Richard Brooks - Chief Executive Officer Christopher Work - Chief Financial Officer

Jeff Van Sinderen - B. Riley Betty Chen - Mizuho Securities Pam Quintiliano - SunTrust Jonathan Komp - Robert W. Baird

Good afternoon, ladies and gentlemen, and welcome to the Zumiez Inc Fourth 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's business outlook and contains forward-looking statements. These forward-looking statements and all other statements that may be made on this call that are not based on historical facts are subject to risks and uncertainties. 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’s 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 hello everyone, and thanks for joining us on the call today. With me is Chris Work, our Chief Financial Officer. I’ll begin today’s call with a few brief remarks regarding the fourth quarter and then provide you with an update on our broader strategy. I’ll then hand the call over to Chris, who will take you through the numbers, after that, we’ll open the call to your questions. We had a strong finish for the year, posting fourth quarter diluted EPS of $0.74 of share, a significant increase compared with a year-ago period and well ahead of our guidance range of $0.60 to $0.66. This increase from our guidance was driven primarily by efficiencies realized as we continue to execute our omni-channel and localization efforts combined with a more favorable tax rate. My thanks throughout to the Zumiez, Blue Tomato and Fast Times teams whose hard work executing our growth strategies helped the company perform strongly relative to the industry during the holiday season with our unique assortments and superior customer service that continue to differentiate our concepts from the competition. While our fourth quarter results are a great indication of our brands strength and the benefits from investments in our omni-channel platform and people. We recognize the changing consumer shopping behaviors will continue to pressure the retail industry and we are not immune. Therefore, we remain focused on managing the things we can control. Investing behind initiatives we believe will bring long-term value to both our customers and our shareholders and tightly managing our expenses. In 2016, we introduced our new customer engagement suite at select locations in United States and in 2017 we rolled out across the US store fleet. We're very excited about this system enhancement which along with our additional investments and our omni-channel capabilities gives us new ways to engage with our customers. Through this level of interaction in conjunction with face-to-face dialogue in its stores, we'll be able to keep our finger on the pulse of local trends, allowing us to provide hyper localized and purely authentic product assortments and a superior personalized brand experience for our customers. This customer and lifestyle centric approach has been the lynchpin of our success to-date and is what we believe will propel us forward over the long-term. Our advanced platform will enhance our ability to stay true to these values as we continue to grow. Our physical store expansion remains and important piece of our overall customer experience. Though we remain committed to limiting our physical store expansion to the optimal number of stores required to best serve our customers in any geographic area. To that end, we continue to see North American store expansion moderating in 2017 compared to prior years as we approach our targeted store count. In Europe, it's a different story. This market remains highly fragmented and our presence on the continent is relatively small, each of which provides opportunity for expansion. Although our plans are somewhat tempered by the current macroeconomic headwinds in the region, we remain optimistic about our ability to strategically advance our brand in select countries to support our superior customer experience. Related to our recently acquired Fast Times business in Australia, our focus in immediate future is on combining best practices from each of our teams and integrating and optimizing our blended business model. We're excited about the opportunities this acquisition presents for our business to capture demand in Australia. As we reflect upon the past five years we have executed on our long-term strategy and made great progress in many key areas in service of our customer. We've increased our store count domestically by 39% and expanded globally, now operating in six countries increasing our capability to reach our customers as also providing growth for our brand partners. We strengthen and refined our merchandizing capabilities creating a hyper localized experience. We have transitioned to localized fulfilment in our North American business putting ownership of the customer experience back to our local sales teams. Significant reducing our order to delivery time, and opening up our full inventory selection to all customers. We add our Stash loyalty program bringing up teams for our customers to have amazing experiences and further identify with the Zumiez brand and we've added several buying options for our customers including buy online, pick-up in store, reserve online and pay-in store, among others to allow customer to see their local stores inventories and buy whenever and however they choose. We're excited about the progress that we made. However, as we entered 2017, we see heightened macro level economic unpredictability and continue to be impacted by other headwinds that have plagued the retail sector for most of the last few years. While we're cautious, we remain confident in our position, in our ability to maintain cost consciousness and prudence in our strategy while focusing on the right investments that will benefit both customers and shareholders over the long-term. With that, I'll hand the call over to Chris who'll review the financials. Chris?

