Richard Miles Brooks - CEO & Director Christopher Codington Work - CFO

Betty Chen - Mizuho Securities USA Jeff Van Sinderen - B. Riley & Company Neely Tamminga - Piper Jaffray Jessica Schmidt - KeyBanc Capital Markets Richard Jaffe - Stifel Nicolaus & Company, Inc. Jonathan Komp - Robert W. Baird & Co., Inc. Pamela Quintiliano - Suntrust Robinson Humphrey Howard Tubin - Guggenheim Securities LLC

Good afternoon, ladies and gentlemen and welcome to the Zumiez, Inc. First Quarter 2016 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 or factors that could cause actual results to differ materially from the information that will be discussed, is available in Zumiez' filing with the SEC. At this time, I'll turn the call over to Rick Brooks, Chief Executive Officer. Please go ahead, sir.

Thank you and welcome, everyone. Joining me on today’s call is Chris Work, our Chief Financial Officer. I'll start today's call with a few brief remarks regarding our first quarter performance. I'll then give an update on our broader strategy and I'll hand the call over to Chris, who will take you through the numbers. After that, we'll open the call to your questions. 2016 has started off more challenging than we’d like with continued softness across retail sector impacting our top line. Net sales for the quarter came in at $173 million or about 2.6% lower than the first quarter of last year, led by negative same-store sales comp of 7.5%. In light of continued headwinds, we remain disciplined in our approach to fund projects we see as key to our long-term success, while continuing to manage the bottom line. During the first quarter, we generated net loss of $0.08 per diluted share, slightly better than where we thought we'd be when we released April sales, a month ago, but nevertheless not the results we would like to see. As we head into the second quarter, we see many of these negative top line trends persisting. Net sales for the four weeks ended May 28, 2016 came in at $50 million, down from $51.5 million during the four weeks ended May 30, 2015. May same-store sales comp came in at a negative 7.6% and were negatively impacted by the Memorial Day shift. While these near-term results are disappointing, we remain, as always, focused on the long-term management of the business. We are cognizant that our ability to deliver value for our customers and our shareholders hinges upon our successful execution over the long haul. With this in mind, we are consistently investing in a platform that we believe will sustain the business during these cyclical challenges and provide significant tailwinds when the customer returns to buy. The roll out of our new customer engagement suite is underway in North America. While the full implementation of this interface won't be complete until 2017, we're excited about how this investment will allow us to better serve our customers. This new leading-edge customer engagement suite will better integrate all of our sales channels which we can use to help elevate both internal visibility and most importantly the customer experience. The investments we’re making in our omni-channel infrastructure will give us further power and flexibility to address localized trends in a unique and authentic manner through micro level assortment planning, optimize each touch point with the consumer through enhanced in-store telecommunications infrastructure, a faster and more stable web platform and robust omni-channel functionality, develop and enhance an enduring relationship with our customers through our stash loyalty program, and enable our best-in-class sales teams to serve their local customers with nearly 100% localized in-store fulfillment of online orders. From the standpoint of physical store expansion, we're being thoughtful and calculative in our approach to opening new stores in 2016, in light of depressed consumer traffic over the last 12 months. While we still believe there is a long-term opportunity for expanding our global store footprint, we must acknowledge near-term headwinds, particularly as it relates to our North American business. 2016, we now plan to open 22 new stores in North America compared to our original estimate of 27, which represents approximately 40% of the new store growth we executed in 2015. As the rate of new store growth slows in 2016, our focus shifts towards optimizing existing physical store footprint and leveraging our integrated structural and technological platform to maximize the impact of each store within this geographic region. Where new stores are planned, we’re staying consistent with the strategy we’ve had all along. We do not want to open one more store than is necessary to serve the customer within each market that we operate in and deliver optimal shareholder return. In Europe, we’re still projecting seven new stores in 2016, up from six in the prior year. We remain optimistic about our potential in this region as we grow our unique culture and perspective into this fragmented marketplace. Before I hand the call over to Chris, I want to underscore that we continue to believe the fundamentals of our business remain intact. During this challenging period, with lackluster mall traffic, absent a clear and compelling fashion driver or reason for a customer to come out and buy, we continue to reinforce our commitment to providing a highly differentiated experience through a seamless authentic perspective on serving our customers. In early May, we again held our annual Store Managers Retreat. It’s a great event that always sends our retail managers back to their stores, providing their employees with renewed energy and enthusiasm for the Zumiez brand and cultural experience. Those intense few days are designed to help these individuals positively impact their teams and their locations on a daily basis. Our managers understand that they are stewards of our brand and culture. And this retreat helps feed the passion they have for Zumiez as well as the lifestyle we symbolize in a way that has long lasting and meaningful effects on our overall business. We left the event energized and convinced the strength and commitment of our team. As our team and the considerable progress we’ve made on our omni-channel initiatives, it will fortify our long-term success enabling us to capitalize our renewed momentum once the upside of the cycle returns. With that, I'll hand the call over to Chris for his review of the financials. Chris?

