Rick Brooks - CEO Chris Work - CFO

Sharon Zackfia - William Blair Jeff Van Sinderen - B. Riley and Company Jonathan Komp - Robert W. Baird

Good afternoon, ladies and gentlemen. And welcome to the Zumiez Inc. Second Quarter Fiscal 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. Before we begin, I’d like to remind everyone of the company’s safe harbor language. Today’s conference call includes comments concerning Zumiez Inc. business outlook and contains forward-looking statements. These forward-looking statements and all other statements that may be made on this call that are not based on historical facts are subject to risks and uncertainties. Actual results may differ materially. Additional information concerning a number of factors that could cause actual results to differ materially from the information that will be discussed is available in Zumiez’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 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 second quarter performance. I’ll then give an update on our broader strategy, and will hand the call to Chris, who will take you through the numbers. After that, we’ll open the call to your questions. We're encouraged by the strength of our business exhibited during the second quarter, highlighted by a 4.7% increase in comparable sales, our fourth consecutive quarter of positive comparable sales and transaction gains. The result was a meaningful acceleration compared with our first quarter performance and well above our initial guidance range of 1% to 3%. Accommodation of higher sales and a 30-basis point increase in gross margin resulted in a loss per share of $0.02 versus a loss of $0.03 a year ago and exceeded our original forecast for a loss of between $0.06 and $0.11. As we move into the back-to-school season, we've seen further acceleration in comparable sales and a continuation of the strong trends we've been experiencing since the middle of last year. Our comparable sales in August increased 7.4% from the prior year and our physical September month-to-date comparable sales through Labor Day have increased 11.4% compared to the same period last year. Our ability to outperform expectations in a retail environment marked by weak mall traffic is a testament to the work our teams are doing executing on key strategies. Our intense focus on serving the customer with differentiated assortments and providing them with a great shopping experience is fueling market share gains and strengthening our leadership position in the industry. We continue to adapt to the rapid changes in consumer purchasing behavior by evolving our business to connect with our core consumers more frequently and on a more personalized level. Through investments we've made in several key areas including people, logistics, planning and allocation and omnichannel capabilities, we believe we've gained even greater competitive advantages, help benefit us both this year and over the long term. As we head into the latter half of the year, we remain focused on effectively balancing our strategic growth objectives with protecting near-term profitability by remaining disciplined with our spending while focusing on the right investments to exceed our customer's expectations. Let me recap the top initiatives we're currently working on. We're continuing to roll out our new customer engagements suite across the U.S. store fleet. We're very excited about this system enhancement, which in concert with existing omnichannel capabilities gives us new ways to learn about our customers and engage with them in a more meaningful way. Through this level of engagement in conjunction with face-to-face interaction in stores, we'll be able to keep our finger on the pulse of local trends, allowing us to provide hyper localized, authentic product assortments and a superior personalized brand experience for our customers. We remain focused on finding new and unique brands across all of our departments. This year we're on plan to launch over 100 new brands, bringing the newness in localized fashion that our customer is looking for. These emerging brands, coupled with the growth of more established brands within our portfolio demonstrate the power of our business model. Meanwhile we're selectively opening stores as we believe our brick-and-mortar locations are integral to successfully executing our customer-centric growth strategies. That said, the pace of new store openings in North America continues to moderate, as we are close to achieving the optimal number locations we believe are required to reach our customers and service them at a level they come to expect when engage with our brand. Year-to-date we've opened nine of 12 stores planned for the U.S. and Canada, bringing our total store count in North America to 657 stores. As we look at the real estate profile in North America going forward, we've been thoughtful and deliberate in our lease management strategies leveraging our physical presences to bring a long-term value to both our customer and our shareholders. Our focus remains on not having one more physical store than is necessary to service our customers in each trade area. In circumstances where we're less confident with the long-term viability of a particular location, we focus not only on reducing rent but also shortening lease terms down in the one to three year range to minimize risk and increase flexibility. This aligns with our capital spend that is focused only on those occasions that we believe have potential for long-term success. At present within the bottom of 20% of our North America store base in terms of store contribution, we have the right to exit over 80% of those stores in the next three years. While this highlights the lease flexibility that we have within our lower performing stores, it's important to note that at this time majority of these stores provide positive contribution and cash flow. With regard to international expansion, we continue to be optimistic about our long-term growth prospect as our geographic footprint is significantly less penetrated overseas. We are scheduled in four Blue Tomato locations in Europe and two Fast Time locations in Australia in 2017, as we continue expanding our global market share. We're continuing to apply a combination of best practices from each of our teams to build on the strong foundations already in place. To close, I want to stress that while our company has and will continue to evolve in response to marketplace changes, the pillars of our success to date have been and remain our authentic lifestyle positioning, our unique approach to product and our commitment to driving world-class customer experiences, all anchored by the deeply ingrained Zumiez's cultural values. By staying true to these guiding principles, while diligently managing expenses we've been able to navigate through the recent volatility and outperform relative to the industry. I'm confident that our efforts have us well-positioned to drive improved results and deliver increased value to our shareholders over the long-term. With that, I'll hand the call to Chris for a review of the financials, Chris?