Thanks, Rick. Good afternoon, everyone. I'm going to start with a review of our fourth quarter and full-year 2016 result. I'll then provide a brief update on February before discussing our first quarter guidance and some high level perspective on how we are thinking about the full-year. Fourth quarter net sales increased $21.2 million or 8.7% to $263.6 million from $242.4 million in the fourth quarter of 2015. Contributing to this increase was the addition of 33 new stores since the end of our last fiscal year including the five Fast Time stores in Australia and strong positive comparable sales growth of 5.1%. During the 2016 fourth quarter, we saw increases in transaction volume partially offset by a decrease in dollars per transaction resulting from lower units per transaction in a decline in average in retail. Men's, Junior's and accessories categories comp positive, while hardgoods and footwear comp down for the quarter. From a regional perspective, North America net sales increased $16.1 million or 7.6% to $228.6 million. International net sales which consists of Europe and Australia increased $5.1 million or 17.1% to $35 million. Fourth quarter gross profit was $94 million up $9.8 million or a 11.6% compared to the same quarter a year ago. Gross margin was 35.7% in the quarter up 90 basis points compared to 34.8% a year-ago. The increase in the prior year was driven largely by a reduction of fixed cost resulting from the closure of our Kansas fulfilment center at the end of fiscal 2015, leverage of our occupancy cost on higher sales and an increase in product margins. SG&A expense was $56.1 million in the 2016 fourth quarter compared to $52.8 million in the fourth quarter of 2015. SG&A as a percent of net sales was 25.1% down 80 basis points compared to the same quarter a year-ago. This improvement was driven by better leverage of our store operating expense on higher sales. We generate an operating profit of $27.9 million up from $21.5 million in the fourth quarter of 2015. Operating margin increased a 170 basis points compared with the fourth quarter of 2015. Net income for the fourth quarter of 2016 was up 38.3% to $18.2 million compared with net income of $13.1 million in the fourth quarter of 2015. This equates to a 48% increase in diluted EPS which came in at $0.74 per diluted share in the fourth quarter of 2016 compared to $0.50 per diluted share in the fourth quarter a year ago. Our tax rate for the fourth quarter of 2016 was 35.3% compared to 37.3% a year ago. The decrease in the effective tax rate for fiscal 2016 compared to 2015 was primarily due to the tax impact of our foreign operations. Turning to the full-year results, net sales for fiscal 2016 were $836.3 million an increase of $32.1 million or 4% from $804.2 million for fiscal 2015. Full-year comps were relatively flat down just 0.2%. By region, North America sales were $753.8 million up 3.5% and international sales were $82.5 million an increase of 8.5% year-over-year. 2016 gross margin was 32.9% compared to 33.4% in 2015. Gross margin declined 50 basis points from the prior year primarily as a result of the deleveraging of occupancy cost worth 40 basis points. Annual SG&A expense was $235.3 million or 28.1% of net sales compared to $222.5 million or 27.7% of net sales in 2015. The increase in SG&A was driven primarily by the deleverage of wages in store operating costs and corporate costs offset by a reduction in impairment charges from the prior year. Operating margin for fiscal 2016 was 4.8% compared to 5.7% in 2015. Full-year net income was $25.9 million or $1.04 per diluted share compared to 2015 net income of $28.8 million or $1.04 per diluted share. Turning to the balance sheet. Cash and current marketable securities totaled $78.8 million as of January 28, 2017, up from $75.6 million as of January 30, 2016. This increase was driven primarily by $48.5 million in cash flow from operations partially offset by $21.6 million used to repurchase our common stock. $20.4 million of capital expenditures primarily related to new store growth and remodels into a lesser extent $5.4 million relating to the acquisition of Fast Times in Australia. During 2016, we added 33 store locations including 22 in North America, six in Europe and five stores through the acquisition of Fast Times in Australia. As we have discussed, we are continuing evaluating our physical store presence to ensure that we have the right number of stores in the right locations within each trade area. As a result, in 2016 we closed six stores bringing our next store openings to 27 for the year. We ended the year with 685 locations