Richard M. Brooks - CEO Christopher C. Work - CFO

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

Good afternoon, ladies and gentlemen and welcome to the Zumiez Inc. Second Quarter Fiscal 2018 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 will turn the call over to Rick Brooks, Chief Executive Officer. Please go ahead, sir. Richard M. Brooks: 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 our second quarter performance. Then I'll share some thoughts about the future before handing the call over to Chris, who will take you through the numbers. After that, we'll open the call up to your questions. We were pleased to have delivered our strongest second quarter in several years and are currently planning 2018 to be the strongest earnings per share in our history. Our top and bottom line results, both of which exceeded expectations for the second quarter, are a direct result of our relentless commitment to winning with today’s empowered consumer. Our success continues to be driven by the strength of our diverse and differentiated assortments that are presented through a seamless shopping experience across all consumer touch points, accompanied by the world class customer service that our teams continue to deliver globally. For the quarter, comparable sales increased 6.3% compared to our initial guidance of 3% to 5%, and operating margins improved 350 basis points to 3.1% ahead of the high-end of our guidance of 2%. Net income per share improved to $0.17 from a loss of $0.02 last year and was $0.08 above the guidance we established on our Q1 call in June. This marks our eighth consecutive quarter of comparable sales growth and transaction gains. We are also encouraged by our back-to-school results, and our current expectations for the back half of 2018 that Chris will touch on shortly. We are pleased with the current trend lines of the business and continue to believe that Zumiez is well positioned to expand market share, and equally important mind [ph] share with our customers. Our belief stems from our relentless focus on serving today's empowered consumer and our focus on enhancing our culture driven lifestyle brand to serve them. In order to do this successfully, we have adjusted our operating model to reflect the changing world of retail and we will continue to test, learn, and adapt based on how we think the industry will evolve further. We discussed our view of the future during recent earnings calls and conference presentations, but I think it bears repeating. With the increasingly blurred lines between retail channels, we've moved toward a channel-less world in which the empowered consumer isn't focused on going into a store or buying online but rather transacting with a trusted retailer. With the barriers between the physical and digital worlds coming down and the increased speed at which individuals communicate, trend cycles are rotating faster than ever before. The same holds true for the pace at which demand for emerging brands can go from local to global in nature. In this type of environment where consumers can access so much information, a new level of transparency in retail is being created that is driving out inefficiencies within the market and forcing consolidation in the industry. Through this consolidation, we believe we are well positioned to be the dominant global player in our lifestyle segment of the market. While others struggle to keep up, we believe Zumiez is capitalizing on the opportunities being created by the constant state of change in retail. Let me touch on a few of the ways we're going about this. First, we continue to build on our process by identifying new brands and trends in the marketplace both locally and globally enabling us to offer the product our consumers are looking for no matter when or where they choose to interact with our brands. Second, we use our strong recruiting, training, and sales culture to drive more personalized human-to-human connections which is resonating with our customers. We continue enhancing our customer service aspect of our business across the physical and digital sales experiences, optimizing the speed in which our customers get what they're looking for and learning more about the customers’ lifecycle. From these learnings we expect to further customize communications with our customers through each of the methods that they elect to interact with us. Third, we've established a strategic presence in six countries across three continents with a digital presence that allows us to reach even further. This scale allows us to work together with our brand partners to serve our customers globally. This includes assisting emerging local brands, both domestically and internationally, and their evolution to global brands. And fourth, we are continuously testing and learning from our customers with emphasis on inventing and improving upon ideas to meet the customers' rapidly changing expectations. This had included our enhancements around localized fulfillment