Thank you. Good afternoon everyone. Let me take a moment to briefly review the results of our first quarter and I'll outline our guidance for the second quarter and how we're thinking about fiscal 2016. Then, I'll hand the call over for questions. First quarter net sales declined $4.6 million or 2.6% to $173.0 million from $177.6 million a year-ago, led by a declining consolidated comparable sales of 7.5% in the 2016 quarter, offset by the net addition of 47 new stores over the last year. While we did see some pockets of strength within certain product classifications, the comparable sales decrease was spread across all major departments with Hardgoods, Junior's, Accessories, Men's and Footwear, all down for the quarter. These declines were fueled primarily by lower transaction volume, slightly offset by an increase in dollars per transaction. Dollars per transaction in the quarter were driven by an increase in units per transaction offset by a modest decrease in average unit retail. In terms of regional results, North America sales decreased $4.8 million or 3% to $156.4 million and European sales increased $0.1 million or 0.7% to $16.6 million. During the first quarter, we added five new stores in North America and one in Europe. Total store count as in April 30, 2016 was 663, including 639 in North America and 24 in Europe. Gross profit in the first quarter was $50 million, a decrease of $6.5 million or 11.6% compared to the first quarter of 2015. Gross margin was 28.9% in the quarter, down 290 basis points compared to 31.8% a year-ago. The year-over-year decline was largely the result of the deleveraging of our occupancy costs from lower sales worth 160 basis points, a decrease in product margins to clear inventory was 50 basis points, and higher outbound shipping expenses for custom orders as a percent of sales were 30 basis points. First quarter SG&A expenses totaled $53.9 million or 31.2% of net sales compared to $52.4 million or 29.5% of net sales in the first quarter of last year. This decline is primarily related to deleveraging of our store operating expenses worth 160 basis points and further deleverage of our corporate costs were 50 basis points offset by a 60 basis point decrease related to prior year expenses associated with the acquisition of Blue Tomato. Operating loss in the first quarter of 2016 was $3.9 million compared with operating income of $4.1 million from the first quarter of 2015. First quarter net loss was $2.1 million or $0.08 per diluted share, compared to net income of $2.8 million or $0.09 per diluted share for the first quarter of 2015. Our net loss in Q1 came in towards the favorable end of our guidance range and better than we were anticipating at the time of our April sales release. This was due primarily to several quarterly accounting related items impacting the valuation of our liability and the timing of certain expenses. Turning to the balance sheet, cash and current marketable securities totaled $62.1 million as of April 30, 2016, down from $75.6 million as of January 30, 2016. This decline was driven primarily by $12.2 million in stock repurchases activity and $4.5 million in capital expenditures, partially offset by $3.1 million in cash flow from operations. During the quarter, we repurchased approximately 612,000 shares on the open market for a total of $11.5 million. As of April 30, 2016 we had $43.3 million remaining under our share repurchase authorization. As of April 30, 2016, we had $113 million in inventory, up 8.5% from this time last year. The change is primarily related to an increase in our global store count with inventory per square foot increasing by only 1%. Turning to our May sales results, total net sales for the four-week period ended May 28, 2016 decreased 2.9% to $50 million compared to $51.5 million for the four-week period ended May 30, 2015. Comparable sales declined 7.6% during the four-week period ended May 28, 2016 compared to comparable sales decrease of 2.2% for the four-week period ended May 30, 2015. As Rick previously mentioned, May sales were negatively impacted by the Memorial Day shift. We continue to see lower transaction volume during May and dollars per transaction in the period were down. Dollars per transaction were down driven by a decrease in average unit retail, partially offset by an increase in units per transaction. During the four weeks ended May 28, 2016, Hardgoods, Footwear, Junior's, Accessories and Men's posted negative comps. Looking at guidance for the second quarter, once again I'll start off by reminding everyone that formulating our guidance involves some inherent uncertainty and complexity in estimating sales, product margin, and earnings growth given the variety of internal and external factors that impact our performance. With that in mind, in light of the continued headwinds in the retail sector, we're currently planning second quarter comparable sales results in the range of negative 6% to negative 8% with total sales in the range of $172 million to $176 million. We about gross margins will decrease 200 to 250 basis points compared to the second quarter of 2015, due primarily to deleveraging of our store occupancy costs. We anticipate SG&A will increase 300 to 350 basis points from the second quarter of 2015, driven by deleverage of our fixed cost infrastructure led by store operating costs and investments in the business that we believe are important to our long-term strategy. Consolidated operating margins are expected to be negative low single digits with diluted earnings per share between negative $0.09 and negative $0.13. Before I wrap up, I’d like to give a few thoughts on the remainder of 2016. 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 tend to be significantly smaller. Heading into the second quarter, we continue to experience the same retail headwinds that have pressured sales over the last 12 months and consumer traffic continues to be light due to the lack of a compelling fashion trend. Overall, we believe we're well positioned to perform better during the stronger piece of back-to-school on holiday when our customer has a reason to come out and shop. However, we believe there may be pressure in the short-term related to continued consolidation in the retail sector that could negatively impact our results. Accordingly, we expect comparable sales to be softer in the second quarter as our guidance indicates and be stronger as we move into the later months of 2016. For the full-year, we anticipate the product margins will improve from 2015 with the largest year-over-year opportunity in Q4. As a reminder, 2015 product margins were pressured as we move through the year as a result of the decline in top line performance. From a cost perspective, we’re still planning SG&A to grow at a greater rate than in 2015, as we continue to absorb minimum wage increases across the country and invest behind what we believe our long-term growth drivers, including our customer engagement suite, continued investments in the Zumiez team, and other strategic initiatives. Our 2016 plan anticipates opening 29 new stores including six in Canada and seven in Europe. As Rick mentioned, this is a five store decline from our thinking this past March. New store openings will occur with a similar cadence to what we've done historically with two thirds of these openings occurring ahead of the back-to-school season. Full year capital expenditures are now expected to be between $24 million and $26 million, with the majority of our capital spend dedicated to new store openings and planned remodels. We anticipate depreciation and amortization will be approximately $29 million, slightly below the prior year. We are planning our business assuming an annual effective tax rate of approximately 37.5% and lastly we are currently projecting our diluted outstanding share count for the full-year to be approximately 25 million shares excluding the effect of any additional share repurchases made during the year, which would further reduce our share count. And what that operator, we would like to open the call up for questions.

Thank you. [Operator Instructions] And our first question comes from Betty Chen with Mizuho Securities. Your line is open.

Oh, thank you. Good afternoon everyone. I was wondering if you can talk a little bit about, Rick, some of the long-term investments and sort of when can we expect some of the customer engagement suite for example, when it goes live into 2017 to kind of help the business? And what are some of the efficiencies that you sort of alluded to in the prepared remarks on the initial release? Thanks.