including 651 in North America, 29 in Europe and five Fast Times stores in Australia. We ended fiscal 2016 with $106.9 million in inventory up from $98.3 million at the end of fiscal 2015 driven primarily by our recent sales trends, increased global store count and to a lesser extent, timing, related to our spring merchandise offering. We continue to build confidence in the general quality of our inventory. Our aged inventory defined as inventory older than four months is generally in line with the prior year's percentage of sales. Now, to our February sales results. Total net sales for the four-week period in February 25, 2017 declined 0.8% to $51.5 million, compared to $51.9 million for the four-week period ended February 27, 2016. Our comparable sales decreased 3.1% during the four-week period ended February 25, 2017, compared to a comparable sales decrease of 8.6% for the four-week period ended February 27, 2016. The comparable sales decrease was driven by a decline in dollars per transaction partially offset by an increase in transactions. Dollars per transaction the period were down due to decrease in units per transaction and a decrease in average unit retail. During the four-weeks ended February 25, 2017, footwear, accessories and hard goods posted negative comps while men's and junior's posted positive comps. Looking at guidance for 2017, Once again, I’ll start off by reminding everyone and 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, we are currently expect the comparable sales between 0% and +2% in Q1 2017 with total sales in the range of $178 million to $182 million. Please keep in mind we are reviewing our monthly sales release for the quarter, debt as expected, February comps were negatively impacted by the delay in IRS income tax refunds which should benefit March. However, the timing of Easter which is later this year will be a detriment March but benefit to April. Consolidated operating margins are expected to between -4% and -5% with a loss per share between $0.17 and $0.21 compared to an $0.08 loss per share in the prior year first quarter. Year-over-year, our first quarter EPS is negatively impacted by investments made throughout 2016 and ended 2017 as well as increased incentive compensation levels plan in 2017 that were not achieved in 2016. Before I wrap up, I would like to give you a few thoughts on how we are thinking about 2017. While our recent comparable sales trends have been more favorable, the retail environment in general remains uncertain. As we look to 2017 and beyond, we continue to believe that the investments we have made on our infrastructure particularly our omni-channel presence as well as those investment we continue to make in the Zumiez team will drive a long term top and bottom line growth. With this in mind, our expectation is so that comparable sales will be positive for the year and we will experience earning growth based on our current planning. There will be an extra week in fiscal 2017 resulting in 14 week fourth quarter and q 53 week fiscal year. The extra week will benefit sales and earnings growth in fiscal 2017, it will be a detriment to sales and earnings growth rates in 2018. As a reminder, we saw product margin expansion in each quarter of 2016 with the exception of the first quarter. In 2017, we expect product margins or the year to continue to improve. However, we anticipate these increases will be modest. From a cost perspective we are currently planning SG&A to grow at greater rate than in 2016. As we continue to observe minimum wage increases across the country and investment important initiatives for our long-term success such as continued investments in our people, the roll out of our new customer engagement suite and other strategic initiatives that we believe will drive a long term value for our shareholders. We are planning to open approximately 18 new stores including four in Europe and two in Australia with roughly three pores of the opening occurring ahead at the back to school season. We expect capital expenditures for full 2017 fiscal year to be between $24 million and $26 million compared to $20.4 million in 2016. The majority of the capital spend will be dedicated to new store opening and planned remodels. While our store count growth rate is decreasing in 2017 the related decrease in capital was offset by the increase in remodels for the year. We expect that depreciation and amortization will be approximately $28 million in line with the prior year. Now 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. And with that operator we would like to open the call up for questions.