and the Zumiez STASH in the past, but will transform in the future with a new phase in empowered consumer world, challenging us to think about new ways on measuring success on how we evaluate the optimal number of touch points within our ecosystem. We're in the middle of a dynamic period for Zumiez, and with the strong foundation built over the past 40 years, we believe the outlook for long-term global growth is very bright. While the way we interact with customers has evolved to reflect the current environment, the tenets of our success continue to be rooted in our culture and authentic brand positioning. This is being consistent throughout the company's history, and I'm confident it will continue to be the driving long-term -- it will continue to be the key to driving long-term customer engagement that will lead to increased profitability and greater shareholder value in the years ahead. With that, I will hand the call to Chris for a review of financials. Chris. Christopher C. Work: Thanks Rick and good afternoon everyone. I'm going to start with a review of our second quarter 2018 results, I will then provide a brief update on August before discussing our third quarter guidance and our current perspective on the full year. Second quarter net sales increased $26.7 million or 13.9% to $219 million from $192.2 million in the second quarter of 2017. Contributing to this increase was positive comparable sales growth to 6.3% and the net addition of 11 stores since the end of last year's second quarter. Our top line also benefited by approximately 10 million from the movement of the calendar which shifted several days in early August which are in the back to school season into Q2 this year versus Q3 last year. During the 2018 second quarter our comparable sales were driven by 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. During the quarter our men's category was the largest positive comping category followed by footwear and women's. Hard goods was the largest negative comping category followed by accessories. From a regional perspective North America net sales increased $24.6 million or 13.9% to $201.1 million. Our international net sales which consists of Europe and Australia increased $2.2 million or 13.8% to $17.9 million. Excluding the impact of foreign currency translation North American net sales grew 13.8% and other international net sales grew 10.1% for the quarter. Second quarter gross profit was $72.5 million, an increase of $12.7 million or 21.3% compared to the second quarter of 2017. Gross margin was 33.1% in the quarter, an increase of 200 basis points compared to 31.1% a year ago. This increase was primarily driven by 160 basis points of leverage in our store occupancy costs, 30 basis points of improvement in product margin, and 30 basis points of lower inventory shrinkage. These increases were partially offset by 30 basis points of increase in shipping expenses. SG&A expense was $65.8 million in the second quarter compared to $60.6 million a year ago. SG&A as a percent of net sales was 30% compared to 31.5% in the prior year. The 150 basis point decrease was primarily driven by 140 basis points of leverage in our store operating costs and a 40 basis points decrease due to the timing of our annual training events partially offset by 40 basis point increase related to accrual of annual incentive compensation. Operating income in the second quarter of 2018 was $6.7 million dollars or 3.1% of net sales compared with the prior year operating loss of $0.8 million or negative 0.4% of net sales for the second quarter of 2017. Net income for the second quarter was $4.4 million or $0.17 per share which included approximately $0.10 per share of benefit from the previously mentioned calendar shift compared to a net loss of the $0.6 million or negative $0.02 per share for the second quarter of 2017. Our effective tax rate for the second quarter 2018 was 39.1% compared with 12.3% in a year ago period. The increase was primarily due to the exclusion of net losses for certain European jurisdictions from our estimated annual effective tax rate offset by a reduction in the U.S. federal tax rate. We continue to anticipate that our annual effective tax rate will be approximately 27%. Turning to the balance sheet, cash and current marketable securities increased 88% to $132.9 million as of August 4, 2018 up from $70.7 million as of July 29, 2017. The increase was primarily driven by $77.3 million in cash flow from operations partially offset by $20.7 million of capital expenditures primarily related to new store growth and remodels. We ended the second quarter of 2018 with $149.7 million in inventory up 5.6% from last year. Excluding the year-over-year impact of foreign currency translation inventory grew 6.5% for the prior year driven primarily by our recent sales trends and increase of global store count. Now to our August sales results, our comparable sales increased 9.5% during the four week period into September 1, 2018 compared