Rick Brooks - CEO Chris Work - CFO

Sharon Zackfia - William Blair Dave King - ROTH Capital Partners Dorothy Lakner - Topeka Capital Markets Ed Yruma - KeyBanc Capital Markets Jonathan Komp - Robert W. Baird Richard Jaffe - Stifel Nicolaus Paul Alexander - BB&T Capital Markets Jeff Van Sinderen - B. Riley & Company Betty Chen - Mizuho Securities Pamela Quintiliano - SunTrust Robinson Humphrey Lee Giordano - Sterne, Agee & Leach

Good afternoon, ladies and gentlemen and welcome to Zumiez Incorporated First Quarter 2015 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 would like to remind everyone of the Company's Safe Harbor language. Today's conference call includes comments concerning Zumiez Incorporated business outlook and contains forward-looking statements. These particular 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 and our 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 filings with the SEC. At this time, I will turn the call over to Rick Brooks, Chief Executive Officer. Please go ahead, sir.

Thank you, and welcome, everyone. I’m joined on the call today by our Chief Financial Officer, Chris Work. After a few brief remarks on the first quarter and start to the second quarter, I’ll provide an update on competitive advantages that we believe will deliver increased profitability, greater shareholder value over the long-term. After that, Chris will take you through our key financial and operating metrics and then we’ll open the call to your questions. First quarter net sales came in at $178 million, up 9% from the first quarter of 2014. Comps increased 3% and diluted EPS was $0.09 inclusive of Blue Tomato acquisition costs. These results were within the range of our overall expectations. However, we experienced a greater than anticipated slowdown in our domestic business as we moved through the quarter while our consolidated comp was lifted by continued strength in our European business. These trends weakened in May as we recorded a consolidated comp decline in the month that was made up of transaction declines in the U.S. business offset by strength in the international business particularly in Europe. While we are encouraged by the growth of our international business, indications are that recent trends in the U.S. business are being affected by headwinds which we believe are primarily tied to; a lack of clear fashion trends driving the teenage consumer to shop resulting in lackluster traffic; foreign exchange trends mainly impacting our border business and high tourist locations; weaknesses in our seasonal spring business; and delayed receipts due to the West Coast port issues in the first quarter. We are mindful of our execution through these periods of inconsistency and continue to believe consistent with historical trends that when a consumer comes out to shop we are confident we will perform at or above the high expectations we set for ourselves. We remain very optimistic about our long-term positioning. Our primary focus remains on executing the global initiatives we have consistently discussed with you over the past few years that we believe will deliver sustainable long-term returns. I’d like to give a brief update on those initiatives. North America, we opened nine new stores in the quarter and additional 11 stores in May. We’re on-track to reach our full year projection of 51 new stores in North America. We continue to see untapped potential in our North American markets and our goal is to maximize the long-term productivity of the entire portfolio by optimizing our physical store presence in each market as part of our omni-channel platform. In Europe, we opened four of the six stores we expect to open during 2015. As I mentioned this business why it's still small compared to our North American business has been a strong performer over the winter months and now into spring. We believe this trend reflects the investments we made in the European market to broaden the reach of our world-class shopping experience and highly differentiated approach to product assortment. Our growth in Europe is very encouraging and while we continue to view this as a long-term investment, we plan to continue capitalizing on our momentum in this market both remainder of the year and beyond. Our omni-channel strategy continues to drive expansion and enhancement of our digital infrastructure and shopping experience. With these investments, we're able to better offer customers a consistent and genuine interaction with our brand regardless of the channel by which they're engaging with us. We believe expansion in e-commerce works in tandem with expansion of our brick and mortar stores both domestically and aboard. We are proud of the integrated brand experience our teams have created through both Zumiez and Blue Tomato that represent our unique approach to our lifestyle market. Now before I hand the call to Chris, I’d like to recognize a team of individuals to whom we entrust much of our culture and brand experience, our sales teams. We recognize their contributions and we made it part of our unique culture here at Zumiez to invest in them providing them with the tools, training and support they need to deliver a genuine high quality customer experience each and every time. We again held our annual store manager retreat recently, it's a great event always sends our retail managers back to their stores providing their employees with a new energy and enthusiasm for the Zumiez's brand and cultural experience. Those intense few days are designed to help these individuals' positively impact their teams, their locations on a daily basis. Our managers understand that they're stewards of our brand and culture and this retreat helps feed the passion they for Zumiez, as well as the lifestyle we symbolize in a way that has long lasting and meaningful effects on our overall business. During these national events I am reminded of how important it is for us to focus on our people. They're the key to our success as a lifestyle retailer and every year I am more convinced that investing in them is one of the most important things we can do to ensure long-term success. I'll wrap up by reiterating that we recognized the short-term performance of business is not immune to factors that are impacting retail and as such we are being cautious with our near-term projections. That said, we believe we'll continue to gain market share which can be attributed to our strong culture of strong brand and our omni-channel strategy. All of which support our authentic lifestyle positioning and our commitment to exceptional customer service. These factors along with the highly differentiated product assortment are competitive advantages that will continue to drive shareholder value for many years. With that, I'll hand the call to Chris for a review of the financials. Chris?