Thanks Rick and good afternoon everyone. I am going to start with a review of our second quarter results. I'll then provide a brief update on August before discussing our third quarter guidance and some high-level perspective on how we are currently thinking about the year. Second quarter net sales increased $14 million or 7.8% to $192.2 million from $178.3 million a year ago. Contributing to these increases was a positive comparable sales growth of 4.7% and the net addition of 19 stores since the end of last year's second quarter, including five new stores in Europe and six stores in Australia. During the 2017 second quarter, we saw an increase in transaction volume, partially offset by a decrease in dollars per transaction. The decrease in dollars per transaction resulted from lower units per transaction, partially offset by an increase in average unit retail. Men's and junior's categories comped positive, while hardgoods, accessories and footwear comp down for the quarter. From a regional perspective, North America net sales increased $10.6 million or 6.4% to $176.6 million. International net sales, which consists of Europe and Australia, increased $3.4 million or 27.1% to $15.7 million. Second quarter gross profit was $59.8 million, an increase of $5 million or 9% compared to the second quarter of 2016. Gross margin was 31.1% in the quarter up 30 basis points compared to 30.8% a year ago. The increase was driven by 60-basis point improvement related to leverage of our store occupancy, partially offset by 20-basis point increase in inventory shrinkage. SG&A expense was $60.6 million in the second quarter compared to $56 million a year ago. SG&A as a percentage of net sales was flat to the prior-year at 31.5%. This resulted from 60 basis points of leverage on store cost, offset by 30 basis point increase due to investments in salaries and increases in minimum wage and a 30-basis point increase related to the annual incentive compensation. Operating loss in the second quarter of 2017 was $0.8 million compared to an operating loss of $1.1 million for the second quarter of 2016. Net loss for the second quarter was $0.6 million or a $0.02 -- a loss of $0.02 per diluted share compared to a net loss of $0.8 million or $0.03 per diluted share for the second quarter of 2016. Turning to the balance sheet, cash and current marketable securities totaled $70.7 million as of July 29, 2017, up from $52.3 million as of July 30, 2016. The increase in cash and current marketable securities was driven by cash generated through operations, partially offset by capital expenditures and cash used in the acquisition of Fast Times. As of July 29, 2017, we had a $141.8 million in inventory up 7.6% from this time last year, driven primarily by our recent sales trends and increase global store count and to a lesser extent, continued strategic investments in inventory that we believe are equating and will continue to equate to higher sales. Turning to our August sales results, total net sales for the four-week period ended August 26, 2017, increased 10.1% to $98.6 million compared to $89.5 million for the four-week period ended August 27, 2016. Comparable sales increased 7.4% during the four-week period ended August 26, 2017 compared to the comparable sales decrease of 1.1% for the four-week period ended August 27, 2016. The comparable sales increase was driven primarily by an increase in transactions, partially offset by a decrease in dollars per transaction. Dollars per transaction were down for the four-week period due to a decrease in units per transaction, partially offset by an increase in average unit retail. During the four-week period, men's and juniors posted positive comps, while accessories, hardgoods and footwear posted negative comps. Our quarter-to-date comparable sales through Labor Day increased 8.3% from the same period last year. Looking at guidance for the third 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. We're currently planning third quarter comparable sales results in the range of positive 4% to positive 6%, with total sales in the range of $236 million to $241 million. We anticipate that gross margins will be in the range of down 20 basis points to plus 20 basis points compared to the third quarter of 2016. Consolidated operating margins are expected to be between 7% and 7.7% with earnings per share of between $0.43 and $0.48 compared to earnings per share $0.43 in the prior year of third quarter. Before I wrap up, I'd like to give you a few thoughts on how we're thinking about 2017. While our recent comparable sales trends remain positive, the retail environment in general remains uncertain. As we look to the remainder of 2017 and beyond, we continue to believe that the investments we've made in our infrastructure, particularly our omnichannel presence as well as those investments we continue to make in the Zumiez's brand and team will drive long-term top and bottom line growth. With that in mind, we continue to believe that comparable sales will be positive for the year and we'll have experienced earnings growth based on our current planning. For the back half of the year, we expect a greater year-over-year impact on the business related to foreign exchange with the European, Canadian and Australian currencies, all strengthening to the U.S. dollar. These changes will have a larger impact on sales and year-over-year expense growth and overall profitability given the relative size and profit margins in our international business. There'll be an extra week in fiscal 2017 resulting in a 14-week fourth quarter and a 53-week fiscal year. The extra week will benefit sales and earnings growth in fiscal 2017 and will be a detriment to sales and earnings growth rates in fiscal 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 for the year to be greater than 2016. However, we anticipate that the increase will be modest. From a cost perspective, we are currently planning SG&A to grow at a greater rate than in 2016 as we continue to absorb minimal wage increases across country and invest in important initiatives for our long-term success, such as continued investments in our people, the role out of our new customer engagement suite and in other strategic initiatives previously mentioned -- and as previously mentioned, the negative impact of foreign exchange. We are planning to open a total of approximately 18 new stores this year, including three in Canada, four in Europe and two in Australia. 11 stores have been opened year-to-date. We expect capital expenditures for the 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 openings and planned remodels. While our store count growth rate is decreasing in 2017, the related decrease in capital was offset by an increase in remodels for the year. We expect that depreciation and amortization will be approximately $27 million, in line with the prior year. We are planning our business assuming an annual effective tax rate of approximately 38% 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 instructions] Our first question comes from the line of Sharon Zackfia with William Blair. Your line is now open.