Hi. Thank you, Betty. So, let me again shape your question. I think it’s a good question and let me shape it a little bit. To be clear, I always like to put our investments on over the long-term and I think we’ve made sort of like I think about this as a last five or six years of investing and retooling our business for the modern consumer world. So I remind you that we’ve really been focusing on for really since the beginning of 2009, our ability to micro assort with a whole new software suite there that we’ve been enhancing and customizing for our consumer base in the omni-channel world over the last five and six years. We also had Zumiez stash was a part of that evolution, in the process of thinking about how we have to better serve customers rewards. And so, you know we’re in year three I think about now maybe 3.5 years into it now. One of the big things that we’ve been looking for over that timeframe was how to provide the connecting piece for consumers between all channels. So when we talk of a new customer engagement suite, that is really the piece we’ve talked about and we’ve looked in those early years, just couldn’t find anything that lined up with what our requirements were for doing that. But then over the last year, we found a good partner, a really great partner I think for doing this build on a new type of platform that we really think about as driving a commerce engine approach where all sales channels can plug into it as we develop the tool over time. So we're -- we outside of our ongoing updates, I guess, I'd like to kind of just be clear about that, that we expect a new as we have to update our Web platforms and think that over time. I think most of our major software investments of scale are behind this now, more at what we’re going to looking at is how do we leverage these platforms now across our global operations over the next few years after we complete the roll out to be clear in the U.S, and then you will see Canada is next and then we are working with our Blue Tomato team on how we can leverage these investments into Europe over the succeeding years over the next three to five years. So that gives a bit of sense, Betty, for how we’re thinking about those investments. We're out in the cycle time, the timing as Chris said in the comments, the timing of the roll out engagements are just going to be into 2017. That’s the full roll out. We of course will not be doing roll outs during peak windows of operations. As you might imagine we’re progressing now, we'll progress up to back-to-school, we will stop and we will pick up the roll out post back-to-school and then into post holiday time periods. So, I think the investments you’re going to see, you have to think about this on a integrated basis relative to all the other changes we’ve been making in the business around localization of our business ability to sell and linked channels more quickly, so there’ll definitely be some efficiencies in-store operations from the tools, but more importantly we’re hoping that we can drive a better sales result for customers, Betty, so we’re not going to put a lot of quantification around those, we believe we do have some hard cost quantification around that relative to store efficiencies. But really the most important thing as we said in our comments is about the quality of our ability to serve customers and connect all channels together in a seamless way at every touch point for helping customers. So that's really the goal, full roll out into -- as we move through 2017.

The only other thing I would add to that Betty is just looking at our global footprint. Rick talked a lot about the customer engagement suite and how we will look at leveraging those tools globally, but even our continued investment in Europe and growing our brand internationally, we think is a really competitive advantage for us over the long-term and as we think about investments and we think about what’s right for the long-term, we believe it’s a global player that wins and that can serve our branded partners the best, and ultimately bring the best experience to our customers. So, as we think about this investment we talked about this before, Europe is not operating at the same profit level that the U.S is and that's something that we're clearly working on as we grow that business. But as we’ve said in previous calls, we feel good about the direction of where Europe's at, and we feel good about the growth that we're having in Europe. So that will continue to weigh on the business, but it's not something that even in the short-term we decided to pull back on.

Okay. Thank you. If I could sneak in two quick ones, Rick, you guys have always been very prudent and proactive in thinking about the store fleet, and by reducing the North American plan for this year, I mean, America's U.S plan? If the difficult environment should prevail and continue, would you also kind of continue to reduce the plan for next fiscal year or what would you need to see to kind of reevaluate 2017? My second question for Chris is when we think about the second quarter gross margin outlook, should we assume the bulk of that is a deleverage for occupancy and that product margin could decrease in a similar magnitude as first quarter? Thanks.

All right. I will be happy to pick up my part of that question relative to our thinking on the store fleet in the United States, Betty. And we’re not going to comment directly on it at this point, other than I will tell you is that we’ve complete flexibility as we look into next year. So, business will dictate the right thing to do and you’re right we've always been prudent in our thinking about that in our business. So, at this point to be clear, we’ve complete flexibility on what we can choose to do or not do next year.

Yes and to your second question around second quarter gross margin and the decline there, that the vast majority of that is deleverage of occupancy. So, from a product margin perspective we're actually planning that within this guidance at a better rate than what first quarter was. So we said first quarter was down 50 basis point. We would expect product margin to be down less than that in our second quarter guidance. So, you can tell by that the majority of our decline is in deleveraging of our occupancy expense.

Okay, great. Thank you so much. Best of luck.

Thank you.

Thank you. And our next question comes from Jeff Van Sinderen with B. Riley. Your line is open.

Good afternoon. I wonder Rick, may be you can just touch on our how much of the declines you're seeing in traffic and comps? Do you attribute to the lack of a major fashion trend or fashion driver and how much of the shift toward ECOG is maybe toward e-com -- the millennials not spending quite as much on apparel, maybe weather is a little bit of factor. How do you think about that whole thing and all those forces at work and how much each one is contributing?

Sure. I mean, those are very complicated and interrelated questions, Jeff. I guess I'll start with my comments in response to your question and saying that we fundamentally believe that our brand position and cultural strength are really good. And so that’s why when we look at our business and we look at our core consumer within the business, what they're buying, generally been seen over the last 12 months in this difficult cycle increases in dollars per trans and it's been really a transaction challenge for us. You haven't seen a lot of product margin erosion in our business outside of what we need to react to in terms of clearance of targeted product that’s -- it hasn’t been our sell-through rates. So, in other words, I think we’ve held up strong in our position, our overall brand position on our consumer position at a full price, full margin retailer serving a customer who wants unique distinctive product. So I think brand and cultural strength we just -- we always do every spring a culture survey in the organization. I can tell you we -- we’re at near all time highs on the cultural strength within the Company. So I feel very good, and as we’ve said in the comments on the fundamentals of our business in terms of brand strength and cultural strength has been intact. So for me this comes back to, are we doing and are we pushing enough hard -- hard enough on the areas are going to drive our business forward. And for us, the things have always been drivers of growth, have been emerging in growing brands, key items in fashion cycles. So, I think that is fundamentally where our issue is and I think you’ve seen a lot of other really great retailers that are primarily again full price for margin retailers with the same challenges that we have. And so, the first thing we can do is grew up our brand positioning and so we -- do not harm practice on that front of the business, We intend to maintain brand strength, be focused on our core consumer and we're doing everything we can about pushing brands forward, about testing on fashion cycles and trying to use our marketing tactic just to try to drive more volume at full price full margin. So that’s kind of our thinking Jeff on where we’re at as it relates traffic versus how they’re spinning other things. I read articles all different directions that would talk about where all the consumers are adjusting and changing our lives. So I think it's an ongoing thing. And I’m not sure I’m convinced in the marketplace that they are spending more in other areas, because they’re more attractive. I think it could be the spinning more in other areas because we have nothing compelling from a fashion or trend perspective to offer. And I think that will bring volume and traffic in dollars back into the segment when there is compelling brands, items, or fashion cycles for us to drive. And I feel very good about how our position, again as we said in the comments about how we position in terms of investments we made to unleash the power of our sales teams across all channels, where that be our digital sales teams or our in-store sales teams. We will be able to maximize trend cycles and we will be able to maximize quickly as things turn.