to comparable sales increase of 7.4% for the four week period ended August 26, 2017. Total net sales for the four week period ended September 1, 2018 increased 9% to $107.4 million compared to $98.6 million for the four week period ended August 26, 2017. The comparable sales increase was driven by an increase in transactions and an increase in dollars per transaction. Dollars per transaction increased for the four week period due to an increase in average unit retail partially offset by a decrease in users per transaction. During the four week period the footwear category was our highest positive comping category followed by Men's, Women's, and accessories. Hard goods was our only negative comping category for the period. Looking at guidance for 2018 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 we currently expect that comparable sales will increase between 4% and 6% for the third quarter of 2018 with total sales in the range of $247 million to $252 million. Consolidated operating margins are expected to be between 6.5% and 7% of net sales compared with operating margins of 7.7% in the prior year third quarter. We anticipate our diluted earnings per share to be between $0.45 and $0.51 compared to $0.48 in the prior year third quarter. Included in this guidance is the calendar shift that will negatively impact Q3 sales by approximately 10 million, operating profit by approximately $3.2 million, and earnings per share by $0.10, the same amounts that benefited Q2. This earnings per share guidance is also negatively impacted by approximately $0.03 per share related to our inability to recognize a tax benefit on losses in certain jurisdictions within Europe, an issue that has also negatively impacted the first and second quarters of this year. During the fourth quarter we expect it to be a benefit to our results as we generate earnings in Europe with minimal associated tax expense. Before I wrap up I'd like to give you a few thoughts on how we're looking at 2018. As we've mentioned above we continue to experience positive top line momentum and believe we're well positioned to grow operating margins and leverage the business in 2018 and beyond. We have now had eight consecutive quarters of solid positive comparable sales growth including 6.3 in the second quarter of 2018. We now anticipate that we will grow comparable sales in fiscal 2018 in the mid single-digit range, this is up from our previous expectations of a low single-digit comparable sales growth. It is important to point out that the 53rd week in fiscal 2017 will be a detriment to sales and earnings growth rates in the fourth quarter and full year fiscal 2018. This as the extra week in 2017 was worth approximately $9.1 million in sales, $1.9 million in operating profit, and $0.05 per share while comparing to 2018. 2017 represented a record product margins both in North America and on a consolidated basis. With that in mind we're planning product margin to be flat to slightly accretive for 2018. From an operating profit perspective we are planning growth in the mid to high teens for fiscal 2018 despite the headwind of the 53rd week in 2017 previously mentioned and the STASH loyalty program deferred revenue adjustment which benefited operating profit by $3.8 million in the fourth quarter of 2017. This is an increase from our previous guidance of high single-digit operating profit growth for fiscal 2018. SG&A is planned to grow at significantly slower rate in 2018 than we experienced in 2017 as we continue to manage expenses across all our entities and will not have the same year-over-year increase in incentive compensation we had in 2017. From an earnings perspective we are expecting diluted earnings per share in the $1.64 to $1.70 range for fiscal 2018 compared to a $1.08 in the prior year. This represents a 52% to 58% increase from the prior year driven by the significant benefits from our planned operating profit growth just mentioned in addition to benefits from U.S. tax reform. While our quarterly tax rates are expected to fluctuate we are planning our business assuming an effective tax rate of approximately 27% for the year. This compares to an effective tax rate of 44.6% for fiscal 2017. We are on track to open approximately 13 new stores including five in the U.S., seven in Europe, and one in Australia. Year-to-date we have opened six store locations including four in North America and two in Europe. We expect capital expenditures for the full 2018 fiscal year to be between $21 million and $23 million compared to $24 million in 2017. 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 2018 the related decrease in capital be offset by increases and remodels for the year. We expect that depreciation and amortization will be approximately $27 million in line with the prior year and lastly we are currently projecting our share count for the full year to be approximately 25.3 million shares. And with that operator we'd like to open the call up for your questions.