Hi. Good afternoon. A couple of questions. I guess you guys are really stood out with your comp growth over the past several quarters and I'm wondering, I know this is sensitive, but is it particular brand strength that you're seeing in your mix or is it a bandwidth of brands that are contributing more than product categories you could help us get some more clarity on that. And then secondarily, as we approach the colder seasons, is there any change in your strategy for snow this year versus last year?

Okay. Thank you, Sharon. I'll be glad to give you I think some color around that. I'll start with the -- with the current cycles that we're in and you've heard us talk consistently over the years that we have a really diverse business model driven really with that kind of portfolio approach to brand management, but the same is true for department and category management. So, within that construct, let me talk a little bit about things that we think of driving our business forward. So, we've always said that we can and we're very focused on getting the emerging brands that come into growth brands and that's a big driver for us. We also have been able over the years to play fashion cycles and trends relative to broader, whether it be brand-driven or purely fashion-driven cycles that where the brand may not be unique to us, in terms of the trend, but we can drive a lot of volume out there because we could be first on and we can lead on those type of brands. And the third area we've talked about growing is on hot items we can drive a lot of volume with a specific item that's really can get cranky for us in terms of driving sales. And right now, Sharon, we basically have two of those three working. We have a number of brands that as we talked about over the last year, have moved from emerging to growth brands for us. I think we feel that we have room with those brands yet in terms of where they're going and as we've said in the script, we continue to launch a 100, we're on plan this year to launch what's typically about our average of a 100 new brands a year. When I founded new brands, I don't mean private label brands included in that. This is truly young brand founders out there launching new brands with us and maybe in a few local stores as we're doing around the country, where they're relevant in the marketplace, and it typically takes those brands a few years I think in the cycle we may see up to three years now if the brand really performs well to become a broader to move from emerging to growth. So, we're definitely in that cycle Sharon where we're seeing, I'll let Chris talk about maybe some of the brand elements and how we're thinking about concentration like that in a moment, help may play out more in a cycle like this, but we're definitely in that moment where we are leveraging the strength of these young brands that are coming up in the marketplace. And I think we're uniquely positioned to serve them and to meet their needs as growing brands with not only our U.S. presence, but our Canadian presence, our European presence and now in the last year, adding our Australia presence of those brands. So, we have that working for us and now when we talk about specifically which brands they are, let's just suffice to say we're feeling very good about it, we feel comfortable where we're at with those brands and we're hopeful that we're going to have more of the brads we've launched over the last year has come into the growth merge emerge and move from emerging to growth phase brands. We also have some apparel trends that have been really working for us that are broader that we don't consider to be as brand focus as we do just to be trend driven and those have been in some cases going back to kind of 90s retro stuff, have been very strong for us also and we're able to play in those areas I think in unique ways relative to our own approach to the business what's right for our consumer. And so, we've got two of those three things with the latter being our hot items Sharon where we don't have anything of particular significance there that's driving volume at this point. We've got two of the three working and I would tell you that again we're really highly focused on how we can continue to drive new brands forward, emerging brands forward and we certainly really intensified our effort while we've always done these things. I would tell you that over the last five years, we have really intensified our efforts around emerging brands, around making sure that we are first on trend cycles that we are really adapting our in-store and digital experiences for this new empowered consumer world. We've done a lot of things with reengineering processes, experimenting