Okay. All good points and if I could just squeeze in one more quick one. This may not be that quick, but on sort of the e-com omni-channel topic, just wondering if there's anything else you can give us there terms of trends you’re seeing. I know you don't like to break that out, but any color would be helpful.

Yes, I will give you -- I would tell you, how I think about, I mean as Chris said, Q1 and Q2 in the scheme of our overall performance of the year aren't very important quarters. There really Q2 is going to be about set up to back-to-school. So let's really think about this, your question Jeff, relative to really how we’re thinking about back-to-school as we’re approaching that window very quickly. So, I guess the things I will tell you that make me feel encouraged about our business is really the last few months of strength in our Men's apparel business. As you know this is our strongest, our largest I should say, department in our business. And the strength we’ve been seeing as our -- its really Men's apparel has been our best, or the last two months have been our best performing department. And the strength within that is being driven by brands and it’s a mix of emerging brands and established brands. Now for me that’s a really good sign. Men's, partly because it's our biggest part of our business in terms of per mix of our business in the Men's department. And as you’ve heard us say over the last couple of years we've seen the penetration of our brands within the top 10 and 20 brands, blue shared as smaller brands. So I'm hopeful that we may be seeing the emergence of a new brand cycle, and that I think we're very well positioned in this regard. We have some exclusivity around a number of these emerging brands. So I'm optimistic about that and I'm hoping that we continue to grow that perspective we had towards back-to-school. Obviously, as Chris said in the comments, we’ve easier compares looking forward to the back half of the year in both the sense of sales and margin compares particularly in fourth quarter. So -- and what that really reflect again is the lack of trend that we moved off from the peak cycles in the first part, we’re really carry into the first part of '15 and then fell apart in the back part of '15. We also have a few items, Jeff, and I would say key items in accessories that are working for us and working for us well. The challenges that we’ve in accessories, we’ve another big category that has been -- I think it was going to be a headwinds for us, so we may see some offsets to those key items in accessories. So I'm hopeful that we’re going to be able to grow these emerging brands and some of the established brands we’ve we can continue to grow that position. On men's as well as I'm hoping we can grow the business on the key accessories during our back-to-school window. Then I said earlier, we are confident in looking and testing around fashion cycles also and if something were to emerge there, I think we're well positioned to take advantage of any trends and to respond very quickly to anything we will see emerge on that front. Now the last thing I would say for back-to-school is what Chris mentioned in his comments, is that we do anticipate that we're going to have to deal with the liquidation sales by our -- some of our bankrupt competitors. And I think that could be a challenge for us. The degree of the significance of that challenge will of course be based upon the amount of overlap we have with the stores. There have been some number of stores that are closed and the degree of overlap we’ve at those stores. So that would be the only other thing I think I would add to our macro thinking Jeff about the back-to-school cycle.

Okay. All very helpful. Thanks and best of luck.

Thank you.

Thank you. And our next question comes from Neely Tamminga with Piper Jaffray. Your line is open.

Thank you. Good afternoon. Rick, just want to continue on that theme a little bit on the confidence into back half, obviously you guys are always testing micro trends and they could be going up potentially the bigger trends. We are wondering specifically around kind of catalyst categories like shorts. Obviously, you are not necessarily kind of a denim category, and denim it seems to be the only thing that actually worked positively across the whole space. So, with cooler times etcetera, but it's going to get really warm and really warm the summer and so we just want to know how well you guys historically do with like a shorts business, is that something your customer really looks to you for cannot be meaningful even on early back-to-school as a catalyst to be back in the store. And then I just have another follow-up housekeeping question. Thanks.

Sure, Neely. I’m glad to address that for you. As you -- if you -- as we look, I will tell you that through those the first quarter, spring categories weren't very good for us in general across both men's and women's. Now that being said, we were not that promotional on our short business, on our seasonal categories, because we tend to have a pretty good short business all the way through August and historically July and August have been some of our biggest short months for selling in our business. So, this is the case where again as we plan our business moving forward, we don't really panic around what may be even a soft spring because we're planning for the longer term, we’re looking at where we think our flexibility is in those categories, on our open to buy planning. So our biggest months for shorts tends to be the latter months of the year as we head towards end of this -- of the summer season. So we can sell a lot of shorts in those seasons. We also will sell a lot of denim to our customer in the back-to-school season. We have seen some strengthened denim. I think you'll see us launch -- now that’s been offset by the casual pant trend to be clear in our world. The follow-up of some of the trend driven things from the prior year in casual pants, we will be -- we buy most of that I think here as we get over in the next couple of months in terms of the big headwinds in casual pants. But denim has been good for us. You'll see us experimenting, expanding our selection and finishes and washes in denim here at back-to-school, but generally denim has been positive, just been offset by the peak trends we had in prior years relative to casual pants.

In the context of potentially weeding out some competitors I think in the space too where they might have actually been a pretty decent denim destination to for kind of active lifestyle. Is that just something that you're really be able to partner with some of your third-party brands or is something that Zumiez tends to kind of do more in a private-label way?