Thank you, Rick and good afternoon everyone. Let me take a moment to briefly review our first quarter results and our May sales results then I'll outline our second quarter guidance and provide a few thoughts for the year. First quarter net sales increased to $177.6 million from $162.9 million from the first quarter of 2014, an increase of $14.7 million or 9.0%. Breaking revenue down by regions North American sales increased $10.6 million or 7% to $161.2 million and our European sales were up $4.1 million or 33.6% to $16.4 million. This includes the negative impact of foreign currency translation in the quarter of approximately $5.0 million. Consolidated comparable sales inclusive of our e-commerce business increased 3.0% this quarter driven primarily by an increase in dollars per transaction partially offset by a decrease in comparable transactions. Dollars per transaction in the quarter were positively impacted by an increase in average unit retail, as well as units per transaction. In terms of category performance, hardgoods, men’s, junior’s, and accessories posted positive comps while footwear posted negative comps. We finished the quarter with a total store count of 616, made up of 557 stores in the U.S., 37 in Canada, and 22 in Europe. First quarter gross profit was $56.5 million, an increase of $6.0 million or 11.9% over the first quarter of 2014. Gross margin was 31.8% compared to 31.0% a year ago, up primarily as a result of 100 basis points improvement in product margins. SG&A expenses were $52.4 million or 29.5% of net sales for the first quarter of 2015. This compares to $46.8 million or 28.7% of net sales in the year ago quarter, included in SG&A for the quarter is approximately $1.1 million in Blue Tomato acquisition charges compared to $0.6 million in the prior year quarter. First quarter 2015 operating profit was $4.1 million compared to $3.7 million in the first quarter of last year. Operating margins remained flat year-over-year at 2.3% of net sales. Net income for the first quarter of 2015 was $2.8 million or $0.09 per diluted share. This compares with net income of $2.5 million or $0.09 per diluted share in the first quarter of 2014. Results for the first quarter of 2015 include $1.1 million or approximately $0.03 per diluted share for Blue Tomato acquisition related charges, while 2014 first quarter results include $0.6 million or approximately $0.01 per diluted share for acquisition related charges. Turning to the balance sheet, cash and current marketable securities were $150.9 million as of May 02, 2015 up from $107.8 million as of May 03, 2014. This increase was driven by cash generated from operations partially offset by net capital expenditures primarily to new store growth and remodels. We ended the quarter with $104.1 million in inventory up $6.5 million or 6.6% from the end of the first quarter 2014 primarily as a result of our increased store footprint compared to this time last year. Turning to our May results. Our comparable sales decreased 2.2% for the four week period ended May 30, 2015 compared to a 3.6% increase for the four week period ended May 31, 2014. This brings our year-to-date 2015 comparable sales to an increase of 1.8%. Total net sales for the four week period ending May 30, 2015 increased 4.1% to 51.5 million compared to $49.5 million for the four week period ended May 31, 2014. The year-over-year comparable sales decrease was driven by a decrease in comparable transactions partially offset by an increase in dollars per transaction. Dollars per transaction in the period were driven by an increase in average unit retail and increase in units per transaction. During the four weeks ended May 30, 2015, accessories, men’s and footwear posted negative comps while hardgoods, and junior’s posted positive comps. Looking at guidance for the second quarter of 2015 I’d like to remind everyone that formulating our guidance involves some inherit uncertainty and complexity in estimated sales, product margin, and earnings growth given the variety of internal and external factors that impact our performance. Keeping that in mind, we are planning second quarter comparable sales results in the range of negative 5% to negative 3% consistent with our late May trends. We are planning total sales to be in the range of $179 million to $183 million. This sales guidance contemplates the movement of Labor Day in 2015 back one week in September, which we believe will have a slightly negative impact in July and a more significant impact in August as volumes move into September. We expect gross margins to decline 150 to 200 basis points due primarily to the deleverage of fixed cost including store occupancy on a negative comp and to a lesser extent a decrease in product margins. Consolidated operating margins are planned to be between 3.0% and 4.0% with diluted earnings per share of between $0.12 and $0.15. This guidance contemplates an estimated $0.4 million or $0.01 per diluted share for the intangible amortization charges associated with the acquisition of Blue Tomato. Before I wrap up I’d like to briefly cover how we are currently thinking about the remainder of 2015. As you know from our historical results our business is seasonal with the majority of our sales and earnings occurring in the back half of the year while first and second quarter are significantly smaller. As mentioned earlier, our second quarter guidance contemplates negative comparable sales. However, we continue to believe we will perform stronger in the peaks of back-to-school and holiday when our customer has a reason to come out and shop. That said, with these inconsistencies we’re not prepared to give full year sales guidance but expect our comparable sales growth to be lower than our 2014 comp performance. The majority of our year-over-year product margin opportunity was in the first half of the year particularly in the first quarter, while first quarter margins came in as expected, we now believe near-term margins will be more pressured as indicated in our second quarter guidance. In the second half of the year to the extent sales stabilize, it will be our goal to maintain product margins at prior year levels. We continue to plan SG&A growth in line with 2014 growth rates excluding the charges associated with the Blue Tomato acquisition previously discussed. We expect foreign currency translation to impact sales unfavorably throughout the year. However, the impact on earnings should not be significant as contribution margins for our international operations are lower than our mature U.S. business. We are planning to open approximately 57 new stores with a similar cadence to what we’ve done historically with two-thirds of the openings happening ahead of back-to-school season. We are currently projecting capital expenditures for the full 2015 fiscal year to be between $39 million and $41 million driven by new store openings and planned remodels. We anticipate depreciation and amortization of $31 million for the year. We are assuming an annual effective tax rate of approximately 38%. We expect our diluted outstanding share count for the full year to be approximately 29.3 million shares. Any share repurchases we make during the year would reduce our share count. And with that operator we’d like to open it up to questions.

[Operator Instructions] Our first question comes from Sharon Zackfia with William Blair. Please proceed.

So Rick a question on what you saw on the late spring, May obviously not typically a traditional pivotal retail month just curious what you saw in April some things got worse as May went on. And how do you -- have you seen an instance like this previously that you can think of really quickly off hand and maybe you can share with us. Prospects for bouncing back kind of how your buying team is dealing with this at this point and how quickly they can kind of shift, it sounds like it might be more spring assortments, I'm not sure if that matters but any kind of context you could give us would be great?