with new ideas across all of our consumer facing team. So, I think what -- part of what you're seeing is be able to do here is really maximize a cycle when things move in our direction. Now all that being said, I'll remind you that of our big departments; men's, women's, shoes, accessories and hardgoods, we're running down in three of the big five or 50% of our volume, our business has is being driven and again our ability to maximize results being driven by men's and women's apparel. So, I say that because I think again it shows that diversification in the model really drive results, when we have trends in brands moving our way, but also to speak of the opportunity that lies in front of us because hot items will also drive in it a way where we can bring those up will drive accessories and of course, I think we're in the middle of a footwear transition away from performance athletic footwear into something new. What it is I can't tell you and necessarily yet, but I think it's -- I think our team view this as a time to really experimenting footwear, to really try some new things and see what we can drive out in the footwear cycle and of course with footwear cycle will come potentially changes in apparel, which can also be good for us. So historically, these things have worked up pretty well for us in terms of how we think about driving results and again I feel good that our teams have really done a good job focused on reinventing and reengineering and rethinking our current processes. So that's Sharon where I am at and I guess I'd wrap all that up with this is really we continue to believe as we've said many times over the last few years that we're in a share consolidation game and for me this cycle is an exciting one for us because I think it shows that we're winning share and that's part of what's going on in the marketplace too is and we're not only maximizing it based on our own efforts, we're maximizing it based upon our dominant model for our -- to serve our consumer, which is I believe gaining share in the market. Lastly, to the second part of your question on colder merchandise Sharon, I don't -- we are always adapting and every year, I expect our teams to make changes around how we think about the cold winter business. Also, we had some pretty good winter business last year here in the U.S., not as strong in Europe and it will not snow somewhere and is the case every year. So, we always tend to be relatively conservative to the strength of the omnichannel model again of our scope and scale that allows us I think to help manage our way through the seasonal categories very effectively and move product around a position to turn things on in order to turn algorithms to turn things off regionally as we need to do so. We have many capabilities now today that we didn't have five years ago. So, I think, we're in a position no matter what the weather conditions are to probably manage ourselves well through the cycle and we will do more localization of assortments that is as you'd expect us to do in all aspects of our business that would also be true for our plan for the hardgoods and outerwear business for the winter season.

And Sharon, just to add to what Rick said on what's driving our comp growth from a brand perspective after a couple years in '15 and '16 watching our top 10 and top 20 brands, decentralized or decline as a percent of overall sales, we have seen the top 10 and top 20 brands increase a little more as a percent of overall sales, which again talks to Rick's point of emerging brands, moving to growth and seeing those become bigger impacts. We continue to see the same 20% to 30% turnover in the top 20 brands that we've seen through the first -- historically through the first six months of this year and more of that turnover is happening in the 11 through 20 brands. So, we, again I think that is some of that newness coming along and hopefully that some of that can continue to fuel us here in the months ahead.

Okay. Thank you.

Thanks Sharon.

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

Well, let me say congratulations on a strong peak back to school. August was a good comp month for you. Maybe you can just speak about the sales progression you saw during the month. Any color there and anything that deferred from what you saw last year. I guess anything notable in terms of differences to last year? And then also any color you can give us on Labor Day weekend, anything geographic to note. And then I guess maybe just speak to some of the elements that are supporting your confidence and the comp guidance for Q3. And then also how you're thinking about the nonpeak weeks of Q3, how you've factored those into your guidance?