I think again we look at that literally, Neely, a store-by-store basis as who sells, this is the advantage of being a -- have been I think incredibly strong capabilities, we have technology -- from a technology perspective and a skilled buyer perspective. We literally look at that question on a store-by-store basis as to which stores sell branded denim best, which stores serve -- sell private-label denim best, what the right mix is at every location, that’s the level of detail we’re planning at. So if there is an opportunity there, our buyers are positioned to take advantage there. We are clearly partnering with our brands and if I had to have them supported of those efforts, as well as position our private-label at the same time with the flexibility again by really detailed assortment planning those major categories by season. So for us as we look at it, you really have to think about it, down to individual store level what’s going to work, how do we think about it in the trade area, which brands sell best and then merchandising and assorting each store, in each location to the demand in the customer base.

Some exciting scientific analytics coming around the corner. We are excited about that. One thing though from a housekeeping perspective, thank you Rick. Chris, maybe you can us understand the Memorial Day shift, either conceptualize what you think the impact is or more importantly if you stack Memorial Day on top of Memorial Day, did you see like others have been saying at least some sort of sequential improvement versus beginning of months trend? Thank you.

Yes. I think that the best way for us to look at is kind of looking at how we reported May and then followed up with guidance from a standpoint of, as we're looking at this business, obviously as we’ve indicated already in our prepared remarks and some of our answers to our questions, the compares are getting easier as we move through the quarter. However, we are -- while we’re optimistic about some of the things that are happening in the business, we’ve got to prove out what we’re doing and as we look at kind of the guidance range and how we’re looking at -- how we look to set the guidance, it really is more in tune with what our trend line has been, which would tell me that that the Memorial Day shift is worth a 150 to 200 basis points on the comp there. And so as we look to move forward, we got to prove that we can be fit, but that’s been basically our run rate and we’re going to -- we are results based business. It's going to, to shoot to be that and while more to come in the coming months.

Thank you so much guys. Best wishes out there.

Thanks, Neely.

Thank you. And our next question comes from Jessica Schmidt with KeyBanc Capital Markets. Your line is open.

Hi. Thanks for taking my question. Can you talk about some of the fashion trends that you’re seeing now and I guess is there something you’re seeing are changing in the product assortment in the back half of the year that can drive an improvement? I guess, I’m just trying to understand if second half results could get better without assuming the environment gets better?

So, again I will kind of hearken back to some comments earlier Jessica. I would tell you where we feel more encouraged about brand trends in terms of emerging brands and the growth in emerging and growth brands. For us and that’s a more powerful positioning for us than then fashion place, because every retailer in the world can play a fashion trend. We always have to be at the leading edge of it. We believe that most times if its right for our customer, we will be at the leading edge of a fashion cycle for pretty much everyone complain a fashion trend. So I feel more strongly about the fact that I think we see some exciting opportunities with some emerging and growing brands on our site where we had some exclusivity around those brands in the marketplace. So that's why I put a stronger emphasis as we think about our business moving forward, and particularly in the back-to-school, as well as I said there's a few key items, I think that could be really hopeful -- helpful to us that we could be -- we could see growth. I don’t know whether they’re going to grow fast enough to offset a drag in another key accessory category. So I'm more optimistic in those two fronts than I’m around fashion cycle to this point. Yes, we’re going to play the denim fashion cycles, we’re going to play the cycles in shorts, and we’re going to play it in casual pants, jackets, all those things that we can do on those fronts. But there's nothing particularly strong that anyone else can do at the same time at this point in those areas. So I'm more optimistic about it. We always talk about those three areas that can drive our sales, which I think is an advantage to our business as opposed to pure fashion retailer. Emerging and growing brands, key hot items, and then fashion cycle. So I'm optimistic about those first two that I’m the latter at this point.

Great. Thank you.

Thank you. And our next question comes from Richard Jaffe with Stifel. Your line is open.

Very much guys in the exciting news about the brands. Obviously, a little newness or a lot of newness would be great relief. Just a question on what’s been a interesting effort which is the in-store fulfillment for ecommerce and wondering how that’s playing to both the cost equation, are you saving money, getting things to consumers faster and more cheaply and how the logistics are working for the in-store people.

Okay, great. Richard, and thanks for the question. I mean this is one of those areas where I think we’re really leading the way in terms of our thinking about serving customers and improving our brand position in an omni-channel world. So let me talk about it from the brand perspective and I will ask Chris to talk about it from how we’re thinking about it from a financial impact and how we’re modeling that within the business on our side. So let me talk from it about the brand perspective and costs and benefits and I start Richard by saying I think just as you is intimated in your question, customers have very high expectations today at all such points in the omni-channel world and that includes as it relates to the digital experience and I think that’s been driven a lot by the major player in the marketplace. So we have to work very hard to meet those expectations at every consumer touch point. So for us, localized fulfillment is most importantly about delivering a great brand experience and speed is definitely an important component to that for our customer who wants to buy unique cool stuff, which is what we're trying to do for them, allow them their chance to individualize who they are through what they where and their connection and attachment to Zumiez in that regard. So speed is important and our ability to serve them. So as we’ve talked about how we -- what’s important to our customer, we really want to be in position to be able to say that our long-term goal is to make sure that within a trade area that we have the ability to have virtually every piece of product we’re selling within that trade available same day or next day for that customer. Now we will define same day many ways including allowing customers to shop their local stores digitally which they can do on our site today. But it also means that local fulfillment then have to be dramatically faster than it was when we're fulfilling out of a centralized fulfillment center. I can tell you that we have achieved that objective with significantly improved speed to our customer through localized fulfillment. In addition to it, we are really working hard to connect that fulfillment experience, to connect our customers and our store employees, our local store employees together through that fulfillment process. I won't share about all the things we’re doing in that front. What we’re going to improve the brand experience, which is the real goal for the long run. Faster everywhere with a better connection and the way we’ve characterize this for our store team, remember we’re -- you know our culture well for being above this, we’re about hiring teams throughout the organization to serve their customers to own their job and what they’re accountable for in the Zumiez environment. So we’ve been able to say to our store teams, what we’re doing for you is we’re giving you back the power to serve your customers in your local market. We are backing that with the strength of our f our ability to micro and I hope you start to see how the dots are getting connected here and what we’re going to see through learning this how we change our order rather in algorithms which we will periodically adjust to try to maximize the brand experience as well as improve the cost and labor utilization within our business. There is going to be hopefully a virtuous feedback loop, that is going to be able to do all those things simultaneously, improve speed, improve brand experience, connect our local sales team to our local customers while improving labor utilization rates and reducing costs across the board. That’s going to take -- you have to think about this over a period of years in the cycle Richard, but those are all the things we’re going for about -- we believe a better brand experience is about connecting our sales to our local sales team together with our local customers and all the facets where this digital or physical world. Now these are also going to be the key ingredients of a long-term that are going to help us think about -- again on the long-term how we optimize our store portfolio within a trade area. Getting back to all these fundamental agreements of micro-assortment our ability through technology to serve customers seamlessly and solve all problems from any touch point to do localized fulfillment improving the brand experience across these touch points to integrate stash into these things across all these touch points, and then improve through learning again, improve our messaging to our consumer through more personalized and localized messaging. So that’s the perspective of what we’re trying to achieve from a brand experience. And again I want to connect the dots with last five or six years, because teams have worked really, really hard to get us to this position and I can tell you this is one of the reasons I think our managers are so excited and were so energized coming out of the managers' retreat, because they -- we’ve been talking about this for a long time, they’re seeing it all come to fruition. So I think that’s been very energizing for our managers, because they want to own their local customers and I think we're very unique in this. I would tell you that I think this is probably more important for us as a retailer because of the nature of our business and how we can -- how local assortments do vary across our business versus a lot of other retailers. So I think this is probably even more essential to our business than maybe for other team retailers, but it is about providing unique differentiated brand experiences, connecting customers to you, local customers to our local -- to our local shops and through our digital channels. So with that, I will let Chris talk a bit more about the -- how we’re thinking about the overall implications for managers. Chris.