[Operator Instructions]. And our first question comes from the line of Sharon Zackfia with William Blair. Your line is now open.

Hi, good afternoon. I literally can't remember the time that footwear was your highest comping category, but it has to be years I think. So if you could talk about what you're seeing in footwear, I know it's been getting stronger for a while and whether you think there is a sustainable inflection or if it's something unusual at the back to school season, and then on shrink, I think this might be the first positive shrink you've seen in a while as well what you've been doing there to help mitigate that shrink that you were seeing for much of last year? Richard M. Brooks: Hi, thank you Sharon. I'll start taking footwear and then ask Chris to follow on. I think Chris probably wants to follow on some footwear commentary too. For me, Sharon what we are reflecting here, you're right we had a terrible run in footwear for multiple years. I think it is about a five-year negative run in footwear, so part our -- simply I think part of what we're seeing here with footwear is just is reflective of our business model, the diversity of brands, diversity of categories, and performance across the entire lifestyle. And what we're seeing is and we've seen glimmers of this over the last couple years as footwear would pick up a little bit and look pretty good to us, and we had a little bit tougher quarter, but I think what we are seeing now is that consumer -- we're going to see our footwear business cycle back a bit in our favor -- the previous negative trend for us was all about athletic footwear/basketball not really a cycle we could play in. And of course we all know that's been a tougher part of the footwear business over the last couple of years. So I think what we're finding is our customers coming back to us for footwear, and that it has been steadily rebounding for us over the last couple of years, and I will tell you that our buyers planned well for I think for this holiday or this back-to-school season to take advantage of what we felt was a trend in footwear that we could ride. Now, we are still a long ways from the bottom, Sharon, I guess is what I would say in footwear in terms of mix of our business. I will let Chris again share kind of the numbers where footwear has been for us over the last of couple years, but I’d like to think this is a steady trend, and the only caution we have for you is it’s really being driven by a particular brand and that would be the only caution I would put on that. But this is what customers want to buy now and we're a great place for them to come to get it, and I think we can also do it in a way that we can build the whole outfit for our customers. And that's another -- one of the strengths of our people in terms of our sales team. Now again, for me, Sharon it is reflective of the model itself. I would tell you the same thing about what's being going on in apparel over the last couple of years as apparel has been the real driver, and as we've talked about, it has been driven by real trends, trend cycles in the business, but also about those really three brands I think we started talking about a couple years ago that moved out of emerging into growth phases. So we're also seeing, at this point, I think and we'll see this for all of 2018 when we get through the whole year, we're seeing a reconcentration of volume within the top 10 and top 20 brands relative to those three brands we talked about a few years ago becoming a bigger part as it being growth brands and growth drivers for us in the business. So, a long way of saying that, I think the cycle around what you're seeing in footwear and the cycle around what we’re seeing in the brands is really about kind of the strength of our model itself, what we do and how our model works for customers and how we try to ride trends and brands in service of our customers. So, Chris do you want to add a little color there. Christopher C. Work: Yeah, just to talk about how the numbers shake out, I mean 2017 footwear represented about 16% of our overall sales. Now it is down from its peak which was about five years ago of 22%. So, when we look at footwear this is the third quarter in a row that footwear has been positive, so we do think we are starting to see that trend, and obviously there's room for growth in relation to where footwear has performed historically. From a shrinkage perspective, to go back to your question on that, we've mentioned for the last few quarters that this is an area we've been challenged -- challenging for us. Our team has been actively working to manage this issue. We made some progress in the first quarter specifically in our inventories that were done in kind of the back half of our winter cycle which happens in the first part of the first quarter. We saw some improvement and the team has worked very hard as we kind of rolled into the second quarter. Our second quarter inventory program consists of really looking at what we refer to as some of our higher risk stores which was about 50% of our U.S. population. And the results came back favorable from what the trend line has been and even where we were planning the business. So that's a good sign. I think we're making some progress in that area. This is an area we continue to work on. While this issue is consistent with what we see when we get any heavy apparel cycles where we have some of these hard to find brands and on trend brands that aren’t in too many places, you know it's still an area that we have to work on, and I think the number we disclosed in 2017 was about $5.4 million was the impact on 2017. So we've got some room to make up more of that but we are encouraged by the results in gaining some leverage on that item in the second quarter.

Okay, great. Thank you. Richard M. Brooks: Thanks Sharon.

