2020. And it achieved its all time high as a mix of our sales in 2020. And we're now at, I think, a all time low for the mix so it would be another indicator for us, Corey, that we're approaching the bottom.

Ladies and gentlemen, at this time, I would like to turn the call back over to Rick for closing remarks.

All right. Again, I just want to offer my thanks to everyone for your continued interest in Zumiez. And of course, I wish everyone a happy holidays. Thanks, everybody.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.