All right. I'll start off Jeff and then let Chris pick up on some of the details particularly around the guidance and the pace through the progression through the weeks of August. I'll let Chris to handle those at best. So, I would tell you Jeff that I don't think we have anything beyond what from my perspective what I talked with Sharon, is that we have a lot of really exciting things that are working that I think are uniquely positioned in the marketplace and then we have amazing sales people out there in our stores and within our digital teams that are really driving I think great customer experiences for our customers. So, it's about when things move our way, how we can maximize those trends cycles and really take advantage of them. And a headline for me I guess too is it's comparison to August a year ago and you really can't stat comps, I'll let Chris talk about the shift of Labor Day week and what that meant between August and September a year ago to put some relevance around that. And then the last thing for me and then I'll let Chris took over is I would tell you that again back-to-school is more complicated in some ways than holidays to execute against because of the timing of back-to-school's change in moving around the country all the time and about how you need about how continually those peak periods are getting more intense. So, the volumes tend to happen in shorter time periods as each back-to-school cycle happens around the country geographically. So, you really have to be in a position I guess is of our great product planning, allocation planning, making sure that the localized assortments are really to drive our result are really in place right and ready to drive the result for your customer. And those trends, I think all -- those trends still all continue to be true and I think that's why we continue to see peak weeks of August, those peak days for by each geography, but then a little bit more of volume citing through September all the time, the importance of Labor Day and the importance of buying post back-to-school for some shoppers. So that is an aspect I think generally of the back-to-school cycling. Then I'll let Chris take over.

Yeah sure. And Jeff to touch on some of the more numbers piece of it, obviously we said in our prepared remarks, August was up 7.4% from a cadence perspective, we saw a pretty strong throughout the period. Obviously as Rick pointed out, all different areas of the country go back-to-school at different times, we thought those areas light up even more significantly the weekend before they went back to school and the weekend after. So that thought process is pretty similar with what we've seen the last couple years. It just was -- it was stronger throughout. So again, all weeks were pretty good as we moved into September, the nine days of September here that we've disclosed, which is the first week plus Sunday and Monday of Labor Day weekend was up 11.4%. So, you can see that's even accelerated from what we saw in August. Again, we have a higher population in stores that go back there and then you have a holiday, but it was pretty strong leading to quarter-to-date through Labor Day was up 8.3%. So, feel really good about how back-to-school ended up. As we're thinking about the non-peak or the rest of the quarter, I think that factors into how we guided. We've given a guidance range of a comp of four to six. Our thought process is it will be a little tougher as we move to non-peaks. We've historically seen our business perform stronger in the peaks and as we think about the back half of September and October last year, we performed pretty strong. In fact, August was down 1%-1% and September was up 6.3% last year, combined of those two months was up 2%. So, you can see that's probably a better way to look at it with the Labor Day shift, but it got stronger on the back half of September and then October last year was up 10%. So, we know we've got a little bit of toughness ahead of us from a comparable perspective but again to touch on Sharon's question, on how the brands are performing and our business is performing, we feel pretty good with some of the trends that are out there and still think we can comp on comp here as we move through the quarter and that gave us the confidence of 4% to 6% comp for the quarter.

Okay. Great, and then if I could draw one follow-up, I guess one thing you guys have done a tremendous job in terms of engaging your target demographic with great store level employees and obviously your merchandise content has been excellent, but let me ask you this, in terms of when you think about evolving and innovating your physical store concept, how should we think about that I guess along the lines of plans for remodels etcetera or maybe that's just isn’t something that you feel needs to evolve so much experientially. And then also I know this has been a year of investment, but just wondering how we should think about SG&A leverage over the further out maybe into next year.