[Operator Instruction] Our first question comes from line of Jeff Van Sinderen with B. Riley.

Good afternoon. One of the things I know you guys have talked about is that there have been several brands that have been really strong and I am just wondering if you expect those to continue as you are thinking about spreading and then later in the year to kind of lead the charge in terms of merchandise that's resonating or if you are seeing any shift or anticipating any shift to different brands maybe some of your testing anything that might change the penetration [Audio Gap] your business, just why don’t know they are always changing but just I'm wondering if there is any color there can give?

Alright, Jeff. Thanks for the question. I will start and then I will ask Chris to maybe add on to some of the thoughts. Again I appreciate the question, this is one of the areas in terms of thinking about how unique we make our assortments. We focus on greatly and have a really a long period of time in terms of how important this has been to us for few decades in terms of uniqueness of our brands and our partnership that we have with the young brands coming up. So, the headline for me and I want to provide a little bit of context for you Jeff but the headline is I think we feel good about the momentum with our current brands and remember these are brands who would have launched somewhere in the three to four year ago range that have now gained traction for us. So, I think we feel good about our current trajectory. I will also let that we are as usual we launched right around a 100 plus brand new brands per year and actually more slightly more that I think on average. And that we achieved that goal in 2016 and we expect to achieve again somewhere near that average in 2017. And again these three brands over the next couple of years we would hope to see continue to see come through. So, we feel good about many brands Jeff. The headline to your question we have today and I'm hopeful that we will see other brands come through too. And I will add that we expect to launch brands in the upcoming year across almost all of our major departments which I think is also an exciting piece of what we are going to be doing. But again, I just want to remind you how important this has been for us over the years as this has always been one of the things we focused on and for me it's this represents what our customer demands from us. Our Zumiez's customers are customers who has always been about expressing themselves more strongly in terms of their identity, who they are, and how they want to convey that to their peer group, in a more significant way than most of people in their peer group actually do. So, this is something that over a period of the last few decades. We have really built a special place for these consumers to come who want to be more self-expressive than the broader peer group. And with that Jeff, we have become the place that attracts brand that want to launch and we are really good at doing it, really good both on the in terms of what our product team does. We are good at making sure we don't over distribute the brand, we keep it focused where it would be most successful and we are really good at maintaining price integrity for these young brands and their partners which is also super important for us, then of course our marketing teams can help leverage and grow these young brands too. So, this has been true for us for a long time. I think when the other interesting things about our current position is that we also have a generational shift taking place. And having been around here a long time I can tell you that generational shifts historically have been good for our business because new generation wants to be different than the generation that preceded it. So, going back to the Gen X days, that was positive momentum for us during that shift, likewise in the millennial generation through the early phases for the early and mid 2000 and I am hopeful that we are going to see that same kind of demand for newness from this new generation Z group coming through the system. So, let's get the essence Jeff, I think maybe where we are at in terms of how we are thinking about it now and I guess the only other thought I'd add to that is how important our global platform is for these young brands; something we have to offer today that we didn't have to offer before and we will continue to partner with them to give them growth opportunities they look forward to growing with us. I feel good in summary, I think I feel good about our efforts around driving uniqueness to young brands where we are at currently. And I feel good about the pipeline for what we have achieved the last few years and optimistic about the pipeline as we head into 2017. So, let me stop there and ask Chris to add some comments about brand mix.

Yes. The only thing I'd -- just for everyone as a reminder, our largest brand typically around that 6% to 9% of total sales and we continue to kind of operate in that level with our largest brand beyond the lower side of that. We talked about some of these emerging brands that you alluded to in your question throughout the year because we have really seen them be a driver specifically our men's and our women's apparel brands and when we look at the top 10 and 20 brands as we do, we always stop to kind of reflect at this time of year. We continue to see that 20% to 30% turnover that you would expect in the top 10 and top 20 brands as we do bring newness into the operations. And those brands are the drivers are still well below that 6% to 9% of total sales. So, we think there is hopefully good opportunity for growth there and when I look at the top 20 brands, we continuing to see them grow as an overall percent of the mix which I think ties to where we are in the cycle.

Okay, that's helpful. I appreciate that and best of luck for the rest of the quarter.

Thank you, Jeff.

Our next question comes from Betty Chen with Mizuho Securities.

Thank you. Good afternoon and congrats on the nice execution of fourth quarter. I was wondering, Chris, if you can talk a little bit about maybe the separate comp impact from the delayed tax refunds, whether you're able to quantify that and as a result have you been able to see any change? We heard from some retailers that at leads February type pick-up. Have some of those refunds started to hit? And then related to the calendar shift again is, remind us if you could what's then the usual comp shift from March to April given the later Easter. My second question then it's really regarding the customer engagements with you guys have continued to emphasize that service. I'm wondering what are some thoughts after the early learning and kind of what we should continue to anticipate in 2017 and beyond. Thanks.