Right, well thank you Sharon. Of course I can because I've been doing this as you know an awful long time. So we've hit cycles like this over the years where you'll see a shift and it's usually driven around again you see it more in lack of trend direction. And I would tell you that I think it's more pronounced in this kind of environment when there is -- we're still in this kind of recovery, this bumpy recovery mode from the great recession and in these low volume periods is I think there the trends are -- the lack of trend is more pronounced and that's really what drives weaker traffic. So I can't give you specific example Sharon but there are these points in time where we'll do this and I will also say it and following up your comment that this is, our miss relative to our plans is all in the seasonal spring categories. And to be clear those categories would include things like men's and women's shorts, board shorts, women swim, tank tops, hat, sunglasses, sandals, those are all categories that significantly underperformed our plan in May. And now I guess you look at each and you break it down by women's and men's and in women's we overcame the weakness in the seasonal business in other categories of clothing because we still comped up in May and in men's which is our largest sales department we just didn't have enough going on in the other categories of men's clothing that's offset declines in the seasonal categories even though we ran gains in many of the other categories in our May business and in particular long bottom Sharon was, we've been seeing a good trend for a while there, driven by some trend to actually long bottom and we still ran a gain in our long bottoms, casual pants and denim pants combined in the month of May in our men's business. So it is I say all that to highlight the fact that it is really our biggest miss relative, biggest misses relative to our plan were all these seasonal categories, so I can't exactly why I think it's a broader issue again in teen in the teen marketplace, the weather hasn't been bad everywhere just like it's not bad everywhere every year, it's always nice somewhere. So what are we doing I guess Sharon then to take the last part of your question there, we're going back and as you would guess we have been now really looking hard at looking at our local assortment plans and saying what did we get right what's working what's not working we are rebalancing inventory where necessary in that process and moving the product around if appropriate and of course we are going to look at the slower selling items and take the appropriate level markdowns on those products. So that's kind of where we're at and I guess the last thing I'd say on this topic is I think Chris laid out in the metrics is that and this is true, overall and true in the U.S., is that we're running gains and averaging a retail, we're running gains in units per transaction which are driving a pretty significant increase in dollars per transaction which is I think very important to me because it speaks to again the quality of what our sales teams are doing in the marketplace so we're maximizing each interaction with each customer and I think that's a very important part of what we're doing here so it's, in my mind Sharon what we're looking at here and there are other challenges like our footwear business continues to be challenged but relative to May the seasonal stuff, I think the stuff that really decelerated for us relative to other things happening in the marketplace and in particularly as you can see men's, women's we weren’t very able to commit in men's we couldn’t, and so that's what kind of we're at and that's what we're doing to analyze to take it forward and as Chris said I'm still, I still remain optimistic about our positioning for back to school when I think our customer will out and shopping.

Okay, just maybe one quick follow up. Can you comment if California was worse than the overall average and then Chris when you said the comps for this year worse than 2014 did you just mean less than the 5% you had in 2014 or did you mean negative?

I mean at this point in time we're not ready to comment on the full year but we're looking at it as less than the 5% we had last year.

Okay, perfect.

And California for us Sharon was actually generally tends to be one of our stronger marketplaces.

Our next question comes from Dave King with ROTH Capital Markets, please proceed.

Thanks, good afternoon everyone. I guess just sort of following up on some of the trends you saw during the period, I guess it sounds like California did sort of okay for you, Rick I guess may be can you just talk about geographically what may be going on beyond that, was there anything beyond that in terms of weather? And then you seem to touch on a lot of the things in Sharon's question that I was looking for but I guess maybe looking at sort of the outlook for the year it sounds like now you think that's going to be negative, and then actually I lost the question fully so I'm going to step back, thanks guys.

Regroup and you can follow up here in a moment. So, I would say that again I am not the one that want to talk about weather because there is somewhere where weather is bad always every year so that was clearly the case with tornados in Oklahoma, and the flooding in Texas and which were of course terrible- terrible events. And so yes we have weather issues but we had a there is something again a year ago that would impact the business too so I don’t really want to fall back on that Dave as an excuse for why our seasonal categories are so core I just think there is some broad trend that’s used and without the momentum to bring out kids to shop without a real incentive a real trend driver to bring them out it makes it harder for us to sell product to people and again when they do come and as I said from our sales stats we do a really good job of maximizing the interaction with our customers. So, yes California is generally better for us there were I would say there were pockets across the market that and across the U.S. that we liked and other pockets that were not as strong and that would be inter mixed with as I think Chris mentioned in his comments some of the border stories relative to foreign currency those are tougher for us some of our high tourist driven locations those were tougher for us, so it’s really hard to just call it one thing it’s a more of a blended element of number of factors coming into the play both around trend on the seasonal product driving I think a weakness in customer traffic and then in particular emphasis to foreign currency and border transactions and some weather issues around the country.

And I’d just clarify on your thoughts for the outlook for the year. Our outlook in the short-term is the negative three to negative five comp that we laid out for our guidance for Q2 again we continue to believe we could perform stronger in the peaks of back to school and holiday when our customers are shopping. So we’re certainly it’s not our goal to drive that trend line -- draw that trend line out through the remainder of the year and we’re optimistic about our strategies in the back half.

The next question comes from Dorothy Lakner with Topeka. Please proceed.

Thanks and good afternoon everyone. Just wanted to circle back on SG&A wasn’t sure if I caught what you were saying Chris about how we should look at the SG&A line. And then, on the footwear side of the business trends were -- have been negative for a while and are we seeing any light at the end of the tunnel there? And then just maybe a little bit more color about what you’re doing to I guess rebalance the assortment? Obviously if long bottoms are working now they should work as we move into the cooler seasons of the year. But just a little bit more color on how you’re thinking about what happened this quarter and why things would be better in the back half of the year beyond just the pure traffic issue?

Let me tackle a couple of those and then I’ll let Chris to also join me on those comments. So, let’s start with footwear and give you maybe a bit of update on our thinking of footwear. You’re right this has been a more difficult department for us for quite a while now going back a few years actually and I think year-over-year we getting out a positive comp in footwear in December and I think everyone got really excited about that and I think Chris probably tempered everyone’s excitement.