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

Hi, everybody. Just let me first say congratulations to your whole team on the continued strong performance for peak back to school. I guess my first question, sort of a multipart question here, so if you guys can bear with me putting aside the calendar shift given the strength of your peak back to school business this year, how are you feeling about holiday and also just wanted to follow up on the shifts in your top performing brands, I know you touched on those a little bit, just wondering if there's anything else you can add to kind of the evolutionary process there and then is there anything that you're seeing that makes you think that the strong branded cycle we are in it is going to wind down anytime soon? Richard M. Brooks: Alright and thanks Jeff, and let me tackle that and again I'm sure Chris will want to join in the conversation too. So first, I guess I'd say Jeff that I think and we're seeing this across most of the retail world today is that all -- many boats [ph] have been lifted due to the strength of the economic cycle. So what we expect in that cycle is based on our leading position is that we would do better than most retailers would based on our unique position in the market, our unique assortments, the quality of our sales team to maximize an up cycle. And I think that is exactly what you're seeing. We are fulfilling our internal expectations while we ought to perform at a higher level relative to the broader retail sector when we have a strong economy supporting us. So I guess that's where we would start as we think of the holiday as I think we feel like there's probably this economy is going to continue through the holiday window at this point. So that's the end opinion of it all and if it does I would hope again that our quality of our teams to continue the uniqueness of our presentations and the great service that we provide is that we will continue to outperform relative to the retail group overall. Now as it relates to top performing brands I have kind of addressed that in Sharon's question is that we're seeing what we would normally expect here is that as we've been a couple years into these really three key brands that moved from emerging to growth brands we're seeing some consolidation in our top 10 and top 20 brand group. So that's exactly what we'd expect, that would also be mirrored by the concentration of footwear where there's one brand that's really a dominant brand. But this is exactly the kind of things we expect in a strong cycle where we have real drivers. Now I just want to add to that comment that that does not take away from our buyers efforts to be set in our in our scripted commentary that we are right on track Jeff for launching as many our target number of new brands this year. And we feel very good about the brand pipeline at this point for emerging brands. We are right on track on that front too and we continue to try to push some of the brands if you really have a unique position and have been with us now for a couple years we are trying to find ways to push those brands forward in partnership with our brands in ways that we can really expose them to more customers more broadly across multiple geographies. So I don't want to give you percentage just because we are constrained, that's the normal part of the process that we are pushing hard and driving hard at continuing to launch interesting and fun new brands for our customers and we are on track to hit those targets. So based on that pipeline the last part of your question was about the strong brand of the cycle. I don't see that changing at this point based upon our ability to see, discover, and launch new brands. The pipeline seems to be strong and I think our goal is to continue to help those young brands achieve their potential in the marketplace and as they grow then to take them across our global platform. So I summarize all that, I feel relatively good, and I think the economic backgrounds supports our position at holiday and I think the brand cycle right now seems to be in a strong position.

Okay, great. Yeah Chris. Christopher C. Work: Jeff, the only thing I would add to that too is when we do look at the brands, one of the other piece that we talked about is just the turnover within the brands and we've typically said we'll see 20% to 30% turnover and while we're just slightly below that number we're pretty actually close to that piece right now through the first six months which I think again speaks to what Rick's talking about of just the healthiness of new brands that are coming along as well.

Okay, that is good to hear. If I could just squeeze in one more, just wondering on your digital business as that grows and your fulfilling from stores, is there and especially I guess we think about peak period like holiday, are there things that you might need to tweak or sort of evolve in the process of that as that business grows? Christopher C. Work: Yeah, I mean I think it's a really good question because you know as you indicated we have -- we are doing almost 100% of our fulfillment at our stores. Now I will remind you this is not our first holiday doing it. We've done it for multiple holidays now and I think the teams are actually even refining the process. We feel really good about how that process is working and the execution of our teams. I think we get smarter every year and every quarter on how we go about it. So, even as our volumes have picked up, I mean we have planned this into the process right of knowing what level of fulfillment we can manage out of our store processes. So I think we feel good about how we'll be able to execute. I think that there will be places where we refer to it will have to very carefully put labor hours into the models to assist some of these stores in both servicing of physical customers as well as our digital customer. But the model has a lot of room with 600 plus locations here in the U.S. and now 50 locations in Canada that are operating on this model. We have been able to meet our current web demand and we believe the model has enough scope and scale to meet future web demand. So we're really happy with how it's working out, I think it's providing a really good customer experience in speed and allowing our local teams to be able to service their local customer. And I think overall it's been a benefit so we are encouraged by our opportunity ahead of us in holiday. Richard M. Brooks: And I would just add to that Jeff, for me this is as you've heard us talk about the concept of a new, in this consumer world you need a new business model, right so for us this is the integration of the channeless world. So a good example and we're going to do this more and more and more. But this is the idea that we can be faster for the consumer, we can be closer and more localized for their experience and thereby getting the speed for localized fulfillment. We're constantly looking at ways as Chris said that we can tweak our algorithms and can tweak our assortments to even be more localized than ever before. We're learning every cycle in this regard. And of course we only have one cost structure we need to lever now which is a real advantage from just a pure economic model basis, right, a digital sale or a store in a physical sell, it all levers the same cost structure. So this is when we talk about this idea that there's a new economic model emerging in specialty retail we think we're leading the way and this is a great example of that. And I think you're going to find that over the next 12 months, next 24 months you are going to find -- we are going to be able to talk to you about additional ways that we find to lever this single cost structure as again for all sales whether digital or physical.