All right. I'll let Chris handle again the detail their Jeff and we are constantly Jeff thinking about evolving and innovating the customer experience and let me start with it from that perspective because the store experience is one -- is it's one very important aspect of our customer experience and perhaps the richest aspect in terms of the human to human connection that takes place within the store environment. But we like to think about it as an entire entirely seamless experience across all touch points for the customer and so we have a number of initiatives underway Jeff that will look at how do we across all the touch points continue to evolve and hopefully I like to think we can innovate in a lot of areas to improve the customer experience and really our Zumiez's brand experience with that customer across all touch points in the stores are clearly part of that. And as I think Chris said in his comments, we do have a pretty aggressive remodeled budget that we put out there to come back at stores and as you heard we'll apply it differently based upon our perception of long-term of how much a long-term player we believe each location is for us as we think about real estate going forward. But we're constantly looking and thinking about real estate going forward, but we're constantly looking and thinking about how do we evolve that in-store experience and fundamentally it all starts with how product and our employees engage with customers and how do we make that as dynamic and interesting as absolutely possible. But again, I want to make sure as we think about that, we're targeting all the consumer touch points that we have and think we must have plans to evolve the experience across all those touch points whether it be a digital touchpoints and social media on our commerce site or within our loyalty programs. Any of those touchpoints we have pretty detailed plans on how we're going to progress them from a seamless perspective to serve customers.

Great. And then to your question on SG&A as we've talked about in our prepared remarks, we do expect SG&A is going to grow at a greater rate than it did in 2016 and we laid out a few items related to that, the cost the increased cost and minimum wage, our customer engagement suite. We talked about a few investments in our people that we believe are really critical to our long-term success. One of the biggest areas there is around incentive comps. We've talked over the last couple calls about that investment as we entered 2016, we could not build a plan that we though would get to 100% target incentive payout. So, as we accrue through 2016, we were accruing at roughly 50% of the incentive target payout. This year we have built a plan that we think would warrant the right result, both for our internal metrics as well as our investor metrics that would warrant a target payout. So, we are accruing at roughly a target payout this year, which is worth about $3.9 million increase in incentive comp over the whole year. Just to reminder, last year we paid out about 33% of the total target incentive. So that's a pretty meaningful number. It is down from the $4.4 million that I disclosed earlier this year, primarily because again this is performing phase. So, there is some areas of the business that aren’t performing at level we thought and we've taken that down and in the event we were to exceed expectations in the back half of the year, that we would be something we think we can take up and it should flow through in the model correctly. So, we have some investments there and even now more recently, the impact of foreign exchange in the back half of the year is not going to be insignificant on some of these expense growth line items. For example, our Q3 guidance includes about 100 basis point increase in growth of SG&A just related to FX alone. So, there's a few things there that are leading to the higher SG&A, but as we've talked about before, we believe we're pretty good long-term thinkers and as we look to 2018, while this is something we continue to analyze, I am going to give specific color to 2018, what I'd tell you is that going forward assuming that the incentive is paid out at target this year, we'll have that built into the base and we think SG&A growth rates will moderate as we move forward. And that being said, we're also -- we're looking pretty diligently at the business and we have mature markets like the U.S. and Canada here in North America that our focus is really going to be on localization of our sales effort and optimization of the cost structure. As Rick pointed out, we're not opening as many stores and then we're going to have maturing markets like Europe or Australia where there is still going to be some investment to build out that customer platform of the stores and the web tools intertwined to serve the customers. So, there will be some things in the future years that assuming that the incentives built into the model we feel better about SG&A growth in the years to come.

Okay. Thanks, and continued success.

Thank you, Jeff.

Thank you. [Operator instructions] Our next question comes from the line of Jonathan Komp with Robert W. Baird. Your line is now open.

Yeah. Thank you. I want to start by following up on the sales acceleration that you experienced and I want to ask specifically, I know towards the end of July, you launched a pretty compelling promotion or new line that was a collaboration between I think one of your growing brands and one of your core brands where you've had a lot of success in the past and I think was nearly exclusive to Zumiez. So, I just wanted to ask how much that played a role in the acceleration in sales trends?

That's just one small aspect of it Jonathan. So yes, it all played a role, but there is a lot more going on, on just that.

And when you look at some of the growth brands, maybe kind of the big three currently, I am just curious when you look forward in certain cycle for those brands I think we're working last year, if you could maybe talk about your confidence in the ability to cycle the positive growth last year and see continued growth. And I know in the past you've talked about some of your successful brands getting to high single-digit percentage of sales and I am curious how many of the newer ones do you think have that type of potential when you look out?