Yes he did.

But footwear usually first I’d say you have to break it down into looking at men’s footwear and women’s footwear and in the men’s side I mean I think the issues on the men’s side are pretty clear they’ve done the same predominant trend issue going on now again for a few years and that’s really related to performance in athletic footwear in particular basketball. And that’s just not something we do it’s not where the customer doesn’t expect us to do it and it’s just not our niche and the retailers that are doing it are doing quite well. Now here is what I do know, I do know that those trends always kind of rotate and they’re going to adjust and change overtime. So what are we doing in the men’s side, well, we’re continuing to test styles, we’re continuing to test brands in men’s and we continue to work towards unique product ideas with our brand partners. And I would tell you I am a little bit more encouraged about men than I am women’s. And so as we talk of the second aspect of our business our women’s footwear business has been the tougher between the two between men’s and women’s, women’s is the tougher portion of the business. We continue to struggle with a brand a particular brand and we’re working closely with that brand partner to reposition styles and literally assortments down to the store level. And then with other brands in women’s we’re doing so many things we’re doing in men with we’re testing other styles, we’re testing new brands in women’s and all again trying to build unique product assortments in a way that aren’t offered broadly in the marketplace. So generally that’s where we are at with footwear. Men’s is a bit more encouraged than the women’s, women’s are still really struggling with and in the quarter men’s was still negative in that but giving a bit more positive about where at men’s although we’ve got more work to do and fundamentally our challenge there is one around trend and athletic performance footwear in particular basketball. So that’s the footwear topic we are talking about spring again and going bounce, is going or thinking about what we’re doing as I said there is always some place that is nice and some place we have bad weather so what our buyers do is we are really taking a hard look again at as I mentioned with Sharon Dorothy we’re looking hard at what was our individual assortment plans by location going and looking how we're doing against those plans. Who sold well and that is the factor of whether what you see someone that really had good weather and we had higher sell throughs that’s where we’re rebalancing product away from those areas that had lesser sell throughs of product in -- across all those spring categories.

Right.

And that's just smart, right? That we're just going to advantage of the business across the country in ways I think that a good retailer does. So that's really what we're talking about on that front. And as you said, I'm encouraged by long bottoms because we’ve had a good strong trend cycle in there with particularly joggers I have to tell you I think that, that trend has peaked and -- but that being said as we commented about in May, we're still -- we still ran a gain in the men's long bottoms between denim and casual pants. So I think that does bode well for us as we move into the back-to-school season because obviously long bottom has become much-much more important in that window. And I might add that even in that as we drove the big cycle with joggers, we still ran gains comp store gains in denim in almost every period of that cycle. So denim hasn't been weak for us it's just a lesser in a trend cycle as all. So I'm very encouraged that as the casual bottom trend wanes there that we're seeing denim step up and again in the men’s category just not enough to offset the problems we had in the spring seasonal categories.

Right, okay.

And then really to peak and non-peak, it's just a different ball game Dorothy in peak and non-peak.

Sure.

And as you know we're good at playing the game and particularly in the peak windows. And I think we have a good history at that. And I just don’t think because the lackluster kind of trend situation customers particularly on the men’s side women's shop more frequently if you see our women's business was a bit better, but man if there is no driver to come out, no must-have item, they're going to hold but they do and will come out for back-to-school because again that is a have to buy scenario. So there I'm encouraged and I'm encouraged by the fundamentals I am encouraged by the long bottoms business. I'm encouraged by the quality of our sales team, I feel very good about that aspect of our business. And I know based on the historical patterns that when they come out we do well. And particularly on maybe not always in absolute term in today's world, but definitely on the relative terms and that's why we talk about gaining share in this marketplace. So that kind of covers my side, Chris do you have anything to add in the SG&A question?

Yes, yes the only thing that I would add to those topics is on the footwear side of the business, obviously, we have talked a lot about this over the last few years and Rick did a great job of summarizing where that category has been. And I will tell you we're feeling a bit more optimistic about the results there just based on this trend line as you even saw with the May results when we listed out the categories, footwear was not our most negative category. And additionally, while we -- our buying teams and distribution teams did a great job working through the port strikes during 2014, we likely retailers were not immune to the slowdowns in Q1. And this is one category that was probably impacted more than others.

Right.

So we're trying a lot of things here and our trend line there is getting a little bit better, so more to come as we work through Q2 and into the important back-half of the year. From an SG&A perspective, without giving annual guidance we’re trying to give some direction. We're looking at SG&A growing similar to last year, excluding the charges related to Blue Tomato acquisition. And obviously, this is an area that we're monitoring really closely, specifically in light of where we're pretty good long-term planners and the way we think about the business and making sure we’re making the right long-term investments for growth in shareholder value creation and then coupling now with really the short-term economic -- our short-term results, I should say. So we’re balancing the long-term investment and profitability and managing SG&A and looking at that really closely. But today, we're looking at SG&A to grow pretty much in line with 2014 rates.

Our next question comes from Ed Yruma with KeyBanc Capital Markets. Please proceed.

I guess just a couple of quick follow-ups, first on the SG&A. I know that there is a variable component to the SG&A for historic expenses I guess just trying to understand a little bit more why SG&A growth will be comparable to last year given the weaker sales? I guess, two, and you have talked about strengthening the long bottoms. I guess are you willing to call that there's a denim trend that you’re observing? And I guess if you think about denim as a part of your business, where was it today versus may be when denim was at a secularly strong point? And then I guess finally more of a thought to an earlier question. Are you, given the weakness, are you kind of signaling to your buyers to kind of rain in forward buys, how many adjustments can you make, or is it still too early to tell that this was kind of a seasonal blip versus a period of maybe sustained weakness? Thanks.