Sure. Sure from a cost side, I will sort of reiterate the thoughts we had coming into the year which we view this as a breakeven proposition when comparing 2015 cost structure, 2016 with really the costs of the Kansas fulfillment center that we operated through the end of January last year going away and a higher cost structure associated was really two areas and its store labor and our shipping costs. And the reasons behind are obviously we're careful about where we have to increase labor. We do feel like overall this can be in low peak or non-peak periods. We have the ability to really leverage our existing store labor. It's some of the lower volume centers in which there is opportunity to utilize that labor during their non-peak hours. But in high peak windows back-to-school and holiday, we will have to insert some labor dollars into the plan to be able to fulfill the customer orders. And secondly, on the shipping side, obviously, as you decentralize fulfillment and you have most orders of around two units online, you will have more split shipments within your chain. So as we're looking at this in 2016, we're looking at this relatively breakeven from a cost structure perspective albeit, slightly different geography on the income statement and then as we move forward it touches on all other points that Rick got to, which are we're really going to be working hard to harvest the efficiency of this model and it ties back to those things that Rick just mentioned, assortment planning, algorithm planning, our ability to optimize store labor and lastly there hopefully is a benefit over the long-term of increased margin being able to harvest slow moving product in certain locations or regions as we fully optimize this model. So, again through three months we feel good about the changes we made at the end of '15 and we will continue to update you guys as we move forward.

Thank you and as Rick pointed out this is a long-term project with a giant circle to be closed. I get it and I wish you luck. Thank you.

Thank you.

Thank you. And our next question comes from Jonathan Komp with Robert W Baird. Your line is open.

Yes. Hi, Rick. If I could maybe follow-up on some of the comments, certainly seems like if I could characterize it as green shoots that you’ve seen on the brand and merchandise side recently? And maybe asking a little different context and wondering as you look back over the last 12 or 14 months where you’ve negative trends. Have you seen kind of similar positive early signs on some of the brand and merchandising front throughout that entire time period as they maybe just didn’t pan out or is what you’re seeing today a little bit different than what you’ve seen over the last year? Any context on that front?

Yes, certainly Jonathan. I will tell you that we launched a lot of new brands every year in our business and we expect historically that those brands -- brand launches right, most of them don't necessarily make it to be bigger brands in our business. We continue to sustain it for a lot, but again the brand partner have continue to evolve too. So, the brands you’re seeing that we would say we’re seeing emerge were more optimistic about our position today our brands we launched a few years ago in the process, so again you have to think about this as the pipeline coming through, how do we build brands, how do we work with our partners on building brands, so yes I could tell you that our last 12 or 14 months is some of the same brands have been growing. The issue is scale. And so as they grow, they could be a more important part of our business as -- mature is a wrong word. As they emerge -- as they become emerge from being an emerging brand to being a growth brand in our business. So they’re the same brands that I felt good about over the last few years, we’re just working with them at a different scale level now. In other words, they’re making a bigger impact on the business. So that's the way I kind of characterize it for you. That’s the difference. They’ve been in the same groups out there and hopefully the brands we’re launching this year will be brands we’re going to continue to see evolve in the next two and three years, but there is a process to this. We don't do -- no one is -- no new brand at Zumiez, virtually no new brand at Zumiez starts in all stores. It usually starts in a small group of stores where the brand is relevant in local markets and we still have brands that are great brands that we only carry in a limited set of stores in a geographic region. And then what we do is we listen to our teams, we listen to the response from the marketplace, and we will expand the brand as necessary. We don’t want to push it beyond where it should be, because that’s a negative for our brand partner. We don't want to see a brand with equity markdown out in the marketplace. So we’re very cautious about working at the right pace for each brand based on their development as a brand. So again, you should think about that the brands that we're feeling better about that having a bigger impact on our business is, brands we’ve been working with now for a few years. And we're at that point where again through cycles where we saw deconcentration in our top 10 and top 20 brands. In the smaller brands, we tend to go through these cycles where our -- optimistically for us, is what we’re hoping, we will see some reconcentration as volumes can dense into back to the top 10 and these brands grow to be a bigger, more important part of our business. We’ve great exclusivity around emerging brands. So those are the real strength of our model. We are not just depend upon fashion cycles. We can play fashion cycles well and benefit from them, but we’re also very tied to supporting young brands and helping young brands grow, as well as being able to -- we're optimistic then around key items that are still legitimately aligned with our brand position in the marketplace to be able to run those two. So, I think that's historically what’s made our model so dynamic and so strong is that flexibility around brands, key items, as well as fashion cycles.