Great. So, I'll start, Betty, with your question on February and let me just kind of back track a little bit into January as well because as you know we had a very strong January and as we move through January, our actual toughest week of January was the last week of January. And we continue to see that into February specifically in the first few weeks and definitely tied to our US business which again ties in with kind of the tax refund timing. And then we had an extremely strong fourth week. And that kind of gave us the comfort as you know our February reported amount was down 3.1% comp to take our guidance in that flat to two range. So, based on the results in the fourth week of February and even into the first week of March, we felt comfortable saying that we will be able to get back some of what was lost based on the tax refund delay in the early part of February. As it relates to the calendar shift with Easter, I'm going to kind of stick to our historical practice of not quantifying the amount and we'll work we two are reporting here to report March and April together as we kind of wrap the quarter. But I will say that the two weeks leading up to Easter and that our benefit and the day of Easter which is typically a negative result both in March, this period. And as you know those both moved down to April. So, we're seeing a full movement of Easter out of March and April. So, it's going to be a little bit, there's a few factors here and that's why we alluded to this on our January call and brought up today as well but we'll keep working towards the month date number and update, I'm sorry the quarter date number and we'll update you as we get to the end of quarter.

Okay, great. Thanks, Chris.

Alright, and then on your second part of your question or the second question, Betty, I'm happy to take I'll give you some color around the customer engagement suite and what our thinking is and we do, also we have some learnings from our work in 2016. And let me just say, I think we're very excited about where we're at, this is really a new kind of approach to retail technology and we are the launch customers for this new software package. And so, the rollout plan, I'd just give you a sense of that is we expect the capital to completely rollout in the US by the end of 2017. And then we'll look at how after we go through the program really rolling here in the US, will be evaluating what will go next in terms of what other parts for International operation our goal will be that over a period of time or of our operations will be on this new platform. So, in terms of some of the key learnings and objective we had at the platform that is for the new Customer Engagement Suite and internally we call this the commerce engine and I'll talk a little bit more about that in a moment. But this is all about a better experience for our customers. New kind of technology, new technology platform, when it gives us great much a greater flexibility grow with the customer overtime specifically around mobile devices and of course this is kind of come out with completely tightly integrated already tightly integrated interface into our Zumiez Stash program. So, we are finding, I'll tell you some of our key learnings is that we can as we hoped we could achieve, we can accumulate large amounts of data relative to capturing what happens with in-stores into our and catching that data back and being able to put it back into our Stash program, where we also remember our Stash program is working in the modern mobile world. Already we're engaging around points for engaging, for giving customers points for engaging with us, that's to show up in stores working our emails for following us in on in social media for looking at our post in social media. So, we're engaging at all sorts of new ways with the customer and our intent with this new engine, not only does it increase feature and function capabilities and we'll give us again the platform to add a lot more feature and functions overtime. But it's all of that how we can create a feedback loop to improve virtually every aspect of what we're doing. I think we're going to find ways to use this new data to improve assortments across the countries to further localize our assortment planning. No doubt, we're going to be able to provide more customized experiences in a local market basis because we are simply going to know so much more about customers at every location. Likewise I expect that as we kind of said in the comments, we expect to personalize a lot more of the customer experience because of the deep level of engagement and knowledge you're going to have about this customer base. And like I guess and I also want to emphasize that this isn’t just about point-of-sale. The idea of the commerce engine is that our entire sales platform will plug in to the device. So, towards the end of 2017, we'll begin plugging some of the first components of our website into this new commerce engine idea the customer engagement suite, which will be able to allow us to serve customers from any of the web or store channel seamlessly across all touch points in the system. To give you a sense of what we're thinking about in terms of where we're at, again we know we can capture the data, we've proven that here over the first few months of using the system in our in the test stores that's been in and we're excited to get it going and get it rolled out because then we can really start again generating information that will feed virtually every aspect of our company operations in terms of better serving customers in local markets and the local traders.

That was very helpful. Thank you so much, Rick.

Our next question comes from Adrienne Yih with Wolfe Research.

Hi guys, this is Doug Drummond for Adrienne today. So, our checks have been showing during the quarter of that, you've had a March pull back on promotions. So, I'm kind of surprised to see that you are down for another quarter. Can you help me by talking about mix during the quarter and any changes in IMU that you may have seen? Thanks a lot.