Thanks Ed, I'll take the last couple of aspect and then let Chris follow up with the SG&A question. The long bottoms are really interesting again we don't, as you know us well, we don’t care what we're selling, we just want to sell what customers want and our job is positioning inventory properly to do that. So we, over the last 18 months, we have seen a big-big shift between casual, we call casual pants and long bottoms grouping and denim to the point where denim has become a much smaller component of our overall pant long bottoms business. So, in other words if it is a denim cycle, we have lots of room to move up relative to where denim's at currently in the mix of our business. So, that's the opportunity side of the business and again I am encouraged by what we're seeing in our denim side of our business and we have at this point as I said we run gains in May and we’ve run gains actually denim mostly throughout this cycle. I think that speaks to being on trend line with what we're doing there, relative to what customers wanted likewise I'd say we're on trend line relative to customers who are on the casual pant side of the business, so we have a relatively speaking in that case Ed at a lot of room to move up in denim on a relative historical patterns in long bottoms. Then a second relative to inventory, inventory coming out of Q1 we feel great about the position we're in, you heard the numbers from Chris, call these inventories were in a good spot. Our challenge again is around these seasonal buys that's where if we're going to have markdown pressure that's where it's going to be and that we have considered some of that within the guidance that Chris provided there. So we're very good as we you know about managing to where we believe our inventory needs to be. We do have room to move on things in terms of our what buyers can do and the levers they can pull and we'll be doing all of things we can make sure that is we're going to all best to keep inventory in line I think our track record is pretty good that we have a good track record we're doing that and maintaining a current quality level of our inventory, maintain that at a high level.

Great then on the SG&A variable component clearly there is a variable component within SG&A and that's something that we'll work hard to manage I think what's important to point out about our model is our store format is actually being able to operate up and down the mall spectrum so we can work in the high A volumes malls we can work in the C volume malls and because of that, that doesn't mean that all of our structure is variable where we do have stores where we're at minimum hours pretty much most of the time and so in those cases we don't as much variability in that store operating there is a lot of other things that are going on in SG&A that impact where we're at and I think to go back to the previous comment we are going to have to work really hard to manage those as we move through the year and especially in light of some of the headwinds that are up against us and we'll be managing that cost structure of the store. We're going to manage home office spending I will be cognoscente of the importance of long-term growth and to the extent we need to that there will be areas we'll try to pull the range back a little bit. If the results aren't there and we don't it's detrimental to the long-term vision, so again kind of high level thought on the year around SG&A growth, but to the extent that the results are tougher we'll be doing our best to rain those in.

Our next question comes from Jonathan Komp with Robert W. Baird, please proceed sir.

Rick if I could maybe ask one more question related to the current sales trend you are seeing in relation for maybe some of your historical perspective and I guess looking back in the historical data it's a little hard to find another example of where you've seen such a sharp deceleration in the trend line in one season only to bounce back strongly, positively in the next season, so can you maybe just share a little bit more light on how it gives you comfort that this isn’t the start of the same trend that you're seeing?

Sure I am glad to do that and I'll start with I think what from my perspective is again we've been most challenged relative to our plan which is around the seasonal category, so I feel those category has changed and that's probably so from a trend perspective again no reason particularly on the men’s side of the business again is particularly difficult. They're difficult on women’s in the seasonal categories too as just we -- women are shopping more frequency and they came in the store we could sell them more things in different categories, so we have a little comp-up in May in women’s, so on the men's side where men don’t shop as frequently and not in the mall as frequently particularly if there is a no drive to go in. So that will change, so first that's what I’d tell you is that will change, and second we're seeing success in many of our long bottoms and many of our other top categories. As I said we ran gains in a number of categories out but they're just not enough to offset the loss relative to our plan in the seasonal business. So in both those cases that is why I explained it to you that I just expect that the male consumer is going to come out and shop during the back to school. They need to replenish. They need to get new stuff as they head into school. As part of nature of audience we serve they want to be refreshed basically as seasonally as they head into that product that fall back to school cycle. And then again our problem seems to be right now focused around these seasonal categories the lack of trend and if nothing else we can see the trend in long bottoms is going to clearly be a wake in the casual pants and back towards denim so it will be replenishment in the category business there too and I think there are other categories that we're doing -- we ran gains then in men’s it is just not the seasonal product.

And I guess one other certainly we have heard signs of weakness from some of the other retail chains in the category out there and is there anything that you're seeing that would say the weakness for Zumiez has been greater than maybe some of the weakness seen throughout there or these times that the competitive dynamic within the category has shifted more recently at all?

I don't think, I don't see any change in the competitive dynamic from my perspective and again as you know we're the really one that's transparent here relative to monthly comps and no one else is actually laying it out in a way I think that we laid out pure and clear and straight forward manner. And we’re committed to monthly comps I mean we believe in transparency with investors. We believe that it is better in our world where we share information deeply that is better to have these types of conversations so even if business gets tough it’s a better way to do it. So I don’t perceive and any shift in the competitive dynamic that I think most of our team retailers particularly if you looked at our stack comp on a two year basis we’re still leading the way. Even in May we’re on a relative basis so I don’t perceive any major shift in the competitive dynamic I just think we have some challenges. We have to work our way through on the product side of the business and again it’s more complicated than that. There is also this foreign exchange component as Chris laid out in border stores and our high tour stores. That’s impacting this there is just no doubt about that in the U.S. Now flip side we are probably benefiting from some of that in Europe that is part of the strength in Europe too, which is again I think long-term be a really diagonal part of our model as we are able scale in Europe. So no I do not sense any change at all in the competitive dynamic and as I said in our prepared comments I anticipate that we’re going to see this year be another year of share gains for Zumiez in the marketplace.

This is very helpful. And then, maybe just one for you Chris on really kind of the overall philosophy and thoughts on the buyback program and I guess in the context of the direction of your stock has gone year-to-date and given all the cash on the balance sheet. Is there any reason why you wouldn’t get meaningfully more aggressive here in some of the opportunistic buys?