Okay. That’s very helpful. And then one more from me just on the SG&A front for Chris. Certainly it sounds like the first half sales a little disappointing to -- relative to prior expectations and yet the full year SG&A spend growth really sounds like it's unchanged, even though maybe you would have a little bit lower incentive compensation, and a few puts and takes like that. So, can you maybe just talk about how much flexibility, if any, on the discretionary side for the year you have on the SG&A, and if there is been other offsets that have gone against you like on the wage front, any perspective there?

Yes, yes. No problem. So from an SG&A perspective, our thoughts from March to now are still the same, that we still are looking at SG&A as growing ahead of our 2015 growth rate. That being said, it has come down slightly and we continue to manage the business in light of the headwinds we’ve on the top line. Now we haven't cut some of our growth initiatives. We haven't cut things like our commerce engine that led us into 2015, talking about it being a little more of an investment year. But we continue to manage, it’s the best we can with the results of the business, managing the top line with the bottom line. And in regards to where our opportunities are, this is a business where we still -- our business is tied to labor and occupancy and some of those things. We do not have a lot of what I would call fat in the organization to cut. That being said, we're being very careful about how we plan people, how we plan ours and the storefront if we’re seeing declines like this, we’re being careful with our home office management spending and really looking at things like -- be it marketing or other engines where we can look at those areas without impacting the long-term brand impact of touching the customer. And you did touch on incentives, which is something that we always look at being a Company that is hinged on incentive comp. At this point of time, we've not made -- we’re not planning full incentives for 2016, but haven't made the cut that maybe needed out there, if these results were to persist, so we have the opportunity there. But we will continue to manage those. And then lastly, I’d -- you touched on at the minimum wage increases and what's recently been announced with FLSA. Those are all -- those are things that are impacting this business, and the results of those are in line right now through three months with how we plan the business, but they are significant investments that we and all other retailers are going to be forced to deal with as the cost of labor continues to increase.

Okay. Thank you very much.

Thank you. And our next question comes from Pam Quintiliano with Suntrust. Your line is open.

Great. Thanks so much for taking my questions, guys, and for all the detail you've been providing on the call. So, I just had a few for you. You are among -- the only one I can think of this earnings season who hasn't blamed weather, because that's the big theme, right. So, anything on the regional performance that we should be aware of would be very helpful, particularly, as it relates to those traffic trends that we’ve seen, obviously it was a big detriment this quarter. And then, yes, if you can answer that, then I'll ask my other ones.

Sure. I will take this and I tell you regionally it's -- there are some differentiation in the business. We haven't blamed weather. It hasn’t historically been our process and why I say that is, yes weather impacts us, and because we are having international footprint and obviously a complete domestic footprint, sometimes it impacts us for the better, sometimes for the worse. So we have tried to stay away from that, but domestically I tell you regionally we continue to see strength of our business centered around the West Coast, where we have our most mature market here. These trends were really consistent with 2015. We talked about this that the West Coast has been our strongest performer. However, in Q1 of this year, we also saw the Northeast perform stronger and that was -- what we saw is a good sign. All other areas were more challenged and as specifically those that are depending on oil, if you look at the center of the country here, domestically as well as in Canada and also areas representing tourism. And we talked about this in some of the prior calls, but we still continue to -- we track about 10% of our stores that are tied to tourism that have been negatively impacted by the strength of the dollar are representing almost 18% to 20% of our loss here in the first quarter. Internationally, Canada has been better than the consolidated company, but similar to domestic trends that I just mentioned, it has been impacted by depressed oil prices in the center of the country. And for Europe, this first quarter we did see comps that were below, our comparable sales below our consolidated levels. As you may recall last year we ran significantly -- comps that significantly exceeded the consolidated entity in Europe and while we saw strength last year across most departments, we really over indexed in one department and this year we’re seeing declines in that department, while we're still seeing gains across the other department. So, however, the declines that we're seeing in this one particular area are enough to bring the total entity into a negative comparable sales level. That said, as we look at this over a two-year comparable sales stack, Europe continue -- we still continue to feel really good about where Europe is at. I mean, they over indexed so much last year than what they’re off at this year. They’re still in a really meaningful positive two years stack comp. So, yes there is some variability across the regions and hopefully that answer your questions.

That was great and very helpful. Thank you. And then, just in terms of inventory, you’ve given us the inventory per square foot information as well, and total inventory. How do we think about how you are planning inventory for Q2 and then into the back half of the year, balancing some excitement with the brands with your viewpoint on the expectations for traffic as the year progresses?

Yes, I will tell you, I think we've got a pretty good history of managing inventory and as you can see here this quarter, I mean, we're pretty much in line with our square footage growth with just slight growth over prior year on a per square foot basis. And as we think about Q2 and the rest of the year, our goal is really to grow sales faster than we grow inventory. And so we're going to work really hard to kind of match those two things if we start to see sales pick up, where you’re going to see us chase on the inventory side and if things were to go the other way, we’re going to continue to manage it conservatively as possible. That includes really being strategic in our marked down cadence and where we do see the opportunity to move on inventory that’s aging or falling out of season where you’re going to see us do that as well. So, I think that the inventory story for us is really going to be a tale of where we see sales go and we're going to work to manage it closely as we can. I feel pretty good with the [technical difficulty] data at the end of the first quarter from an aging perspective and how current it is and our goal would be to keep it as current as possible even in these tough times.

Great. And then last one, and I don't know if this could actually be answered. I know we've kind of touched upon it in prior questions, but how do you think about the health of your consumer domestically and internationally? We've been hearing a lot of positives from a macro perspective, yet they are not necessarily spending on apparel. So just if you could frame that for us?