I'll take the question. I think what I would say from a markdown perspective is as you know 2015 was a very challenging year for us and specifically the end of 2015. So, we like we always are are very trying to be very efficient and moving through inventory that is slow moving. And so, you saw us do that in the fourth quarter of 2015 and into the first quarter of 2016 which as we said in our prepared remarks was the only quarter in which we didn’t grow product margin during 2016. So, from a markdown perspective, our sales have been better. I think our buying teams has done a great job buying into the product and we have not had to markdown as much as we did a year ago. From a AUR perspective and that the matrix of the business perspective, this is really challenging to outline in a quick answer. Because we have lots of different things happening in the business. And I think we not only have the historical mix shifts we've had between categories within the business but we also have mix shifts between countries. And the dynamics of the impact of the Europe around during months of the year is different as we move around the year. So, I don’t think there's a whole lot to read into it there from a an AUR perspective, I think that the short story as we feel, we feel good about where our inventories at and we are although modestly we are planning margins to be up as we move into 2017 and hoping to drive the topline, it's the most important thing for us.

Okay, that's helpful. And can you just give a quick update on Europe and Australia, any new trends that you may be seeing there? Thanks a lot.

Yes. Happy to comment. I think as we look at Q4 and how Q4 rounded out, I think one of the regionally perspectives you get is that almost everything was just in a reasonable standard deviation of the consolidated comp, meaning everything was performing up basically in line. And so, we did see positive results across the business in Q4, and I think from a Europe perspective this continues to be where there we're feeling optimistic about. As Rick mentioned in his prepared remarks, we only represent ourselves in a small portion of Europe today. And we think there is a lot of growth there. Our focus is very much on doing the growth the right way and growing while with profitability. And as we look to the future, this is still a business we'll invest a lot in and a business that will continue to invest in over the coming years to grow but we want to do in the smart way. And so, we're still forecasting 2017 to be roughly break even and yet we're feeling good about the trends there. 2016 was a tougher year from a yearly perspective in Europe, primarily around the hardgoods trying to specifically skate. We had a great year in 2015 and had the Anniversary there, if I look at this key category on a two year comp, it is positive but 2016 was just more challenging. All other categories in Europe through 2016 are running positive and I think we've continued to make momentum there. So, we're looking forward to see in how the team connects to you in 2017 and beyond.

I appreciate the color. Best wishes.

Thanks.

Our next question comes from the line of Pam Quintiliano with SunTrust.

Okay. Thanks for taking my question, guys. So, had a quick one on the fiscal guidance. Just so I understand it correctly. So, modest product margin expansion, SG&A higher, so just how should we think about gross margin and comps to achieve improved EPS, here.

I think as we also said in the fiscal guide that we expect comps to be positive and we have said historically that on a three to five comp, we believe we can leverage the business. I will tell you as we continue to mature and optimize the business, we are hoping to do it on the lower side of that guidance. So, while we are not giving full year sales guidance, we do believe we will be to achieve positive sales results. It is what we said and as we think about earnings results and growing earnings, I think it still has to be on the lower side of that metric to be able to go earnings. So right now we feel like we have the opportunity to grow earnings and we will continue to update as we move through the year.

Okay. Thank you for all that and then just one other one. And I am sorry if I missed this regarding online penetration, did you give how much that grew this year?

We did not, and we have not done that for some time and I think it is important to talk about why because when we look at online, our online and our stores are completely integrated at this point. In fact, as Rick mentioned in his remarks, if you are shopping online we are going to try to actually send you to a store. We have got lots of different mechanisms that try to help you interact whether you are in one channel or the other. And quite frankly, over the last 5, 6 years as we have been building on our omnichannel suite I think one thing that has become very apparent to us is while I can report where the transaction actually occurred I cannot report where the transaction originated, meaning I think often the customer starts online and goes to the mall, and maybe in the mall had such a great experience, but will home and pull the trigger after they think about it, maybe do a little more research. And I think it has become very muddled in our world. As we talk more and more about trade area and how we are thinking about the business, what I know today better than I have ever known is where I have stores I don't have web, and when I open stores I get a web and it is a very integrated – it is a very integrated experience and so. For us it is not something we have reported. What I can tell you is as we think about growth for what it is worth the e-com is growing at a faster rate than stores, but I think what is important to note about when you talk about the fourth quarter is on a [5.1] comp given where our e-commerce penetration is. We are seeing positive results across both channels. And we know that they are working together to serve the customer. So faster customer growth on web, but also positive results on those stores in relation to the fourth quarter.