Again, I think that the answer is they're going to have to prove they can do it on their side in terms of their continued development as brands and their market position with their marketing support of their brand point of view right and in the case of back to your first point the right collaborations obviously make a difference for some of these brands where they're not going to be in a certain category, but they find a part that can help them do something interesting of fun in that category. So, a lot of this depends upon not only the brand's effort but our effort in working together. So, this is where going back to an earlier comment about innovation in the marketplace, I think this is where we have continue to innovate. We have to find new ways to help young brands grow and develop and we're clear experimenting with a lot of these new ideas with young and emerging brands and where we can -- we can all work together to get a better result for our customers and where everyone wins. Our customers win, our brand partners win and we benefit too as their primary retail partner. So, I think we have a lot of really interesting things Jonathan going on in this world as we look forward and I think we have room in all if you want to look at the top three of the kind of emerging brands, I think we have room in all three for continued growth but it's not just a slam-dunk either. Our brand partners have to do a great job of building their brands and innovating in terms of their branch and their brand positioning, their marketing. So, it's all about how it's going to work together, but we got room and for some of these brands to move yet and more importantly we're hopeful that we're going to have more brands emerge from -- move from emerging to growth. And then our job again is how do we work together in a world that's moving so much more quickly in terms of how fast brands can move from emerging to growth brands that need to happen in three years that's compared to where we were a decade ago, that's really fast and it speaks to the reach of social media right and globally. It's speaks to the importance of having I think an international brand platform as a retailer that this gives us a unique position to help our young brand partners move forward in their business and we must innovate in these areas to help them do that to be a really great partner for them and serving customers globally and I think that's one of the great things about our position that we're excited about is really we're the only ones in this -- in our lifestyle niche that can do this. And course we worked hard to get in this position over the last six and seven years. So that's what I guess I'd tell you that I think we have room to move. It depends upon the brands also doing their part in execution of their brand and then I'm hopeful that we're going to have more of emerging brands moving to growth brands while we're continuing the right trend cycles and other aspects of our business and at some point, we're going to see hot items emerge that we can drive volume with and we'll find those items. And again, then we'll see some probably sector rotation in something in footwear yet, which I'm not sure what that is at this point, but I think there's some opportunity for us to have an interesting aspect and experimentation in playing in what we can do in footwear. So that's kind of where we're at. I think we have -- we feel good, but we have to continue to help our partners and innovate in how we execute around our global retail business.

Okay. And maybe the last one for me then Chris just wanted to ask about the full-year earnings guidance and for a while now you've been saying the full year you're hopeful for positive comps and earnings growth for the year, obviously you over-delivered in the quarter. So, I am just curious if the degree of earnings growth even though you haven't quantified it, if that internally has thinking around the degree of growth has gone up a little bit after the quarterly results?

Well, we still feel pretty good with our original plan coming into the year is what I would say. We were not right where we wanted to be after the first quarter. We feel much better about the second and third quarter and this is all relative to how we planned out the incentive growth too. So, by accruing to target, you can get the feeling that we we're pretty much planning on being right about where we plan for the year. So, at this point in time that's how we feel and our goal will always be to exceed as we move forward and we feel good about where we're positioned here as we try to close out the third quarter.

And John I'll just add again as Chris said, we don't -- we really believe it's a paper performance model. So, if we're going to pay out target incentives we have to deliver value for our shareholders in terms of growing earnings. So, we have to have an appropriate level of return there for shareholders. So that will be the only I guess one thing I guess I'd say as a big shareholder in the company that I think is the right way that businesses should be thinking as it's got to be to earn target payouts we have delivered earnings growth for our shareholders and the cash flow it comes with that. So, when we build models, we build models that we feel are fair and appropriate for all parties in terms of getting where everyone can win and that's -- so we feel we're on track to do that this year.

Okay. Thank you very much.

Thank you. And I am showing no further questions at this time. So, I'd like to return the call to Mr. Rick Brooks for any closing remarks.

And I'd just like a thank you to everyone for your time and attention today. I think it's an exciting time for Zumiez. As I said, I think we're at a point where we can -- we're positioned to really win share in the marketplace and I think we're closer to tipping that in terms of share consolidation maybe than ever before in the marketplace. And I say that around the globe where we're doing business. So, I think at Zumiez we're very excited, I hope people are. We're looking forward to I think hopefully a very strong completion to this year and will look forward to talking with you all in December when we talk about third quarter results and fourth quarter guidance. Thank you. everybody.

Ladies and gentlemen, thank you for participation in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.