Our strategy here has remained very consistent. So as we said on the call we did not buyback anything in the first quarter but this is the way that we think we can give shareholder return long-term specifically in light of not only our cash balances today but our ability to continue to generate cash. So, just as you said we will be opportunistic and that will be something that we’ll look at as we continue to move forward. So nothing that happened in the first quarter but we’ll continue to update you guys on a quarterly basis with where we are at.

Our next question comes from Richard Jaffe with Stifel. Please proceed.

Thanks very much guys and well, I see that the downturn you’re anticipating, wondering from your seat if there is visibility for trends or improvement on the women’s side in particular where you’ve seen such strength that would either internally give you guys hope for back-to-school or a better cap that you can share with us?

Again, I don’t have a lot to say Richard outside of what I’ve kind of said on some of these earlier comments and again women’s we continue, women’s we’ve been on a long run and we continue to do that. We’re certainly to be clear we do not cap the women’s business in any way shape or form. We feel we have a good strategy. We feel that on the women’s side of our business we feel that our strategy compliments our Zumiez’s brand positioning. And we feel that we’re aligned there we don’t see any conflict between what we are doing on the women’s side of the business and what we are doing on the men’s side of the business relative to our overall Zumiez’s brand positioning. We are very comfortable with that if women’s can keep growing I’m thrilled about that, and in fact I want it all to grow right, so that’s the my big mission and women’s is growing in a relative mix of our business for the last couple of years I am happy about that and obviously things like footwear are strong over the last year in particular as part of the mix of the business but to be clear I want everything to grow so yes, I am hoping that we as Chris said we’ve seen footwear on the men’s side not so much in the women’s side but the men’s side we feel a bit more encouraged on the men’s side in footwear. We’re working hard to continue to drive that forward. Our long bottoms business and many of our other men’s top categories but as we said we comped positively relative to what we plan in those businesses in the month of May. So I’m encouraged by those. There are other things I think that will serve as well as we head into the back half of the year I just think we’re getting the seasonal low where there is again no reason for particularly in the men’s side of our business to come out and shop.

We can see. Thank you.

Our next question comes from Paul Alexander with BB&T. Please proceed.

Hi guys. Thanks for the question. Just on how you think about the comp guidance, understood that the business slowed over the course of May and you are basing the second quarter guidance off of the late May trend. But why base it only on those last couple of weeks of May and not the greater May result, is there a reason why early May might have been better than the 2Q rate in general whether that might have been kind of clearly selling or something that is happening in May that might not benefit the rest of the quarter.

Yes there is not something that we would point to there I think the more the bigger rationale for basing the trends towards the end of May, are that May does have a Memorial Day. And it is part of that. And we have seen trends historically where that is a mini peak within that period and so we’re basing the trends off of that. We are also looking at this from as we mentioned in our prepared remarks the overall shift in Labor Day here in September moving back one week and while really the call out there is about Q3 and just making sure that we’re all aligned in the impact between August and September as we do expect it to have a material impact on August with the volume moving into September but we also expect there to be a small impact on July. So you couple those two things together just based with the trends we saw at the end of May and so we did kind of line up our guidance with the more recent sales trends versus the entire month.

And just a follow-up on the peak and valley the peaks and valleys sales pattern you’re confident that you performed better in the peaks and the lack of trend is likely to make this pattern even more exaggerated again this year. but the peak valley pattern has been happening for you guys for the last couple of years so do you think this is something beyond just the fashion and trend cycle or is there something happening incrementally even more in the macro environment like shopping patterns among young people continuing to change or the impact of the Internet or what else do you think might be at play other than fashion?

Yes we do worry Paul that there is some concern particularly when there is a lack of a driving must have fashion item that outside of peaks we think there is some lingering hangover from the great recession for all consumer segments that this is part of the action of consumers saving more money, of spending to pay down debt that these are the periods where if you don’t buy these are the periods you don’t buy and last just again it’s cyclical rotational spending where it is sort of housing or cars or other factors and otherwise you don’t spend on closing the fashion without it being a trend driver to really push the spending forward in these lower volume periods. So again I think this is for us this is kind of we talked all about this internally about how we just think the consumer comes out of that recession with the fear that’s still in play today. So we internally talk about we may see greater volatility around these low volume periods particularly if there is no trend driving item or must have kind of item in the marketplace bringing in particularly young men out to shop which is the majority of our business and young men tend to be even buyers or strong trend drivers strong trend buyers in the marketplace. So we expect that from our perspective these lower volume periods the nature of the kind of psychological fear hangover of the fear from the great recession is part of the aspect when there is no must have item to buy.

Our next question comes from Jeff Van Sinderen with B. Riley. Please proceed.

Hi. Good afternoon. This is Austin on for Jeff. Was that potential markdown pressure from the spring assortment do you expect to be any more promotional than you were last year and then also just more specifically on geographic performance have you seen any unusual softness in the Western markets as California areas and in Nevada versus other regions lately? Thanks.

Again I’ll talk about the high level what we think about the markdown strategies and we are not one to markdown the lot of retailers markdown the store, they do all store wide promotions to be clear that’s not what we do and we don’t -- it's just not our mode of operation. We markdown items that don’t sell and that have a low sell through rates right down to the individual skew level. We think that is a smart thing to do it’s the right way to run a retail operation. So I can tell you how we’re going to end up right. If we have a tremendously hot summer from here forward we may be saying well God we’re glad, we’re glad we own the inventory add going through this and everything is going to be just fine. But I can tell you in the guidance that we have based upon the trends that Chris described in May we have allowed ourselves somewhere among margin and so if we need to we will take markdowns because again we’re very disciplined around maintaining the quality and the cleanliness of our inventory positions. So that is reflected in the guidance we have put out there but we won’t do it unless we need to do it, and we do it on a very down to the skew level. So you won’t see it any overall store promotion that’s just not our way of working. And again I did say earlier that California has been the stronger state for us and a relative speaking and again weather will move around I do get the flooding in Texas really made business terrible in Texas at that point and so you will see it move around in different ways from that perspective but on a year-over-year basis I don’t really have any great other call out other than that California is probably one of our best performing markets.