I will just add a little bit more there [Indiscernible]. Again, clearly our customer doesn't even see channels anymore. They just want an integrated seamless experience. Our job is to give them all the power we can to make the choices that are right for that moment in time in that customer’s life. And it is very interesting when we dig into this trade area idea and Chris and all of us here are thinking a lot about this. Our ability to localize fulfillment is about trade area because that means we will be able to look at digital and physical demand and place products in a trade area in service of customers and again these are all big strides we have made over the last few years. And when you get into looking at traders, it is very, very interesting. There is actually quite a bit of wide variability as to what you would think e-commerce penetration is when you get down to that level of detail and some of it is quite surprising. Again for me it is just we are going to have this new focus around how we think about an integrated selling experience that puts our customer in charge of that experience and our job will both to continue to localize to create an even better brand experience for our customers, while optimizing as Chris said, from the cost side of the experience, localizing fulfillment is an example as you heard in our comments during the call where I think we achieved both objectives. We created a better brand experience for our customers in many ways including just being much, much faster in delivery, but we are also optimizing some efficiencies by how we were able to take advantage of labor utilization rates in a trade area. So again that is I guess for me the perspective how it all works together in the modern world and how we are putting our customer in charge, and letting them make the decision. We are always being fast, always having exactly what they want close by in their local marketplace.

Can I just squeeze in one more and I think I know the answer to this, but can you remind me if you have traffic counters, I know we are talking about all-encompassing, but in the brick and mortar stores obviously we have had a lot of negative commentary regarding mall traffic, do you think you are getting more than your fair share because your customer is so loyal and what you have is unique in that marketplace?

We don't have counters Pam. So we really can't respond to it in that sense. I will tell you that again as we continue to engage with our customers to stash, we are going to – again we are going to have all sorts of new capabilities in another year tied to the customer along with the customer engagement suite. And for our best customers, the customers who visit the most often, who buy the majority of our volume from us we are going to have a much more detailed idea. It won’t be counters per se, but I think it will be richer and more important data relative to number of times they are in the store and the number of times they buy and interact with us across all touch points. So whether that be social media, whether that be our e-mail campaigns, whether that be coming to events, or whether it be showing up in our stores. So, a year from now and maybe 12 to 18 months we are going to have a lot richer data about this. Still more counters, but I think what will really be important is about our most core and loyal consumer and having a deep, deep understanding what they are doing at each local market.

Pam, I will just add to that. While we don't have counters, we do follow transactions and we report transactions. Here we are in a cycle that has been favorable to us. I think we have got – we have got good product and our sales teams have continued to execute at a high level. We have seen transaction gains in the third quarter and the fourth quarter and even into February where the results were tougher. So I think we are getting some traffic although we just can't quantify without having counters.

Fair enough. Thank you so much for taking the time. Best of luck.

Thank you.

[Operator Instructions] Our next question comes from the line of Jonathan Komp with Robert W. Baird.

Hi, thank you. I just wanted to ask on the comps that you are projecting for the quarter. It looks like your margin in April kind of low to mid single digits, maybe 2% to 4% embedded in the outlook. I just wanted to ask is that the type of level you think on a underlying basis the business is running or you parse out some of the noise, how you are thinking about the run rate?

We are going to just comment on Q1. Obviously it has kind of been our standard. We have started a little bit slow in February, and the comps that are out there I think are where we think we can get in the first quarter. Our goal beyond that as we said we want to run comps in that 3 to 5 range. We want to be able to leverage the business and to go beyond. And I think you can look back at Q4 and see when we do achieve that type of level we are able to drop down to earnings pretty meaningfully. And so we are going to stay away from commenting beyond Q1 other than you can bet we are going to try as hard as we can to be exceeding those levels.

And maybe just big picture directionally, and maybe this ties into the earlier question on some of the brand drivers you see in the pipeline, but just given that the comparison looks so different kind of first half versus second half in terms of the same-store sales you saw last year, any additional color on how you think you can lap some of the higher comps in the back half of the year.