Sure. Again, I think it’s a very complicated question Pam. And I think there are many factors around that. I like to talk about the things I think that are we can impact and control and that’s again how we take advantage. I think to a large degree, specialty retailer is suffering from just a lack of interesting product for consumers. I think it as trends change in our case, again, brands that means brand and items as well as fashion cycle move. The one thing that my experience in now two decades of doing this is that things always are cyclical in the consumer world. I’m -- I don't see that as -- I don't think that has fundamentally changed in anyway, but I would tell you that I think what we’re seeing here is part of the cyclicality of consumer spending is they’re rotating dollars to where there is interesting things to spend. When we can offer interesting things in terms of brand items and fashion cycles, the consumer return to spend the money back on fashion and style. I don't think any of those fundamentals have changed around the world. Now I do think that we all start to put this in a context of the longer term trends of how every retailer I think have to -- I think we’ve to understand that part of the hangover of the great recession is a level of frugality amongst all consumers. So, I think we’ve to factor in and discuss how we provide value for that consumer. And value can be defined in many different ways based upon each retailer's niche positioning in the marketplace. And for us, I think that goes back to how we can pay and how we’re felt as a -- felt about as a brand by our consumers, as well as we do have a value strategy we’re constantly trying to play to give our consumer a choice there. I think we also have to understand part of the challenge in the retail world today is about share consolidation in the marketplace and we're going through as a retail industry a very painful process over the last five and six years niche. We’ve to look niche by niche within the retail segment of consolidation of share. I -- as you’ve heard me say before I think in each niche there is going to be a dominant player that emerge as a winner -- a winning player in each niche of retail and that will be slightly differently where your commodity player, a lifestyle player or a fashion player. And I think in lifestyle retail where we’re playing, I think the winning model in my opinion is a global lifestyle footprint were you’re doing something in a highly differentiated perspective, again working with young brands and helping young brand grow their business across a global platform, as a global retail partner firm to providing a very distinctive in-store experience as part of a community. And then you're leveraging all that on a domestic and global basis with an incredibly strong integrated channel less, omni-channel effort. So those are the things I think that determine winners over the long-term. So I think you’ve to ask is not just about the power of the consumer, because consumer get some pretty great deals in today’s marketplace. It's about that these deals aren't sustainable over the long-term and there will be a class of retail -- of retailer that emerges and has defined uniquely by the position of each niche of retail. I think we will see dominant players emerge over the next five years. And so, it's not just about the consumer, it's about the health of retail to a certain extent and the consumer is just taking advantage of what I think is going to be some spectacular deals that has and I think unfortunately in our segment as we said in back-to-school that’s probably a group more spectacular deals with some of the bankrupt locations closing. So, I think the complicated question both about the consumers position in the market how they are feeling about it and then have to go with the tremendous shifts in consumer behavior around technology and the speed of trends on a global basis.

That was really great insight. Thank you so much, and best of luck.

Thank you.

Thank you. And our next question comes from Howard Tubin with Guggenheim. Your line is open.

Hi, guys, thanks. When you think about marketing, maybe as opposed to looking at it as a way to save SG&A dollars, is there an opportunity to maybe like spend a little more, do some things differently, whether it's social media advertising or print or whatever, to maybe help drive traffic and call attention to some of these brands that you are excited about for fall?

Sure. Howard, I mean, let me address that and we think about marketing in two regards as from our perspective. We are again -- I think we’ve a unique brand position. I think the market, our consumer market research we’ve done and we talked about some of the conference over the last year have supported that we have a very unique, very strong relationship with our customer from a brand perspective. We are seeing as peers, as one of our customers peers in the marketplace. I think we see nothing, but further support in terms of market research that over the last year, the strength of our customer positioning. So when we think about marketing, we break it down into two groups. We’ve our brand marketing team and we’ve our tactical marketing team. And we're spending a lot of time in the brand marketing side right now as you know over the last years, it's been a lot of time in working on redefining our brand experience and doing the consumer market research, the first time we’ve ever done consumer market research at Zumiez. We confirmed I think our unique positioning from the consumer's perspective that it's been consistent with the brand position we’ve had in place for a number of years. And now what we’re challenging ourselves on across the organization is that we're looking at this new generation of the consumer. I will refer to the generations as the group and we are challenging ourselves that every consumer facing aspect of business say how do we have to function differently in this area and laying out plans over the next three years to execute against. You’re not going to see us cut back on those plans at all when we’re talking about long-term brand efforts, because again we think the culture and brand are the pillars that underlie these successful winning retail positions. So, now that’s the brand side and then we also have our tactical marketing side, which is really what Chris was talking more about our opportunity to both cut as well as push. Trust me, if we're getting results on that in our tactical marketing efforts, our email campaigns, our paid search campaigns, our search engine observation campaigns, we’re going to invest more dollars not less. Now if the page search doesn’t return -- it doesn’t he return at a appropriate ROI, then that's where we’re going to have think about it, right. We’ve to think about that in terms of the catalog efforts we've been doing and how widely we would mail those. So we will push on all these fronts if we can, but it's all about delivering on the tactical side actual results. And I think the way we’re going to do that fundamentally is yes, we can drive some more traffic to the stores with those techniques. But most importantly we’ve to focus on making sure that we’ve the product people want to buy. So that’s even more of the connecting dot for us, is how do we make sure we’re pushing on the key product areas, putting the right touch points where they would be digital, print, catalog, whatever it is in front of our customer, at the right time and then maximizing those to be omni-channel campaigns. So that’s how we’re thinking about it. And again it's about leveraging and getting ROI on the investments on the tactical side.

Got it. Thanks very much.

Thank you. And I’m showing no further questions. I’d now like to turn the call back to Rick brooks for any further remarks.

Well, thank you all for your interest in Zumiez. I’m going to conclude the call as we kind of -- as echo somewhat Chris said is we are at the point where based on our results over the last 12 months as we need to show good results for the consumer. We are in a show it mood at this point. So we are -- while we might feel good about green shoots. We need to deliver it and see what happens over the next few months in our business. And we appreciate all your support. We appreciate the quality of your questions today. We look forward to talking again here over the next few months. Thank you everybody.

Ladies and gentleman, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.