And the only thing I would add to that on the markdown side as you do recall a year ago as we ended 2013 we were heavier on inventory that we anticipated and therefore had some margin pressure in Q1 and Q2 and while we were able to get a lot of that back in Q1 unfortunately year-over-year we still have a little opportunity in Q2 of last year so I think to add to Rick’s comments as well our promotional cadence is also not only made up of these we are marking down but also our message to the valued consumers. So you should think of us in some cases we’re really creating a buy for that valued consumer that we can still achieve the margins that we want. So it’s a combination of a few different things but we feel that it will only be a slight impact on the second quarter.

Our next question comes from Betty Chen with Mizuho Securities. Please proceed.

I was wondering if you can quantify if it’s magnitude at all for the port delays I know that you didn't call it out I think on the last call, wondering if that had any impact on the seasonal growth over the, just mainly traffic and then in terms of the tour stores and border stores can you remind us what's the percentage of store base that would qualifying into that bucket. And then my last question if I could is you know given the outperformance in Europe beyond just a typical winter season are there some thoughts in terms of perhaps accelerating the growth of that full rollout as we get into 2016 and beyond? Thanks.

All right, great Betty I'll tackle a couple of the -- particularly I'll tackle the last one and let Chris maybe handle a bit on the first two questions. Accelerating growth in Europe it's just something we obviously talk with Gerfried the founder of Blue Tomato with in terms of laying out our five year plan for Europe, where we're going to go, how we're going to build the business, what the right cadence of growth is. We're in that process now with Gerfried as we work towards our August strategic board meeting. I'm not going to share with you what our thinking is around that other than to say that like Zumiez has done for a long time the quality of the growth will determine our trust and our ability to grow with good quality will determine the pace of growth for us in Europe. And we are very cognoscente of the fact that to be a great retailer you have to have great teams of well trained people that know how to manage retail stores with, that know how to work with customers and we don't want to grow fast, we don't want to grow at such a rate that we outgrow our ability to grow and put great teams of people in those stores. So that is going to be the governing factor as we analyze how fast we can go in Europe. So to be clear would we have 50 stores in Europe next year? No, absolutely no way we couldn't handle that level of growth. Is there a chance that we could accelerate from this pace, maybe but those are things that Gerfried has to determine with his team that would be appropriate and we'll be working through that here as we do our five year plan but the governing, to be clear the governing quality that we have to be concerned about is that we want the store to perform well and that is not only about great locations, great product but it's about great people too and making sure that we have confidence in the quality of those teams of people.

That's helpful.

And to tackle your first couple of questions on the port delays, do we quantify? No, we have not quantified it. We, obviously these are things we try to attempt internally but they're hard, it's hard to confidently be able to give a number externally, I think we do have confidence in saying that footwear is one of the categories that was negatively impacted in the first quarter.

And particularly men's.

And particularly men's, we do feel that as we move through the first quarter that was done, and so it wasn't as big an overhang into May but you know there are impacts there so we're not quantifying but we are letting out that men's was the main place that impacted us. From a tourist perspective again it's a tough thing to track because of where that tourist is going but we are monitoring about 40 to 50 stores that we view as both tourist stores as well as border stores that we have seen high influxes of international not of just tourists but people coming to shop and so it's about, it's probably less than 10% of our overall portfolio but again probably 40 to 50 stores that we're monitoring.

And Chris is there a big variance in how those stores are performing relative to the rest of the chain?

Yes, and that's why we're calling it out right, I mean these are stores that are up on the Canadian border that when the Canadian dollar was much stronger we saw that Canadian customer come to the U.S. to shop to get goods that they could not get or they could get at a better price point in the U.S. and other areas of the country where we saw international tourists albeit European tourists or Asian tourists that are coming to our stores and we're seeing that customer in our stores. So they're in variety of different places within the market.

An example of that Betty would be large outlets, large tourist or in outward locations on the East Coast.

And is that also a channel where you're seeing progressively weaker trends in the latter half of May as well or it's been pretty weak ever since we've seen the currency changes?

It was again an outsized trend even relative. It was outsized trend in May relative to Q1.

Our next question comes from Pamela Quintiliano with SunTrust, please proceed.

Great, thanks so much for taking my question, so obviously most of them have been answered but I did want to follow up on Europe a little bit and can you just talk more about what you're seeing there that you think is contributing to the outperformance and also remind us of the product mix and how it's different than domestically and then lastly any of learnings you can apply either direction quite honestly, if either what you're seeing there for here or vice versa.