Yes, I think it really ties into how Rick started the call around brands. And this is we have got to continue to bring great products to market, and as we have said now for multiple months and quarters, we have got some brands that are working and we are not only very focused on them we are focused on the next brands that are working. And in the 100 brands we are going to launch in 2017, which probably won't be meaningful until 2020 or 2021, and so we continue to work on this pipeline because we believe that that is our place in the market to bring newness out to the market. So I think as we continue to push we have got to continue to do that and then continue the focus on our teams. And I think one of the things I am most proud of with the last 5, 10 plus years and well beyond that with the business is how we have continued to invest in the teams in training and helping them grow as salespeople, which I think has really helped them evolve as we now look at this by trade area and kind of one customer across the market. And we have got I believe some of the best sales teams in the business and they are great in engaging with the customers and they can sell. And so I think you tie that product focus with the engagement and the experience within the teams and the omnichannel effort that we put across from our technology teams and I believe it is a pretty good sales experience, and so that is really the focus, and continues to be the focus and as we think about the comps over the year, you are absolutely right that the front half to the back half looks a lot different from a comparable perspective and we are mindful of that, but we also know that the strength of the business over time is running comps on comps. And so that is our task and we are going to do it through the brands, we are going to do it through our sales teams and we are going to do it in the ways we can serve the customer through technology behind the people – person to person interaction.

Okay, thanks for all the color and maybe just last one, any high level thoughts on how just the broader retail consolidation might impact your business as you progress through the year?

Sure I will see if I can get you some sense of our thinking about the broader retail consolidation, Jonathan, and there is – we have – this has obviously been going on for a long time, including our lifestyle segment. So we are in probably year 6 or 7 of this process all driven by this new kind of new, empowered consumer world, where people now have so much capabilities in their hand, in their smart devices they are carrying around all the time. And for us we have always viewed this as a positive thing because it is about customers being able to choose their own unique – for our customers their own unique perspective on who they are and these devices really empower that kind of exploration by customers in almost every sense from the point of view of influencers in fashion and music and art, and other lifestyle genres. So we have always viewed this as an opportunity for us and I think we have been good over the last five and six years of evolving our business dramatically. As I said during the call I am really proud of where the team has come from. We have seen a lot of shops in our niche disappear over this timeframe. In terms of again I think you have to have scale to work effectively today in the modern world to meet the customers’ expectations and serve those customers the way they want. But all that being said we have our ways to go yet. And I think in all – and I would say this is true in all the developed markets around the world. Not just here in the US. I think the US maybe has got some of the biggest challenges relative to how over-retailed we are, and when I say over-retailed I just don't mean in the physical sense. I think we have over-retail in low quality digital retail also. Clearly we have seen some cleaning up there in our side of the business over the last few years. You continue to see it in other areas in retail, where digital sites are closing down too. So it is not just the physical world. It is over-retailed in the US I think in the totality of the sense of retail. So we still – even with all that being said we still have our ways to go. And I think in terms of share consolidation. I think we probably have another period of years Jonathan to have this play out. What we are going to do is continue to execute against the omnichannel strategies, against our localization strategies, against the optimization strategies. Again as you have heard I think the localized of filming is a great example how localization and optimization, a better brand experience and a more efficient and effective way to do it all work together. Localization and optimization aren’t two separate things. I believe they are one integrated thing. So we have identified a large number of continued projects that we will be attacking over the next 3 to 5 years through this lens of localization optimization, including a number of brand improvement projects and the brand work we have done that we will be executing against over the next 3 to 5 years. We need to do these things because we intend to win the share consolidation game at our lifestyle niche here in the US, and in Canada and in Europe and in Australia and in any future locations we may do business in. So I still think we have a few years to go in terms of playing out this consolidation game. It is going to be a fun and challenging time but also filled with a lot of opportunity.

I’m showing no further questions in queue. At this time, I’d like to turn the call back to Mr. Brooks for any closing remarks.

All right. Thank you, Lynn. I appreciate that. Again, I just want to offer my thanks to our shareholders and for their interest in Zumiez. It is obviously a challenging time in retail, but again I think we feel good particularly the back half of the years. We feel good about the progress we are making. We feel good about the execution against our five-year plan, and we feel very good about our five-year plan looking forward in terms of our ability to win share in the marketplace. My thanks to everyone in terms of our shareholders and our analysts that support Zumiez and likewise, again as I said in the call my thanks to our teams here at Zumiez and the Blue Tomato teams and our Fast Times teams for the continued focus and execution. We greatly appreciate it and we look forward to talking to you at our next quarter-end call. Thanks everybody.

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program and you may now disconnect, everyone have a great day.