Okay, great, that's really helpful to understand. Thanks for taking my questions and continued success. Richard M. Brooks: Thank you.

[Operator Instructions]. And our next question comes from the line of Jonathan Komp with R.W. Baird. Your line is now open.

Yeah, hi, thank you. I have a couple of questions mostly related to the guidance and the updates. Maybe first on the comps, I know including August, I think you're running kind of -- you essentially have recorded more than half of the year in terms of sales, they are roughly half and you are running comps above 7%, so I just wanted to kind of clarify your thinking on guiding the full year up mid single-digits after such a strong start so far? Christopher C. Work: Sure. I am happy to take that. I think, obviously we've been on a great run and our August results are inclusive of that. So, as we look to the remainder of the year I think there are a few things we can try to point out as we were thinking that both for Q3 and then ultimately the Q4 as well. I think overall what we've seen historically is that our volumes have moderated a little bit outside of peak and here in August and back to school we've performed very strongly in that peak. And so we do expect to see a little bit of moderation as we move forward. I think this is kind of similar to what we saw in June during the second quarter, then accelerated in July. For Q3 specifically on a two year stack coming in August was a 6.3 comp compared to a 15.6 in September and a 16.8 in October. So we know we're up against some bigger numbers here in the back half of the third quarter. And I think lastly we did see for the August period a little bit of a slowdown in weak four and I think mostly we see this as a factor of sales kind of evening out over back to school with kind of stronger consumer confidence. I think that's probably the bigger piece of it. When we look at the full six week period including the last week of July all the way through Labor Day we're running at about a 9.2 [ph] comp for the whole period. So we feel you know pretty good about that piece of it. I think to a lesser extent here over the last week we probably saw a little bit of a down trend just from the extent of our ability to manage receipt flow. August was a very strong month for us, there were a couple of areas where we would have liked to have a little more product during the last week so we have seen a little bit of a slowdown there as well. And then to the last piece I point out as we speak to Q3 specifically is our European business last year in the third quarter was highly promotional to clear all day. And we talked about that on our Q3 earnings call last year how margin in Europe was a little bit challenged and while we are encouraged that we entered the third quarter of 2018 in a much better inventory position in Europe and really across the company we feel there could be some sales declines there as we anniversary some of those promotional sales. That being said it's going to be managed by much stronger margins. So we think it's a better overall experience for the entity and profitability as well. So I think those are the things I would call out while we're forecasting our run rate to come down a little bit here after August. As we think about the whole year I would probably echo some of those same thoughts of what Q4 two year stacks and some of the challenges there and we still think based on the guidance that we've laid out that we're going to run a pretty good comps on the high end of our range. It is just not quite at the level that we've experienced through the first six months here.

