After a rough start in August due to a chaotic back-to-school season, Gen Z-focused retailers Zumiez and Tilly’s saw sales improve in September and October.
“The second-most important selling period of the year got off to a very challenging start as sales were down in the last week of July and every week in August,” Zumiez CEO Rick Brooks said Thursday on a call with investors. “Though negative, the trends improved week-over-week throughout August, turning positive in the first week of September and remained very strong through the end of the quarter.”
These results supported Zumiez’s hypothesis that it would see a prolonged back-to-school season with demand shifting to later in the quarter, Brooks said. Net sales ended up exceeding expectations, he added, resulting in positive sales growth during the quarter.
Total net sales at the mall-based retailer crept up 2.6 percent to $271 million in the third quarter ended Oct. 31 compared to the same period last year. Due to store closures, the youth-centric chain said stores were open for approximately 95 percent of the third quarter. For those that were open, comparable sales increased 8.1 percent year over year, it added.
Meanwhile, total net sales at fellow mall retailer Tilly’s came in at $140.3 million in the third quarter, a 9.4 percent decrease compared to $154.8 million last year.
The specialty chain attributed the decline to the delayed back-to-school timing too, as well as restrictions on customer traffic and operating hours and the government-mandated closure of 33 California stores for a portion of the third quarter. Month-by-month, Tilly’s said, net sales sank 35 percent in August, while rising 22 percent and 10 percent in September and October, respectively.
Third-quarter net sales from physical stores sank 20.8 percent year over year to $104.6 million, the Irvine, Calif.-based company noted. The decrease came amid a 34 percent decline in store traffic, a low double-digit increase in conversion rates and a high single-digit rise in average transaction value. Net sales from stores represented 74.5 percent of total net sales, compared to 85.3 percent in the third quarter of 2019.
E-commerce net sales, meanwhile, rose 57.3 percent year over year to $35.7 million, it said. Just 14.7 percent of its total net sales in last year’s comparable period, e-commerce represented 25.5 percent in the third quarter.
Looking at the first 31 days of the fourth quarter ended Dec. 1, Zumiez said total sales fell approximately 3.9 percent compared to the same time period in 2019. Comparable sales were down just 1.7 percent, it added. By channel, open store comparable sales decreased 7.8 percent and e-commerce sales increased 16.7 percent. Due to government orders and safety concerns, it noted that it had roughly 3 percent fewer open store days during this timeframe.
“Much the same as the back-to-school season, we are seeing better performance versus last year in the off-peak weeks and more challenged results during the times that are additionally relied more on heavy store traffic,” Brooks said.
Over that same window, Tilly’s said net sales had fallen 0.6 percent off of last year’s levels. Comparable net sales from physical stores, including all periods of store closures, fell 14.2 percent year over year during this period amid a 29 percent decline in store traffic. E-commerce net sales, on the other hand, climbed 42.4 percent to $19.3 million.
After seeing “much lower” sales the first two days of the recent holiday weekend due to store closures on Thanksgiving itself and reduced operating hours and restrictions on customer traffic the following day, Tilly’s president and CEO Ed Thomas said physical store sales have been positive each day since Black Friday.
“As long as we are able to continue to be fully operational, we are hopeful that this year’s holiday season can be somewhat closer to normal than what we saw during the back-to-school period,” Thomas said Thursday on a call with investors. “At this time, we expect total sales for the fourth quarter to be somewhat lower than last year overall, due to the ongoing pandemic and much higher unemployment than last year at this time.”
Zumiez’s third-quarter net income climbed up to $29.1 million, or $1.16 per diluted share, well above the $19.2 million, or $0.75 per diluted share, in net income it brought in during the same period last year. Meanwhile, Tilly’s net income fell to $2.1 million, or $0.07 per diluted share in the third quarter, compared to $6.4 million, or $0.21 per diluted share, in Q3 2019.
Zumiez reported a gross profit of $105.8 million, or 39 percent of sales, a moderate increase from the $94.6 million gross profit, or 35.8 percent of sales, it reported for the third quarter of 2019. Tilly’s gross profit in the third quarter stood at $40.7 million, or 29 percent of net sales, compared to $47.2 million, or 30.5 percent of net sales during the same period last year.
As of Oct. 31, Zumiez said it had cash and current marketable securities of $316.2 million, compared to $178.6 million as of Nov. 2, 2019. This increase, it said, was driven by cash generated through operations including cash deferment of $53 million composed of lower inventory levels, landlord payments, extended vendor terms and payroll tax payments as well as net income improvements related to abatements, credits and expense reductions. This increase was partially offset by $13.4 million of share repurchases through the company’s stock buyback program prior to store closings in March.
Tilly’s said it had $125.3 million of cash and marketable securities as of Oct. 31, including $12.4 million of withheld store lease payments and no debt outstanding, compared to $130.1 million and no withheld store lease payments and no debt outstanding as of the same date last year.