Okay, great I'll take the status for you Pam and you know, I'll tell you the first thing about Europe that's and we’ve said this many times I'm going to say it again is the quality of the Blue Tomato team this is a great group of people these are great retailers they've embraced -- in our Zumiez world we believe in empowering people, let them run their businesses in all aspects of what we do, it's why we're so -- we are not talked heavy in this world we're pretty thin, we're pretty efficient because people's jobs really matter. And in Europe, we worked the same way Gerfried and his team, they're great group, great retailers they are culturally aligned with us and for us first thing is they're doing a great job and I think that we're incredibly well positioned in Europe, it's a very it continuous to be a highly fragmented marketplace. We believe that our omni-channel strategy is going to win. Gerfried has been a big adopter of our omni-channel strategy. They are probably lagging us in terms of some of our omni-channel efforts, just because of scale you have to have the physical scale to really rollout omni-channel initiatives. So Gerfried is as appropriate as rolling out the initiatives as they're building marketplaces on that front. We're definitely seeing in Europe just like we see in the U.S. that building stores helps the overall business, helps the overall omni-channel business including the direct channel business. Those are learnings that are true in Europe just as they're true in the U.S. So Gerfried is appropriately watching what we're doing, taking, what makes sense for his business on where it is at today and again it's a much smaller business than ours in the U.S., but he is applying and plugging in things that he believes are right from a cultural perspective for the European marketplace. So I think those are some of the big important things that we're doing as kind of the -- again it's a way we work it is our business and that empowered nature gives people that accountability and they're running with it and I think they're just doing a great job in executing our plan there. Now again they're also benefiting from the reverse issues of foreign currency, right, so as you would guess for countries around the European Union who don't use the euro well it's pretty good opportunity to buy using the euro. So they're benefiting from that aspect of it. They're benefiting from I am sure we're going to see the, I am hopeful this summer, we're going to see the influx of tourist probably help some of the Blue Tomato locations in Europe on the flipside with both American and Chinese tourists going to Europe I think those should be positive things for us in Europe. Now we will have to anniversary those at some point too as the currency trend stabilize. So I think those are some of the key things. First, it's just a quality of the team, the quality execution and an opportunity as I think the leader in the marketplace to consolidate share in a highly fragmented marketplace. And learnings, on the learning side, yes, we're trying to learn from each other all the time, again that's part of Zumiez culture too, teaching and learning all the time. Now as you've heard in these like some of these examples Gerfried is, is appropriately steaming for us and where it makes sense for the European culture and his business and plugging things in where it makes sense for them, and they of course have people participating on our manager retreat for example this past May and they don't go do exactly what we do, they apply what's right for the European market, but they're choosing to apply, it is their choice and I think they're finding that beneficial for how they're thinking about training and developing their teams. We're certainly looking at what Gerfried is doing particularly where he has a very advanced internationalized Web site and saying, boy those are some things we can learn from potentially and how we might execute here in the U.S. in our Web business. So I think those are just a common parts of the way we work the fundamental to our value sets here at Zumiez and that's the way it's going to continue to work here I think and both in the sense of opportunities to learn more from each other and I think what we still perceive given the long view, is a tremendous opportunity in Europe.

That's very helpful and thank you, and can you just remind us again of the product mix and how it's differentiated there versus here?

Yes, they are of course like Zumiez micro-assorting or trying to assort by local marketplaces, so it is different than what we do here. If you look at their Web site, you will see that they have brands that in there that they are selling in Europe that we don’t sell much of it at this point here in the U.S. And I think that's a natural progression of trends the action sports industry merges here in the U.S. for instance to be more mature in the U.S. market than they are in Europe, so I think it's a natural cycle. So there will be some brands they're carrying in and that we don't carry here, there will also be some Europe brands that they're working with and that we will love to look at to see if they work here to come to this direction, but those differences too where the -- and again they're going to carry local European brands because that's what the consumer demands and what consumer wants and that's our job to deliver on it. So there are definitely product differences between our mix and their mix in Europe and they are absolutely different components of mix within the business in terms of category and departments which are probably just two that are unique to the European marketplace.

And the other thing I would add is that at this point they do not have the private label penetration that we do just given their scale they could not do that, but this [gain] to Rick's points earlier scenario where we really feel like we can combine our value and to the extent that customer has an appetite for it. We can mix that piece over there as well.

Yes but again those are decisions we leave to Gerfried and his team, they have to want buy our private label, it's our job to sell it into them and make sure it's going to work from them on their side. So I think that's very important and the other thing I would tell you that one thing Gerfried is recently decided to adopt is some of our merchant tools for his business, so again they don’t need the same level of merchant tools that we have here for the scale of their business today. So I think he is being very smart about how they're adapting what we do, we have some very advanced micro-assortment tools. He is taking beginning to adopt some of the basic elements of that into his business and that's another case where we're learning from each other and trying to improve the business.

Our next question comes from Lee Giordano with Sterne Agee, please proceed.

I apologize if it is already mentioned this, but Rick can you talk a little bit more about your big picture thoughts on the action sports lifestyle as a category? Any secular shifts within that segment and kind of your thoughts on how kids are perceiving action sports today? Thanks.

Great, I'm glad to do that Lee. And again -- it's clear that the idea of an action sports lifestyle is a significant player in the marketplace today. I'd tell you, we view things and we've always viewed things from a broader perspective here and it's allowed us to do not only action sports but fashion and art driven things, and music driven things. And so our job is all about allowing our kid to be an individual at a stronger, express themselves more strongly than the majority of teenagers do. That's always been the Zumiez job. And we've always traditionally done that to the length in action sports lifestyle retailer, and that's true today. But it's always given someone to move Lee, so yes we are -- but again in action sports lifestyle retailer, but we're going to cover a lot of ground in that. That means street wear, that means music, that means art, that means a broad perspective on this lifestyle and it does mean skateboarding. It doesn’t mean there's no snowboarding, if you go back and look what snowboarding meant to us 10 or 15 years ago, it's not as big today as it was then. But that shows our ability to move and continue to grow the business and meet the needs of this consumer. So I don’t know how others think about it, but that’s how we think about it. And we think about it particularly relative to kind of technology changes and how consumers use technology and that this is a consumer that wants to be different, wants to be unique, that is who we're serving as our customer base. That’s why we've always focused on young and emerging brands. It's what our sales people and our store managers represent, that own sense of style and fashion that they bring to the business that’s part of what the lifestyle is about. And we've just done it through the lens of skateboarding in particular and in the action sports world. But we've a lot of room to maneuver, I think I said on our previous calls and we feel confident that it’s a big area for us to maneuver just sort of this particular customer.

We have no additional questions. I would now turn the call back over to management for any closing remarks. Please proceed.

Thank you. Again I'll just wrap up with a thank you to everyone for your interest in Zumiez, your continued interest in Zumiez and we will look forward to talking with you here over the next few weeks and of course as we wrap up Q2. Thank you everybody and best of luck to all of you.

This concludes today's conference. You may now disconnect. Have a great day everyone.