Okay, that's certainly helpful and maybe just to follow up on some of the branded trends that you're seeing. I know you've called out the big three for a while on the apparel side, it seems like you are early in capitalizing on some of those trends and now maybe some of those brands have expanded distribution. But I wanted to just hear your thoughts on the apparel side kind of the degree of exclusiveness or not that you have on some of those brands and kind of what you see is the change if there's been any in terms of the broader availability? Richard M. Brooks: Let me start Jonathan taking your question. And so as it relates to branded, as we talk about the emerging brands becoming growth brands we really haven't seen any significant changes relative to distribution on that end of the business. And that's just because I think we have -- we're a great partner for our brand and they're great partner for us and the level of growth we've had on both sides has been pretty tremendous. So I think our brand partners are up to the challenge and clearly they have been in terms of meeting it and of course we are on our side in helping them through their pretty steep growth curve. So they haven't needed more just any significant additional distribution per se because they've been pretty busy serving and fulfilling on their current base including us. So I feel pretty good about where we are out there, I'd say the same even more so about the brands we are launching is that we have pretty good clean distribution around those launching brands. As it relates to trends, brands that we would consider to be more trends than a brand play, those are right -- those can be found relatively broadly across the market and again that's one of the great things about our businesses, I do think our customer expects us to carry him first and we certainly put that -- we certainly set that expectation for our buying teams in what was purely a trend direction and in that case our private label teams. But those things -- they are generally widely available but I would say there is where their early customers get that, they know that. I think because we are there early we have very good relationships with these -- the trends that are brand driven, I mean continue to be brand driven trends we have very strong relationships with them and again we will work as a great partner for them riding them to the cycle. But our job there is to garner share in the marketplace and I think we do a very good job of that as we work with our brand partners on these trending categories as well as our teams in terms of maximizing the result out there on how we build, how we merchandise the stores, how we build outfits around those trends and bring it all together for our customer. So we expect to lead in those areas that are trend driven and we expect to help our partners on the branded side as they move from urging the growth and I think we have a relatively long window probably of a tight partnership and limited distribution for those brands. Christopher C. Work: And I would just add Jon to that, that this is also a global distribution as well. So as we think about the growth of some of these brands and we see them grow within our domestic network there is a good jumping point often to take them international as well which helps think about kind of the overall penetration to the global entity. So, I think that has helped detailing some of these brands as kind of another avenue to keep growing and to keep thriving within the Zumiez ecosystem.

Okay, great and maybe just last one for me, the implied operating profit guidance in the second half and now both in third quarter and fourth quarter you have a pretty significant headwinds from the profitability side from some of the factors you called out, but even when you adjust for those, I think you're implying pretty modest growth from the operating profit perspective on an underlying basis, so I just wanted to maybe understand some of the puts and takes there? Christopher C. Work: Yeah let me let me try to outline them for you Jon and kind of lay it out at how we're looking at the total dollar impact. I think as we have noted we have a few items here. So first is the Q3 negative calendar shift with sales moving out of Q3 into Q2. We classified that, it is worth about $3.2 million in operating profit and $0.10 of EPS. Q4 last year included the 53rd week which was a benefit to operating profit of about $1.9 million or $0.05 in the prior year. And Q4 last year also included a $3.8 million STASH adjustment related to revaluing our deferred revenue associated with the program. This was also a benefit to last year's operating profit. So I think you take all of those and it's right around $8.9 million impact on the back six months of operating profit and about 16%. So if you adjust those out obviously we are showing some operating profit growth beyond those items. I think the last piece you have to layer in there is we are expecting comps to moderate in Q4 based on the annual guidance we've laid out. So I think you put all those things together and where we're looking at is we still have, you know, we still have adjusted some operating profit growth there, unadjusted. It will be a little bit of a detriment. And then on the earnings side with our earnings guidance for the year being a $1.64 to a $1.70 this represents 52% to 58% growth in earnings which is very substantial. And we do have some pretty meaningful earnings growth in the back half of the year targeted both around where we stand on operating profit perspective coupled with U.S. tax reform which is pretty meaningful. And then the impact from our European operations of last year recording a $3.4 million valuation allowance or $0.14 per share that we will have to recognize this year as well as getting the benefit of our European operations in the fourth quarter being profitable which will be a positive on the fourth quarter. So I think overall when we look at this it does show a little bit of a challenge on the back half of the year specifically anniversarying these items. But from a full year perspective we're feeling really good about the results of the business and where we're landing here as we pull it all together.

Understood, thanks for walking through all of that. Thank you. Christopher C. Work: Thank you.

Thank you and that does conclude today's Q&A session and I would like to return the call to Mr. Rick Brooks for any closing remarks. Richard M. Brooks: Alright, thank you and again I just want to thank all our shareholders for their encouragement and I particularly also want to thank all the Zumiez team for the great results at back to school and likewise our brand partners for their support in helping us serve our mutual customers. With that I'd just say thanks to everyone and look forward to talking to you in December when we talk about our third quarter results. Thank you everybody.

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